Costs – We Cannot Operate Without Them, But We Can Manage Them!
This is the first of a series of blogs where we will look at some of the major costs associated in operating a business and how you might be better able to understand these costs and if there is anything you can do to reduce them.
Rent – How much is too much?
I am always asked how much should I be paying for rent or how much is too much? This can vary between businesses, but in retail, especially supermarkets/convenience stores, this can range between 3-7%. If your Gross Profit is 30% or more you could possibly afford 7% rent more so than someone whose Gross Profit is at 24%. The most important thing you can do is to ensure that you have a good lease with some flexibility but also some security as well and always think ahead. When you are signing up a lease, do a business plan showing where you might be in 3, 5 and 7 years time. This is a way for managing costs and seeing the benefits of each lease term. You can then decide if a 3, 5 or 7 lease is for you. Increases are generally CPI or sometimes it is a fixed rate or both. Some will say CPI or a maximum of 4% increase this can be better than straight CPI which is low at the moment but if it increases to 6-7% then you could be in trouble. It is important that you have in your lease options and market reviews at these points in time in the lease. This gives you the option to ensure that you are paying a fair amount for rent. The link below is the retail shop act and a very important managing costs tool for signing a lease. You should before signing a lease ensure you understand your rights and obligations also including the landlords responsibilities. https://www.legislation.qld.gov.au/LEGISLTN/CURRENT/R/RetailShopLA94.pdf There are numerous things that can be included in a lease and it is very important that before you do commit yourself that you have someone with experience in this type of business and/ or accountant/solicitor to look over the document to ensure you understand if this is right for you. If you would like more information on managing costs or have any general enquires. Feel free to contact me for more information.
