This article is part of our Restaurant Business Startup Guide—a curated list of articles to help you plan, start, and grow your restaurant business!
When it comes to getting your restaurant off the ground, what’s even more important than a great concept and great food is a great location. A high traffic location located near or in retail centers and major streets are prime venues for building up your clientele. However, deciding on whether to lease or purchase depends on how long you’ve been in business and how strong is your customer base.
Startup to 3 years
If you’re just starting your restaurant the best thing to do is to lease for the following reasons:
1. The best locations for new restaurants are in established retail centers with strong foot traffic. Often the only option in those locations is to lease.
2. We all know that restaurants are a high-risk business notorious for having a short life span. Short-term leases make it easy to cushion your losses. If at the end of your lease your business is struggling or you need to close down you can leave without financial or legal penalties. Also if for some reason you did have to break the lease, it’s much easier to break a lease (and less damaging to your credit history) then it is to break a mortgage.
To make sure you get the best lease option available to you, find a licensed commercial real estate agent or broker, someone who understands the intricacies of commercial leases, to represent you. They will help you find a location and negotiate a lease that best fits your needs and act only on behalf of your interests. As a bonus, typically their time is reimbursed by the landlord so often it costs you nothing to have a professional represent you (and protect your business) in the real estate transaction.
3 or more years in business with an established clientele
Once you’ve built up your business, you’ve attracted repeat customers, have a strong credit history and have a solid customer base you can then look into purchasing rather than leasing a space. Often landlords raise their rates and you are limited in your options to customize your space. When you own you can stabilize your costs with a fixed mortgage—which frees up capital and improves cash flow—and mold the space to your needs. You can expand to a second location, buy an existing space, or build from the ground up. There are typically several commercial pad sites located next to those high traffic retail centers I mentioned earlier, allowing you to get the best of both worlds—an equity investment and the benefit of an established retail center. SBA programs offer great packages to restaurants that complement those facilitated by your lender, giving you more options when it comes time to purchase. Just make sure that you get qualified professionals to represent you and act in your best interest as well as do your homework beforehand so that you can ensure that you get the best deal.
Buying a commercial property is a goal any restaurant can move toward. Make it part of your long-term growth strategy, along with smart credit-building practices, and set yourself up for success.
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