If you're a business owner pay attention. It's time for the small business financial show with a small business tax consultant. Professor and lecturer comfort -- that split comfort give you the knowledge you need to increase profits and grow your business now. Here's your host comfort should -- Hello everyone welcome small business financial and human host country and helping you is a small business owner find success in the business. You can listen to previous broadcast of our program that top thirteen seven dot com and you can connect with us on FaceBook dot com that small business financial. Today I am going to be sharing with you about commercial leases. You know it's always exciting to see. A coming soon or grand opening sign posted on the exterior of a commercial space for a small business owner. It's the start of -- new business an opportunity to build something greets. And depending on the success of the business it could be a huge positive -- change for the owners and their families. But commercial leases should be. Rebuked very carefully. A couple of months ago I was shopping plaza that I visited. Well I visited ever so often and I strolled. Passes along that has been there for a wild. It had a lockout notice on class store. I have receives services from the salon before in my experience there was pretty good. I was a little surprised because whenever I was in the plaza the always seemed to be busy. I took a quick glance at the space as I was walking by and I noticed that all the salons property was still in the space so. It looked as if they were disclosed. But because of the notice on the door I knew that they were locked out. Well all sorts of thoughts started to go through my mind I was thinking what happened. I hope they're able to get caught up on with their rent and continue with their business. I thought about you know why didn't they do something about it before it got to this point. You know -- didn't they understand. The least properly you know just random thoughts. Then I started thinking well maybe. Business was slow and they just didn't have the money to pay -- maybe they were struggling to keep up their finances and just gave up because they were tired of trying to make it work. And I also start to think about the time when I had a commercial -- for my tax office and some of the questions and concerns that I had a good time. Many of you probably have questions about entering to a commercial lease. Alternative choices to a traditional leases or what options. You have to get out of believes that you might be you know currently end. When a business owner is getting their first officer retail space they're usually so happy to -- dreams taking shape. That they overlook some very important things. Actually. There are some business owners who were just happy to get an approval for. A commercial space because their credit is average or below average in the landlord is taken a chance on them so they don't bother to negotiate on. The least even when the terms are not favorable -- them. Well I am going to share with you a few things that you need to know about commercials leases thank. You do want to speak with a real estate attorney. And do some research. You know on your own so that you can gain further insights. Are right. In general. There are three basic types of commercial leases. -- the gross police. The net lease and be modified grizzlies. Now here's the difference between them. With the gross lease. You will pave the landlord and agreed upon fixed amount every month. For the space that your using. And from an amount the landlord will pay the utilities the property taxes. The insurance and maintenance costs. The gross lease is considered to be more tenant friendly cents -- tenant pays a fixed amount. And the landlord is -- responsible for paying all the expenses regardless of the increase. The second one that was mentioned is the net leaks. It is the most common for retelling establishments. Is usually requires that -- to pay a significant share. Of the costs associated with the property. So the base rents under the net -- is often lower or appears to be lower. There are several types of -- leases but the most popular of them is the triple net -- the triple -- -- is structured. With that tenants. Base threats from a base rent stated separately. From the additional expenses. These expenses are. The property taxes the insurance and something known as camp it's spelled CAM. And it stands per common area maintenance. The common area maintenance is chairman general lead the exterior areas of the property. And usually includes. It would put the cost of water sewer trash basic landscape. Sprinklers. In a parking a key just to name a few weeks. Many times. Any interior maintenance will be at the expense of the business owner. Now net leases are considered to be more landlord friendly since the property expenses are passed on to the tenants. And alas that was mentioned was being modified gross leaks. On sometimes it's also known as the modified now at least we just pretty much like a hybrid of the gross lease and the net lease. On the lease agreement offers. More of a compromise. Where the landlord and the attendants split the maintenance. Cost and sometimes utility costs. While the tenants will pay for the property taxes. And insurance in addition to their monthly rent. So when you're looking at the true cost of renting a commercial space you must include. Property taxes insurance and maintenance maintenance costs whatever those costs are. The base rents usually is fixed which means that it will remain the same for the duration. The operating here. And fixed cost is good because you can plan your profit margins along better with fixed costs how ever. While the lower base -- might be attractive if the property taxes insurance and the common area maintenance costs there all variable cost. Which means that it may go up at any point in time. Usually on the panel bases but it can increase before the year is over. So what you're looking. -- is a really -- -- fixed cost him terrible cost for your total cost of leasing sometimes. The reason for the increases that property taxes are based on the assessed value of the building so. As the value goes up so will the property taxes. Insurance and maintenance costs will increase based on what -- those current market price things are. So for example if the sanitation department increases their rates it will be passed on to the -- So make sure that you assess the total cost of leasing. A commercial space very very carefully. OK a word about build outs or at least improvements which is a term that we use in the financial accounting world. What ever improvements you make to the interior of your -- based or the additions. That is attached to the building itself meaning that it's a structural components. It will be long to the landlord once you leave. And you'll have to depreciate the cost of the improvements over 39 year period. For example. If you put a wall in your space you know because he wanted to create a -- -- wanted to divide out the seating area for your clients. Or. You wanna create office spaces for staff members you'll have to depreciate got over 39 year period and when you leave. It will all go to the landlord. Sometimes business owners think that the landlord won't give them credit for the improvements or make rent adjustments. But sorry that won't happen. If it was not you know negotiated on before you signed that contract. And many times to make changes to your release based you'll need the approval of -- the landlord. In order for you to do so. Also. You should speak with your accountant about the possibility of amortizing. Your release. Acquisition cost just some things for you to think about. All right you aren't listening to small business financial here on talk thirteen seventy. We are going to take a break. But stay tuned. Because when we return I will be shared with you. Some other very important things that you must consider before entering into a commercial -- There for you small business owner looking for answers to help you solve your business challenges like port access funding for your business seeking help understanding this. Flat tax issues what to do to be a profitable business well look no further. Visit the small business financial website at SM BIC financial. Com where you can learn about upcoming workshops networking events and get lots of free information again go to small business financials -- -- act. SM BIC financial. Hey welcome back to the small business financial shows once again here's your host comfort should that it's. Welcome back everyone you are listening to small business financial. I am your host -- advance helping you as a small business owner find success in business. You can listen to previous broadcasts of our programming -- thirteen Stephanie dot com and you can connect with us. At small business financial on FaceBook dot com. We are talking about its commercial leases and -- the break. I was sharing with you some essential points that you must consider before entering into a commercial. At least agreements. I wanna pick up with three pairs. You may be responsible. For the re appears to your space. Or in the building if it's a standalone building. Sometimes people notice. Dot you know there's a leak in the roof. And it will cost a lot to get it fixed. Are you prepared to do that that's something that you need to take into consideration. From a financial perspective. On who's gonna pick up. I was gonna choose the company that's going to be making repairs. To the buildings if EB. If you're responsible for the repairs he can perhaps choose according to your budget. A repair company but sometimes landlords. Once ensure the value of their property and will want to approve who can do work on the property. Especially it's a major repairs where the physical structure of the property will be modified as opposed to basic repairs like. -- and in a restaurant. Things can get very ugly so you want them. -- the right questions you wanna get an attorney to help you. Go over the terms of your lease agreement before you you know go into that kind of a commitment. All right so here are some other essential things that you want to consider. Your lease agreement -- called for your base rent to go up on the yearly basis. So make sure do know what you're responsible for paying this way you can plan your cells. And budget properly for your costs. For example if you sign a three year leaks. Your -- maybe 15100 dollars in year 11615. Year two and 17785. In year three. This happened is sometimes considered fear for both the landlord and tenant because for the landlord rents are somewhat adjusted for inflation. And the business owner is given an opportunity get started at a lower base rent. And as a business revenues grow from year -- year at the rent is manageable. I -- but make sure this works for you and it is included in Europe operating budget. Now if you are not generating enough revenues. You will be severely impacted by the rent increases. And this is where things begin to go wrong for business owners the business is not generating enough money. Or the money is being managed poorly. So the rents becomes -- And the landlord assesses. A late feet. Somewhere around 10% of the rent plus additional charges. For each day late possibly. This brings us to the next consideration. You wanted to make sure you know what the terms and conditions. Up your release agreement. In it you know is if you fall behind in your rent payments you need to know how much tying. You have before you are locked out what steps you need to take. Which brings us to the -- points. A lease usually includes next steps. If the rent is not you know paid on time sometimes. Business owners say they did not know what the consequences we're going to be one you know when the -- to -- But it is always stipulated. In the lease agreements. Especially if you're dealing with a professional. You know like where a management company is involved. But some business owners do not take the time to go over the find the tells of the lease agreement. Before. A tenant is blocked out some landlords will issue a notice. I'm most of the communication between the landlord and the tenant is usually through the property management company. What usually happens once attendance is locked Alps is that they will no longer have access to their business space and whatever items or in the space. Yeah you know whatever items are in that space. And then they will also be assessed the -- charge plus attorney fees. And that is not paid by a certain due date. Once that date is passed and the rents an additional charges in those are not paid as well then a formal eviction procedure will follow. And this is when things of course it just continues to get ugly because. A tenant could be legally responsible for the entire rent. Of the remaining. That the remaining duration of the lease contract. So it is no joking matter you must understand what is in your lease agreement it is really really important. OK so what can you do. If you are are Brady in a bad leafs situation. For one thing you're gonna have to be proactive. This is not nursery school. Where you have a teacher in caretakers looking after you this is the business world. Your landlord is not going to come and feel sorry for you they are also running the business. Which means they have bills to pay also in public you know other obligations to me just like Q. -- one thing that you can deal. Is you can get your attorney if you have one if you don't have one and then you know get a referral so that you can. You know get a good real estate attorney. You're attorney. Can negotiate an alternative. To keep you in the property so they can end. Work trying to work something out would be you know they'll probably speak to that of the property management company depending on the sites. The the how much. I should see. You know as far as their enterprises concern of his decision a small landlords you know they're not really big enterprise thing you may have the opportunity to speak directly with them the most of the time. And you'll -- normally go through property management company. But you have to do this early because if the answer is no. And nor agreement is reached the end you and you won a state in that location in your gonna have to move on to plan number two. Sometimes. Their other business owners who want your space and they're willing to pay more you know for a so you're going to need to act quickly. The next thing that you want to do is you wanna communicate with the property management company. Let them know what's going on sometimes people feel a little embarrassed and they don't want. You know. I don't know what maybe it's -- also who you know who knows are several reasons but most of the time it's embarrassment. You know. You wanna communicate with the property management company you want to let them know what's going on because sometimes. It's not that you're irresponsible you might be having issues trying to collect your money from clients. And this is you know keeping you back from being able to. To pay your bills so. This is why having some type of savings also recommended but just in case you know you wanna be able to communicate with the property management -- company. Sometimes they can work something with you to help you stay in the Spacek specially appear good tenant because they know how challenging it can be to find good tenants. So you definitely want to let the property management company know what's going on you wanna communicate with them. So that they can help you to stay in the space during this challenging moment for you. Another option is to see if you can get a -- leaks. I mean if your release includes a sublease clause so. That means that you'll be able to find a -- to take your space for the remaining duration of your release. But once again. In order to make this tapping your gonna need to move fast because it may take some time to find someone. To take over the remaining duration of your lease agreement. You know the clock doesn't stop ticking because you can't get a sublease you have to actually go out there and get somebody to to take over you know your release. If you are -- it may hurt your chances of being able to. You know get another release. Because it will reflecting your credit reports it's gonna hurt your credit and hurt your chances. Being able to get another -- space in the case that you still want to you know continue your business efforts. Something else that you may want to try is to see the landlord will terminate your at least early you know this is a topple. It's a tough one but you know it's possible. I'm so you may wanna try to deceive the landlord will terminate your release early I you'll probably be taxed to pay a certain amount. In your credit. There's a strong possibility that your credit will not be impacted. And you'll be free from you know a major obligation even though you will be required to pay some kind of -- mounts up front. But the key thing here is. That you actually want. To communicate. -- the property management knew was going on act quickly don't sit around. Hoping that it's gonna go away because it's not gonna go away you are responsible. You know. You know. Getting out of the -- early is considered a breach of contract so. It's it's a serious legal issue. Operating a business business does not have to be so scary you just need to know what to do and then you actually need to act on it so you need an action plan. Every state has you know landlord tenant laws so you do not need to walk blindly into a lease agreements. On do some research talked to a commercial real hurt a real estate attorney. You know go online you you know there's tons of information online. But I would recommend that you actually speak with a real estate attorney so that even if it's just a consultation because I know sometimes that. On small business owners you know your your budget is tighten your really trying to manage the funds as you grow the business so that may be an issue. So. You know but -- pro active. And for those of you -- looking. You know acts lease options right now and you know you're looking at spaces. You know -- -- appear to walk away. From a lease. That financially will not work with your budget don't rationalize it in your mind you know the possibilities of what kind of you know. Business you could get from being in a particular space. You know you have to plan around what you can actually. A Ford. Well. We've come to the universe show. And once again I would like you to know that most of what I shared with the city can be found. In the self employment handbook that will be available in a couple of weeks. So for all you small business owners out there of the book answers a question of how to make a profit it covers. You know the things that I shared with you today in much detail including how to generate revenues. How to grow your business you know balancing. Business and personal finances. The three most important business costs and how to manage them so that you can make a profit as well as strategies for cash management. And it offers you know. So freelancers. Independent contractors. Independent professionals whether you're operating your business from home or a commercial space this book is for you. And an excellent resource for you to have for years to come. If you'd like to order the book in advance to send -- any -- to small business taxes at gmail.com. Thank you so much for listening. And remember you get out of your business what you put into it. Yeah.