Q1 2011 Bottom Line Secrets Newsletter

On March 4, 2011, in Newsletter, by Rob

I hope you enjoy this issue!  Click Here

Please note our offices have moved to:

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Charlotte NC 28203

Best regards

Rob Cassam

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According to Small Business Notes, it is important that you know exactly what you want or don’t want, in a lease before you begin looking for office space or initiate the negotiating process. What is the maximum lease that fits your needs? Your ideal timeframe? Do you know the basics of leasing and how to analyze the cost of the lease? It is equally important that you go into the process prepared and with reasonable expectations.

The process of locating usable space with a knowledgeable real estate agent is the real start. Have you determined the location that is best for you? Your search will help prepare you and temper expectations greatly. Even if you are contemplating renegotiating a lease at an existing location, or moving to a different space with the same landlord, it is a good idea to comparison shop just to familiarize yourself with what the market trends and prices are.

Know what you want and what you must have.  You must know the maximum and minimum amount of square footage that fits your needs, as well as the floor requirements. Does the nature of your business make the groundfloor a necessity? Is a panoramic view from the conference room important to you? Do you want a build-out of the office from the concrete, meaning totally new floor, carpet, walls, etc.? Is there a security system in existence at the office space? Do you require one? Is the heating and air conditioning individually maintained? If not, how will you be charged for it?

The more that you require, the less negotiating room you will have. On the other hand, make sure you, or the realtor, find out important information like the occupancy ratio over the last year. Is there square footage available where a lease has fallen through? There are instances in which large corporations rent entire floors, then do not need as much or decide to rent elsewhere. In these cases, the management company of the building will sublet the space – often for less than the going rate for office space in that building. All of these things could be negotiating points in getting the best rent.

Determining the length of the lease.  One year leases are few and far between, with the most typical being three (3) years. It is important that you take your growth potential into consideration. It will not be smart to sign a 1,200 square foot, five (5) year lease when you anticipate tremendous growth and will need 2,500 square feet in three years. It might not be a bad idea to put a clause in your lease that addresses this if much growth is anticipated. This can be done in a variety of ways, which your realtor can address for you.

Have a monetary range in mind.  During the negotiations, you will need to have the amount of rent that you can afford every month. Your search and your realtor should be able to provide you with the current market rental costs for the area in which you want to relocate, or even for renegotiating at your present location. The national average for rent has been noted to be between four (4) and five (5) percent of your total operating costs.

Determine all costs of the lease.  It is essential that you determine the other costs associated with the lease of the space. For instance, what portion of the heating and air conditioning are you responsible for; and what is the average monthly cost. Get types and figures on associated costs, from the landlord and the Realtor – it will not hurt to have them from two sources. As you plan your finances, you do not want any unexpected expense surprises.

One cost that is often overlooked is the common area factor. The common area is all parts in the building that are used by or for all tenants of the building. Usually included are: building lobby, all corridors, janitorial and electrical closets, elevator rooms and rest rooms. The owner determines what percentage of the building these areas represent and adds that percentage to the amount of space, you, the tenant occupies. So, while your rent per leaseable square foot may be $18.00, if there is a 15% common area factor, you actual cost per square foot is going to be $20.70.

Although the previous tasks may seem arduous, the real task is getting final lease approval – that is all parties agreeing on the finer points. You should write down all the things you would like to see in the lease and any specific time frames. You do yourself an immense favor by having a clear cut idea of what you want, which things are negotiable and which things are not.

Be ready to compromise, as it is highly unlikely that the lessor will tailor the lease to your exact specification. It is important that you have a clear idea of those items which you can easily give up, as flexibility is essential to successful lease negotiations. Equally important is not being desperate, or you can end up with a lease on a property which does not fit your needs at all and it will give the lessor all the bargaining power. It is an excellent idea to have your strongest negotiator handle this area, or brush up on your negotiation skills before going in.

At the very least, being knowledgeable about the current market trends for your area, the particulars of the real estate you are looking at and what you want is crucial to obtain a successful lease.

There are many options and terms available when leasing office space. You should always be ready to walk away if the terms are not acceptable to you. In order to make sure you have this option, you must start your search early enough and be thorough. You should have a couple of properties which might work for you, ranked in order of most desirable. successful negotiations are easiest when you have prepared yourself and really know what your needs are.

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Beginning in 2011, landlords will be required to issue 1099 statements to any service provider who receives $600 or more for work relating to the rental property.

The 1099 statements will need to be submitted to the service provider, and will also be sent to the IRS.

This means that landlords will need to develop a system for collecting tax identification information, legal names and addresses for contractor they do business with.

The new provision is part of the Small Business Jobs Act that was passed two months ago, and signals a change over existing rules that used to apply only to landlords who rented as a business or trade. Now, anyone who receives rental income is required to disburse 1099 statements. The rules will also include vacation home rentals.

It is estimated that any one landlord will need to prepare a number of these 1099 statements, a dozen or so on average, at the end of each tax season or pay to have a tax preparer do the work. Industry experts fear the requirement will place a financial burden on small landlords, which is an irony given the intention of the jobs law was to help small businesses.

A second tax reporting provision is set to begin in 2012. In this case, landlords will be required to prepare 1099 statements on both services and goods purchased. This requirement, tucked into the health reform law, is the more controversial and attempts have already been made to repeal it. Prior IRS regulations appears to exempt credit card purchases, which are already tracked by banks and card servicers.

The IRS is currently developing regulations to aid taxpayers in compliance with both provisions, but the agency is still in the preliminary stages of rule-making, where it is evaluating public comments to the proposed changes.

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