Buying any property can be a challenge, but for entrepreneurs, purchasing commercial real estate for a new enterprise can be especially daunting. Considering factors like how much capital you’ll need to get started, how customer demographics and other market aspects can change, or how maintenance issues will be handled in a building you own can be a complicated task. Fortunately, business experts are willing to share their top five mistakes to avoid.
Not understanding the owner’s reasons for selling
If the space is being sold by an owner who operated the previous business in that space, you can simply ask why he or she is looking to sell the place. In commercial real estate, these reasons can run from the former venture going under because of a bad business plan, to the fact that the business did so well that it needed to move to a larger space. Either way, the current owner has to tell you something, and of course that something needs to be cross-checked to make sure you’re not getting sold a story rather than a good commercial space.
Not being offered good terms of sale
If you are buying an existing business lock, stock and barrel, your concerns will be quite different from those of someone who is buying only a bit of empty commercial real estate. In the first situation, you should be very careful to know exactly what inventory, intellectual property and supplier relationships are being sold with the business. A contract you’re not comfortable with should never be signed.
Not knowing what a business is really worth
Giant corporations buying up smaller operations will have a team of lawyers, real estate experts, bankers and more people in suits to research down to the smallest detail how well its assets and debits balance. But for smaller entrepreneurs who just want to start a business, you have to do it yourself. If you’re buying an empty storefront, why is there no longer a business there? If it’s a new empty space, are there saturation or monopoly issues you need to consider before launching your enterprise? Retaining an attorney or other expert at this point might be a good idea.
Not knowing what your business could be worth
What kind of foot traffic does this space get? How much automobile traffic might see that you are there? As mentioned above, are there already established businesses in this space doing what you would like to do? All of these can have an outsized effect on the success of your new venture. It would be time well spent to stroll around the block or two surrounding the space you’re interested in, asking different business owners in the area what kind of demographics they see in their customers.
Another good area of inquiry is if they have heard anything about why that commercial real estate space is open. If it’s an existing business you’re thinking about buying, you might like to enquire what their thoughts are on how the current owners are running their business. You could also try casually asking pedestrians in the district the same questions.
Not buying the right business for you
It doesn’t matter if the latest sales fad is raking in tons of cash for store owners, if selling that good or service isn’t your passion. Making a lot of money one month might make it worthwhile for that month, but what about the other fifty-nine months on your lease?
That’s one side of the coin, but the flipside is just as important. It’s been said that following your passion is a great way to be successful, but if your passion is in a market sector that won’t make anyone a dime, it’s probably better to keep that a passionate hobby rather than a failed business.
Not knowing what to think
There are many good reasons to snap up a piece of commercial real estate, but just as many bad reasons. Do your research, be honest with yourself and others, and think things through. This is the best way to make an informed decision.
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