How to Avoid $100,000 Mistakes When Buying, Moving or Expanding Your Business
How many of these thoughts race through your head while you are delivering new services to your clients:
- My current facility does not mirror my businesses abilities.
- I am not sure how much I can afford for a new facility.
- My current facility looks old and tired.
- My office is not big enough to accommodate client demand.
- I am being forced to move my office.
One or more? Whatever your motivation is, before you start shopping for new space, a different location or even expanding, you have to answer some very specific questions.
Why? Expanding your office without knowing the answers to these questions is a sure way to set yourself up for financial ruin.
Can you answer the following questions?
- How much should I spend for my office lease?
- How much should I pay for land or a condo shell purchase?
- How much can I afford for the interior build-out?
- How much should I spend for my equipment and technology?
- What is the best way to shrink the cost of my project without compromising the outcome?
- What is the ideal debt structure for my situation?
- What other projects in my life are going to require cash flow?
- What is the first step I must take to avoid $100,000 mistakes when expanding my office?
Failure to answer any of these questions means that you are at risk for making a $100,000 mistake. What’s a $100,000 mistake? I’ll show you some below.
But first a little about us. We have helped many clients answer a number of these questions about their specific situation thus helping them eliminate $100,000 mistakes before they occur.
These clients were just like you. Confident in their business abilities but unaware of what they would run into as they started their office project.
Let me introduce you to two of these clients.
Their failure is your lesson.
Messrs. Smith and Jones (actual names withheld) came to me after they had signed a new lease for their office. They signed a lease for about $9,000 per month for 10 years. Their current lease was $2,500 per month. That’s a 260% increase in their monthly rent.
They did this before they knew the cost of improving the new space. They did this before they designed the space or picked their equipment, new technology or interior finishes or furniture. They signed a lease before they knew the cost of anything, let alone everything.
Wait, it gets even better.
They had no idea of what they could borrow, except that a local banker said they could have $500,000 for their new project. They thought they had enough money and heck they said, “you can put a man on the moon for $500,000 you should be able to expand our business for less.”
What they did not realize was that the lender was willing to give them $500,000 for new equipment, not for the project. Guess what? Just the finish-out costs for the new space was $500,000 which means they did not have any lender willing to loan them money.
Now they have a lease for 10 years for space that costs more than they can afford, with no financing in place and rent was about to start.
Messrs. Smith and Jones situation is just starting to get interesting because they did not understand each others personal financial situation. This can cause major problems when it comes to borrowing money.
Each person had personal issues that prevented their partnership from getting the ideal debt for their project. One lender used Mr. Smith’s personal problem as a reason for declining the loan and the other lender used Mr. Jones’ personal problem as a reason for declining the loan.
The clock is ticking.
Back to Messrs. Smith and Jones: Double rent payments are on the way. Desperation is taking over. This is the perfect storm for a second $100,000 mistake (the first was signing the lease without knowing anything).
Financial pressures have a wonderful way of squeezing people until their true character pops out. And it sure popped.
Each business owners has his or her own particular issues, challenges and questions. Joe Truscott has been in business advising business owners for over 30 years and can bring to the table a great deal of assistance. If you have any questions about your particular situation, please call Joe at 905-528-0234 or email Joe at firstname.lastname@example.org.