If your business has reached its maximum capacity within its current design and infrastructure, or if you are seeing revenue disappear due to market pressures, it may be time for you to invest in a renovation. While the long term value may be clear, the near term challenges of capital, planning, and the renovation itself represent a challenge to almost any business owner. While we are experts at assisting business owners acquire the capital they need to launch or complete their renovation project, we reached out to a number of experts in the renovation industry to ask for their best advice. If your business is looking to renovate or are currently renovating, we hope these tips, pointers, and questions to ask help your renovation be as successful as possible.
ON DEALING WITH REAL ESTATE /LANDLORD ASPECTS
Bill Himmelstein, CEO of Tenant Advisory Group, a Chicago-based commercial real estate firm that works with small business owners has the following advice for those approaching a renovation project:
Assume costs will be higher than you think
Unfortunately, the cost of a buildout can be very high. The range of categories contributing to total costs includes design, architecture, construction, fixtures, furniture, and IT infrastructure, among others. Prices can easily be as much as $70 for standard design and materials up to $200 or more per square foot of office space, depending on the city, the building class, whether the buildout is medical or not, as well as the state of the space prior to leasing (raw space, white box or existing conditions). Even a simple new paint and carpet job costs about $15 per square foot.
Ask the landlord for a tenant improvement allowance
There are multiple concessions landlords are willing to make for a quality tenant, including a tenant improvement allowance. A tenant improvement allowance is money the landlord will spend for the tenant to build out their space. Theoretically, the landlord will provide the tenant with cash up front, which will be amortized into the rental rate. New tenants can use this as a negotiation point in the leasing process, possibly agreeing to sign a longer contract in exchange for a higher allowance. Tenants in the middle of their lease can still request a tenant improvement allowance as part of a lease renegotiation and/or extension.
Hire a designated project manager
Managing a remodel will quickly become more than a small business owner can handle, making hiring a project manager an absolute necessity. This individual will help coordinate the efforts of every planner, architect and contractor involved. They can review the work letter, estimate construction costs, and suggest revisions which may ultimately result in savings, as well as accurate work. A project manager will also have experience with city-specific permits, which can take months to come through.
Don’t assume you have to use the landlord’s vendors
Landlords traditionally prefer to use their own recommended vendors when it comes to space renovations or construction. While they may prefer to work with contractors they know and trust, too often the reason they restrict outside work is because they receive a portion of the profits from the in-house vendor. However, this makes the landlord more accountable, which makes contract negotiations even more critical. If a landlord does not require you to use their general contractor, the weeks waiting for permitting is the right time to compare the contracting bids. This is also a good time to meet with a furniture vendor to decide on reusing existing furniture or purchasing new or refurbished furniture.
Establish a timeline
Once the permit is approved and a general contractor is selected, the physical buildout can begin. It’s important to check in with the landlord or general contractor regularly to ensure the process is moving forward at the agreed upon pace and budget. An established and realistic timeline is crucial. If the buildout is managed by the landlord, it is not unreasonable to create consequences should the space not be delivered when promised. This will need to be written into the initial Letter of Intent and confirmed to be in the lease before signing. If key milestones in the buildout process are not met, then the tenant should negotiate to receive free rent, a push back on the commencement date, compensatory damages or other lease concessions.
Depending on the size and scope of the buildout, the design, permitting and construction phases together can typically take anywhere from three to eight months. If renewing your lease with a remodel or considering relocating to a new office, begin the process at least one year in advance, if not a few months more, to account for the lengthy processes of site selection or visiting comparables, term negotiation and attorney review, all prior to any architectural design, permitting, or construction work even begin.
Mike Vannelli, head producer at Envy Creative shares his experience with remodeling projects in his studios:
“We run a video production studio and have had a couple remodels to the studios we’ve moved into. A lot goes into our remodels since we have to build some sets and make all the lighting in the studio even. Here’s a few of factors to consider when doing any business remodel:”
Make sure your clear on what you can and can’t do with the landlord or property manager. In our case, anything inside our walls was our responsibility, so we could do whatever we wanted. However, at an old studio we had, we were not allowed to do anything other than paint.
You don’t have to do everything at once. Many business owners think that a remodel has to be a one-and-done project. However, a way to save yourself time and money is to make milestones for your remodel and do some at a time. Then, you will feel like things are getting done, rather than waiting for everything to be done at once.
Make sure you have the funds and it won’t cut into your bottom line. Therefore, we suggest the milestone options for the remodel process since you can put a certain amount of money into it at a time rather than a large lump sum at once.”
ON TRACKING THE PROJECT
Author Thomas J. Williams, EA is a tax accountant and co-founder of Deducting the Right Way℠, an online resource for small business do-it-yourselfers had this to say about tracking and recording transactions.
“Make sure to speak with your accountant before you begin the renovation project. Small business owners are surprised to find out that they need to record the transactions inside their accounting software by following specific procedures. The reason why is because the receipts are not necessarily deductible in the same year the expense was paid. Typically, the renovation must be amortized over several years.”
ON LEGAL ASPECTS
Ms. Karalynn Cromeens is the managing partner for The Cromeens Law Firm, PLLC with a focus on construction law. For 12 years she’s seen where projects can go wrong for both contractors and property owners. She has several key factors to be aware of for a project that leaves everyone happy at the end.
Research a contractor before hiring – Search review sites, Facebook, the BBB and even do a Google search to see what others have said about the contractor. Go out and see the previous work done by the contractor. Ask for proof of insurance
Always put the scope of work in writing and have a contract – list what the contractor is responsible for:- how much the work will cost and payment timelines. Will you pay a deposit to start the job with periodic disbursements at specific intervals in the work progress? Consider requiring the contractor to sign lien waivers to receive interval payments and put it in the contract. Include when the project starts and expected completion with the consideration that the finish date should be somewhat flexible. Record drawn plans and any informal conversation or email discussions. Don’t forget to include who’s responsible for permits, a termination clause with window to fix the issue. Have the contractor cover attorney’s fees and court costs if the contractor defaults and enters litigation. Also, consider this: are you buying materials and only paying the contractor for labor or will the contractor charge for both labor and materials? Always have a contract.
Never pre-pay a contractor
On projects over $10,000, the owner should hold on to 10% of the contract amount until 30 days after completion. It’s called retainage. This way if a problem develops with unpaid subcontractors or material suppliers, the owner has the funds to pay them if they decide to place a lien on the property for non-payment.
Each business owner deals with their own unique set of challenges, and we know cash flow and obtaining working capital is among them. If you’re looking for a flexible and easy way to get cash flow for your business without the hassle, we are the perfect business partner for you. Want more information? Call us at 1-877 to get started today.