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CHAPTER FOUR:

FIND A LOCATION THAT WILL WORK FOR YOU

Choosing a location is one of the most crucial decisions you will make. The location, the layout, and the appearance of your school can bring in—or chase off—customers. Given that your rent will be one of your largest fixed expenses, doesn’t it make sense to find a space that will work for you not against you?

Find a Space That Will Work for You

Choose a Good Location

Where you locate your school depends in large part on your marketing identity, especially on your image and target market. If you’ve chosen an upscale image—providing the best instruction for those who are willing to pay for it—you need to start your business in a neighborhood where the prospective students are wealthy enough to pay your tuition and fees. If your image is a place for singles to meet, it doesn’t make sense to put your school in a neighborhood with mostly young married people. Is your target market children? Put your school in a family neighborhood near schools or playgrounds.

How do you find out whether the neighborhood you’re considering matches your target market? The information you need is called demographics, and it is the product of various censuses. One of the best sources for detailed demographics is your real estate agent. Real estate agents make it their business to know about the various neighborhoods they serve. Frequently, they offer a brochure containing maps and demographic information for each space they represent.

If you aren’t using a real estate agent, check the U.S. Census Bureau publications. The Census Bureau conducts a census of the entire population of the United States every ten years. They publish the results, broken down by zip code, in their census books, which are available in your local public library. Statistics are also available on the Census Bureau Web site at www.census.gov.

Often overlooked sources of demographics include real estate ads in the local newspaper. These can give you an idea of what houses are worth in the neighborhood. The local chamber of commerce or economic development office often has not only demographic and economic information for your area but also projections for population growth and economic development. Local shop owners can tell you about their clientele.

How big of an area should you research? That depends on your trading zone. Your trading zone is the geographical area from which you draw most of your business. The size of your trading zone depends on a number of things: what transportation people use in your area, how far they usually travel for goods and services, whether your area is urban or rural, whether it is densely or sparsely populated.

You can use at least three methods to estimate the size of your trading zone. If you are on friendly terms with another martial arts school owner in your city, ask him if you can interview the school’s students. Ask those students how long it takes them to get from their home or work to their martial arts school. Look at how far most of them travel. A few students, of course, are willing to travel great distances to study with a good martial arts teacher. Assume that those students will find you wherever you are located. In your interview, determine how far the majority of students are willing to travel.

If interviewing current martial arts students isn’t an option for you, talk to people in the neighborhood you are considering for your school. Ask them how long it takes them to travel to their grocery store, health club, bank, any place they go two or three times each week. If you are in a rural area where people commonly drive thirty minutes to a grocery store, your trading zone will be larger than if you are in an urban area where people walk to services. Get a feel for the travel habits of people in your neighborhood.

A third method for estimating the size of your trading zone is to begin with the estimate that your students will travel no more than seven to ten minutes by car from their home to your school. That is a ballpark estimate for a typical suburban American school. Ask yourself if your students would have good reason to travel farther. For example, is the nearest martial arts school more than fourteen minutes away from you? Do people travel more than seven minutes several times a week to get to the other stores in your complex? Do you live in an area where people expect to spend a half hour in their car to get anywhere?

Let’s say you’ve estimated your trading zone to be about seven minutes. How far away is seven minutes? That, too, depends on your area, the roads, and the traffic. Get in a car with a local map and a stopwatch. Drive the main roads that lead to your school, and mark off a seven-minute radius.

Then go back to your demographic sources. Within that seven-minute radius, look at average age, average income, disposable income, number of children. If you aren’t on a widely used public transportation line, look at the number of vehicles. The question you need to ask yourself is, “If I put my school here, could my target market get to it in seven minutes or less?” If not, either your location or your target market will have to change.

Beyond demographics, you will also need to check your competition before settling on a location. How close is the nearest martial arts school? Too many schools in a small area may decrease the number of students likely to sign up with you. While you’re checking schools in the area, look not just at martial arts school but at other sport schools—gymnastics, dance, swimming schools—aimed at your target market. They too are competing for the time and money of your potential clientele.

Find a Real Estate Agent

Once you’ve picked out a neighborhood, choose a real estate agent to help you find a space. Real estate agents serve two very important functions. Of course, they help you find a space that meets your needs. But they also can help sell the landlord on the idea of having you as a tenant. A real estate agent can be an important link between you and your landlord. But never forget that, though they serve you, they represent the landlord, the person who’s paying them.

Understand what you need before you engage the services of a real estate agent. Draw up a description of your business, including your marketing identity, a detailed description of your target market, and any special requirements you will have (high ceilings, ample ventilation, or floor space without pillars). A good real estate agent listens to you, finds out what kind of a space you want or need, and then helps you lease it. If your real estate agent skips the first two of those three steps, find another real estate agent. Although real estate agents’ fees don’t come out of your pocket, an agent can cost you if you let them talk you into a property that isn’t consistent with your image or your budget.

Look at several possible spaces. Even if you believe you’ve found the perfect space the first time you look at one, look at others. Contrasting several spaces will help you see what your first choice does and doesn’t have. It will also give you information you can use later in bargaining with your landlord.

Choose the Best Space

Once you’ve found a space you think might work for you, draw up a description of your business to give to the landlord or property manager. Include your marketing identity and the reasons your school will benefit their center. Also include reasons why your business is a stable one: cite contracts, long-term training schedules, other factors that increase student loyalty. Describe your target market, how they come to your school several times each week, how they get out of their car and walk past the other shops in the complex to get to your school. Talk about how students’ parents can be good customers for the center, how they bring their children to class and then often go to do errands or shop nearby. Describe how your cost per student decreases as your student population increases. In other words, make your landlord want you to move in. Doing so will put you in a better bargaining position when it’s time to negotiate the lease.

Once you and your real estate agent find a possible location, decide if it suits your purposes. Be sure your prospective landlord knows up front what you have in mind for the space. Then before making a commitment, be sure to check out zoning and legal requirements. Some cities have very specific zoning regulation limiting where retail and service businesses can be located. If you are looking at space in a shopping center, make sure your school will fit in with the overall image of the center. If your image is family oriented, you don’t want to be fifty feet from a biker bar or adult video store. If, however, yours is a kick-butt, kill-or-be-killed image, that location may work just fine for you. Consider how much walk-by traffic the center is likely to generate. Consider how many of the center’s customers will be in your target market. Consider how many of the store owners and employees will be in your target market.

Look, too, at access to the property. Can vehicles and pedestrians get to you easily? How is the traffic? Will your students be able to find parking during the hours you plan to be open? If people in your area use mass transit, how close are you to the train or bus stop? Is the walk to your school safe?

Then make sure the space is one that will draw people in. The key to drawing people is visibility, and the key to visibility is walk-by traffic. Do people walk past the windows? Driving by doesn’t count. People need to be moving past your school slowly enough to look in the windows, register what you are doing inside. Look at the other stores in the complex or the neighborhood. Ideally you want to be between locations people visit frequently—grocery stores, video stores, fast food restaurants. Granted, you will pay extra for a place with good walk-by traffic. But good walk-by traffic will bring people into your school. It may pay for itself and then some.

Look, too, at the size of the windows on the front of the space. A school with a closed-in atmosphere is forbidding. No sign or fancy window treatment will draw people in quite so effectively as the sight of people having a good time in an open, bright, clean facility. The front of your building, what people can see through the windows, should be able to reflect your image.

Find out about the size and kind of signs available to you. If you are looking at space in a shopping center, look at all the other signs in that center. It is not mere coincidence that they are all the same size, same color, same image. The shopping center will probably have restrictions on your signage. City or local government may also have restrictions for your area. Even if they don’t have restrictions, taxes on the kind of sign you’re thinking about may be prohibitive.

Once you’ve determined that the location works for you, check to make sure the space meets your needs. Look at the construction of the building. If the building is old and in poor repair, it will cost you. Look at the size of the space, not just the floor space but the ceiling height. A ceiling height that works fine for an empty-hand style may be too low if your style teaches long weapons. Trace the outline of the space on some graph paper. Carefully draw to scale not just your training floor but your office, dressing areas, restrooms, storage space, waiting area. Are there any pillars in the space? Draw them in as well. Draw in your furniture, your training equipment, your traffic patterns, your entrance and exits. Will your students have room to train freely in the remaining space? If you need more space a few months or years down the line, does the center have room for you to expand?

Think five senses: Can the ventilation handle a large number of warm bodies? Do you have adequate heating and cooling? Is the light adequate? While you hold classes, where will the sun be in relation to your windows? What is the air quality like? Is the noise level acceptable? Spend some time with the site, especially during the hours you will be holding classes. Picture yourself training there to see how it feels.

Figure Out How Much It Will Cost You

It’s crucial you find out exactly how much a space will cost you before you start making commitments and financial projections. Notice, we didn’t say how much the rent will cost you. We said how much the space will cost you.

The landlord will probably quote your rent in annual price per square foot. A simple formula can calculate how much that means in monthly rent.

The rent, however, is not the total price for the space. In a triple net lease—one of the most common commercial leases—rent is only one of three expenses you must pay monthly. The other two are rental tax and triple net.

Rental tax may be assessed by your state or city. This tax is much like a sales tax—the government charges a percentage of the rent a landlord collects. The landlord passes that charge directly through to you. The rental rate tax varies widely from place to place. Ask your landlord how much it is in your area so you can fit it into your financial projections.

Triple net is the other expense you must pay with your rent each month. In some places, triple net is called “net, net, net.” In others, it is called “common area expenses” or “common area maintenance,” “CAM” for short. Triple net includes three expenses. The first expense is maintenance. This maintenance includes your share of the cost of managing the complex and of maintaining the parking lot, roof, signs, elevators, landscaping, and other shared resources. The second expense of triple net is your share of real estate taxes. The third is your share of any insurance your landlord keeps on the property.

Triple net is typically expressed in price per square foot just as rent is. Your landlord charges it annually but impounds it monthly. At the beginning of the year, your landlord makes an estimate of annual expenses. They divide that amount between the merchants in the complex (usually based on percentage of square footage). Then they divide your share by twelve so they can bill you monthly. At the end of the year, they check the actual triple net costs against the projections and either bill you for the balance due or refund the amount you overpaid.

Besides rent, taxes, and triple net, the terms of your lease may require you to take out your own property and fire insurance. Although you pay the cost of that insurance to the insurance company, it is still as much a cost of renting the space as rent is. Check additional insurance requirements as a part of your investigation into what the space will cost you.

Compare your rent with other comparable properties in the area. A real estate agent can help. Make sure what you will be paying is comparable to other similar spaces. Differences in price may reflect some crucial differences between complexes. Larger spaces and spaces with longer leases usually have lower square-foot prices. Older buildings and buildings in bad neighborhoods usually have lower overall prices. But some complexes are just a good deal. Either way, comparing prices helps you determine whether a space is worth what you are going to pay for it.

Negotiate a Lease You Can Live With

Once you’ve picked out a space, it’s time to get the lease nailed down. Unlike many apartment leases, commercial leases typically have some “wiggle room.” In other words, a certain amount of negotiation over rent, improvement to the space, payment schedules, and other provisions is not only possible, it’s expected. In fact, most commercial lease contracts are initially biased toward the landlord. It’s your job to protect your interests—not to make the contract biased toward you, but to bring it back to center, where it is fair to both parties.

What do you do if you want to lease a commercial space and you aren’t a very good negotiator? First, make yourself comfortable with the issues involved in your lease. Read as much as you can about commercial leases. Talk to commercial real estate agents and brokers while you’re looking at sites to learn as much as you can from them. Once you have the lease in hand, take it to a real estate attorney. She can look over the contract for you to make sure it protects your interests. Then read the lease yourself. Make sure you understand everything—every word, every provision—in the contract. Know what you are getting into before you begin negotiating.

If you still aren’t comfortable with the actual process of negotiation, you can get help. Commercial real estate agents are used to negotiating contracts. But remember, your real estate agent gets a percentage of the rent they negotiate. Their commission is paid by the landlord. During the negotiation process, real estate agents are generally very professional, but they do walk the fine line between keeping you happy and keeping their commission high. If you’re uncomfortable using your real estate agent as a go-between in the negotiation, you may be able to get a friend with real estate or negotiation experience to help you. Or you may want to hire your accountant, a broker, or a real estate attorney to represent your interests. They cost money, of course. But if they know the business, they can often get you a better lease than you could get yourself. However, once you’ve signed the contract and paid any outside consultants you’ve hired, you are on your own. Your representative doesn’t live with the results of the negotiation; you do. It is your responsibility to weigh all your options and then to live with your choices.

Basic Negotiation Principles

When negotiating a contract remember two things. First, in the world of contracts, if it isn’t on paper, it isn’t “real.” Your landlord is not legally bound by anything they say, only by what they write down and sign. Second, you are not negotiating only with the person across the table. Your landlord may be a very pleasant person, a person of their word, a person you can trust. But you are not only making the contract with them. You must assume that the contract will be referred to and used by others: by the landlord’s business partners, his attorney, anyone the landlord might sell the property to, the courts that may have to be involved should there be a dispute or bankruptcy. The contract must be able to exist as a stand-alone document, a document that protects your rights no matter what should happen or who should get involved later.

Tradeoffs and compromises are the name of the game in contract negotiations. Think about what you bring to the table before you sit down. One bargaining chip you have is the business you will bring to the center. Think about what your landlord wants. They want stable, professional tenants who can fulfill the terms of their contract and pay their rent on time. They want tenants who fit in with the image of their shopping center. They want steady business that will make their center thrive. If you can prove you provide these things, it puts you in a good negotiating position.

Another bargaining chip you may bring to the table is a willingness to make improvements to your space yourself. The landlord will expect to make certain improvements to the space before you move in. If you are willing to move into the space as is, to make the TIs (“tenant improvements”) yourself, you can trade the cost of the improvements for rent-free time or a reduction in your monthly rent. Conversely, if you don’t have a contractor’s resources, if you want the landlord to help you make the space ready to do business, you may have to begin paying full rent immediately. Or you and your landlord may be able to find some specific middle ground.

The art involved in playing the tradeoff game is that the landlord typically won’t tell you up front how much he has budgeted to make improvements. Negotiation becomes a little like playing poker without knowing how many chips you have in front of you. Go ahead and guess a little (but not outrageously) high. Your landlord will have no problem telling you if you are unrealistic.

A general principle: bargain in good faith. Don’t ask for the moon. Don’t ask for a lot of things you don’t want, expecting to use them later as bargaining chips. Go ahead and ask for everything you want. But expect to make concessions to keep the deal fair for both you and your landlord. Be reasonable, but don’t settle for anything less than what you need.

Remember, your goal is to negotiate the best deal you can with your landlord. It is not to beat the landlord into the ground. This is negotiation, a controlled sparring match, not war. Your goal is to establish a fair, equitable long-term relationship between you and the person who owns the building you will be working in for several years to come. Be good to your landlord. Be assertive, but treat the landlord fairly during negotiations. Then, after you move in, be the landlord’s eyes and ears on site. Watch out for the landlord’s interests, and he may do the same for you.

Plateau-Level Bargaining