I had a restaurant client close its doors this week after only 8 months in business. I can’t tell you how sad I am to see a potentially viable business go under. It’s especially disheartening since it could have been prevented.
This was the kind of independent business every landlord covets. The owner committed to an amazing build out. Brought in a top-notch chef. On the surface, this tenant was the whole package. Except for one key piece of the puzzle: their business plan was based on achieving revenue goals that were completely unrealistic and had no resources allocated for marketing. Not really a recipe for success, is it?
I was called in to work with the tenant in month five. At that point, they were already drowning but in just two months, we increased business an average of 30% overall; actually doubling sales in certain segments. But it wasn’t enough to offset the previous losses.
In another, much happier scenario, I worked with a very well-financed couple to open a franchise operation. I was called in before the lease was signed to review their business plan and determined their first year revenue projections weren’t going to work. So we adjusted revenue, lowered expenses and expanded marketing plans to preserve capital, increase exposure and weather a longer ramp of period. With their expectations – and cash flow – in check, they not only made it through the first year, they became the number one unit in the franchise in year two.
Business takes time to build. Even really good small businesses needs time to grow, tweak and refine.
As leasing agents and landlords, you can make a big difference in your small tenant retention rate simply by working with early stage small shops in creating realistic expectations about business growth and profitability.
Evaluate financial projections contextually. Is there precedent in your
center for the revenue this potential tenant is projecting?
Are expenses realistic? Running a lean business still requires
spending on adequate staff, utilities, insurance and merchandise.
What is the marketing strategy? Is it in sync with other successful
tenants in that center? Is there a budget? If there is none, are you
comfortable with the tenant’s chance for success without a marketing
Is there a contingency budget? Can they weather the natural ebb and
flow of business?