How To Determain What You Can Afford To Lease?

Business By luvscakes Updated 20 Feb 2012 , 6:06am by scp1127

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luvscakes Posted 16 Feb 2012 , 5:54pm
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I am currently looking at several spaces and batting around the idea of opening a storefront cupcakery. As this area has not one with an hours drive.

Currently I work out of my home, and since I just moved to this state, I am currently selling only under the cottage law, and have a fairly small customer base for custom cakes.

My question is I'm sure a very basic business one, (that's my hubby's side of the business!) but I'm curious from other cake or cupcakes people just starting out..... how were you able to determine what you could afford (since starting out you can only guess how much profit you'll have) and did you decide it was better to purchase rather than lease?

Thank you for any info!

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Vista Posted 16 Feb 2012 , 6:17pm
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You really need to work out a business plan. While you can't guarantee how much profit you will make it should be more than a guess. After determining how much it will cost to open a store front your prices should adjust to meet the financial needs to keep it going.

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jason_kraft Posted 16 Feb 2012 , 6:22pm
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Originally Posted by Vista

You really need to work out a business plan. is a good place to start. You may find that based on lease prices in your area a retail cupcake shop is not sustainable in the long run, which would explain why there are no cupcake shops near you.

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scp1127 Posted 17 Feb 2012 , 7:20am
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Business plan. It answers everything. One thing to know up front, a buildout will be anywhere from $50K to $100K unless you find a space that is already built as a cupcake shop. But then the price of the retail space is higher. Be prepared to finance this yourself with cash or have serious collateral because banks don't loan on startups, especially food service businesses.

If you have to ask the question you asked, I would suggest that you postpone this project until you have some experience and take some business classes. 85% of new businesses fail the first year due to lack of experience and undercapitalization. If your business fails, you will still be obligated for the rent for the duration of the lease along with other outstanding bills. So with a hefty buildout and a risk of your home, assets, future income, and your credit score, retailing is very risky.

Ideally, you should be able to factor the rent into the equation, determine output needed to make the business viable, and then determine if the output is attainable in the space and is there a demand for the numbers you need to sell.

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MimiFix Posted 17 Feb 2012 , 1:56pm
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In addition to the above business advice, I suggest you wait until you're more familiar with your new community. Also, if your CFL allows you to do wholesale, you can start now with creating a base. When I moved from my home to a retail storefront, I already knew how much income to rely on.

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luvscakes Posted 17 Feb 2012 , 5:51pm
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Thanks for all the info. My husband DOES have a business degree- and he is working out a business plan-- he just also happens to be high up enough in his company that he works--- ALL THE TIME--- so I'm trying to "help" by at least hunting down properties for us to look at as I know he'll have no time for that.

I have been in my new city for 1 1/2 yrs and while a cupcakery may not be ale to sustain, this part of the woods is also VERY behind the times. Seriously. And no, there has never been one here before.

Thanks for the help!

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scp1127 Posted 18 Feb 2012 , 2:13am
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Then he should have been able to tell you what price/sf to look for. You don't look for property until you have the business plan worked out. That is the last thing you do. Did he not tell you that? What is your output needed without the rent variable? How many man-hours and equipment investment will this take.

Unless it is in a bigger city in a high foot traffic location (high rent), I can't imagine a cupcake business that would be viable with a full buildout. I have a business degree also, three successful startup businesses as experience, and a contractors's license. A business degree does not make you an expert in owning your own business. In fact, it only gives you the tools to begin the research. Experience is key. That is achieved by being responsible for the bottom lineas an employee in someone else's business. My children will be self-employed soon out of college, but only with parental guidance. We aren't going to hand them money and wish them luck. In fact we are requiring that they get jobs in their field to get the experience. Then we will guide them along the way.

It will be very difficult for the numbers to add up, especially in a location that is behind in trends and a limited product line. I was trying to be nice with a little cautionary post. Even if your buildout is on the low side of $50K, with rent and operating expenses (fixed and variable), that is more cupcakes than one person can produce and sell. Now there are employees. Look at Cupcake Wars. These people are in commercial kitchens or in a city where the numbers are viable. Have you done the demographic research? What have you found? I could go on.

Sorry for the black cloud post, but more people read and look to the business section than just the OP. There is so much to plan ahead of time and when a thread starts out with a question that is out of line with research, it is a huge red flag. If a person is ready to look for space, the question does not need to be asked. The answer is apparent. If you will notice, no one answered the question directly because there is no answer. It is strictly an individual number derived by the plan.

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luvscakes Posted 18 Feb 2012 , 12:33pm
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As if your first condescending post wasn't enough. I'm happy that you are such a successful business person. And I appreciate your overly ridiculous concern for my question. You'll note then that I did know I was running the risk of sounding stupid in my first post... However I didn't need to be told by a stranger that I am unqualified or can't do it because I don't have a degree.
My husband has been given all the info he's asked for such as cost of supplies how many cakes/cupcakes go out now and also the equipment I already own along with all the licensing requirements for this.
You'll notice also that my question was answered by others and that is what I needed to know. Once my business plan is done I'll be able to see what we can afford- thats exactly what I needed to know.

Before you are so quick to set yourself up as someone who is "successful " try to actually be helpful by realizing that you have no idea what a person has already overcome or accomplished in their past!

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MimiFix Posted 18 Feb 2012 , 2:42pm
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luvscakes, I'm sorry that scp1127's tone was harsh. (If you've ever read her other business-oriented responses, that's just her way.) She'd make a terrible Dear Abby advice columnist. But she does offer good solid advice that can help people avoid some costly mistakes and failures. Often, we are each too subjective in how we look at our particular business direction. Getting feedback on CC (even if it's too blunt) can be helpful if we look objectively at these suggestions.

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scp1127 Posted 19 Feb 2012 , 3:00am
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Sorry but OP, you are not the only one who reads and studies these posts. Because you asked the question, it proved that you did not have the knowledge to be taking the step to look at storefronts. And if your husband didn't stop you, he doesn't either. Any business 101 student could deduce the same thing.

It would be unfair to the CC readers to not point out the huge danger in this path. You posted in the business section. And no, people did not answer your question, because it cannot be answered.

So to everyone except the OP, please gather all of your information, do your business plan, and plug in hypothetical rents in the equation that are in line with your market. Having a shop with only one offering, especially a single line that is a trend now, but will give way to some other trend, is risky except in cities that can handle it with proprietors who are knowledgeable and capitalized.

And you readers will be very informed because on CC, you learned just how damaging signing that lease can be on your income for many years to come. All a saavy landlord needs is for some energetic person to sign a lease on a unit that isn't leased. Even if you go out of business in a year, the landlord is still entitled to the rent for the next four years. He can garnish your wages or force the sale of your house. So was my post harsh. Yep, just like that landlord will be harsh in collecting his rent after you have already lost everything and he takes your future income.

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scp1127 Posted 19 Feb 2012 , 6:28am
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I think I need to explain my answer, which is not harsh, but real.

First 85% of businesses fail in the first year, food service stats are higher.

Second, those who make it through the first year have a slim chance of making it the second year.

These stats have not changed in the thirty years that I have known them and seen it happen more than 100 times personally (long story).

Next... there are many businessmen who make a very good living off of these stats, and of the ones I know personally, they make millions.

Here's the scenario: Around any town and city, there are vacant commercial spaces. Some are downtown, some just in areas that are no longer the hot spot, and some in less desirable areas. If you pay close attention, you will see small businesses come and go in these spots.

The landlord has a starry eyed future business owner looking at his space. He already knows the business will fail by just listening to the person, just as I can do here on CC. He is encouraging and gets the leasee excited and pumped and a lease is signed for 5 to 10 years.

The future business person comes up with deposits and rent and hands over a check for thousands of dollars and she gets the keys.

She has a higher than 85% chance of failure and she does fail. The landlord then attaches her house, car, paycheck, and bank account for the rent due. She is ruined.

The landlord does this with many properties and even though they are empty, someone is struggling with the rent. Then that failed business person gets tapped out. The landlord then signs on another excited person and the chain starts again.

This scenario is also prevalent in owner financed homes. The money is made by gathering deposits and expecting the default. One home can be sold essentually every few years.

So before you call me names, maybe you should not be so naive and fall into the age old trap. It is very simple to decipher whether a person knows how to run a business by their posts. Really simple. Instead of backtracking and trying to prove otherwise, the smart thing to do is to get a little more experience and education, start smaller, and have a plan.

I'm not trying to be mean. I am being realistic. A cupcake shop would have to sell a lot of cupcakes to overcome buildout and rent. This kind of volume would require employees which is another huge expense.

Many people on CC have successful storefronts, but they had a smart plan and they worked it. They had the knowledge, capital, and experience to make the right decisions and they are happy to share on CC. If you listen to them, they will guide you through the process and share war stories that may help you not make the same mistake.

If you want the fairy tale version of business ownership, post in the decorating forum.

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luvscakes Posted 19 Feb 2012 , 4:23pm
post #12 of 15

Again, you shared a whole bunch of info without even knowing my situation and by making amass amount of assumptions and you know what they say when you ASSUME..... And if you are going to make assumptions about someone perhaps begin doing it by assuming the best in people.

You assumed big things about both me, my family, and the building I was looking at. 2 of which already were small scale food shops and won't need much.

My husband is part of one of the top 20 fortune 500 companies in our country. He knows business very well. He just happens to have no time to direct me in this right now SO AS STATED IN MY ORIGINAL POST, I was simply hoping to get some properties in line as far as cost (since they are in such varying locations) so that if he asked me for that next for the business plan, I would be prepared and he's have one less thing to do.

Please don't assume you are better than someone else, or know anything about their lives... because you don't.

I got the info that I needed from the other posters who were kind. I need to have the business plan done first- period. Your posts continues to be nothing but insolent and arrogant and that is not at all what these forums are about.

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scp1127 Posted 20 Feb 2012 , 5:25am
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Sorry, they did not answer your question. And working for someone else in a large corporation means you do one tiny little job. I doubt he runs a F-500 business. I would have been more impressed if you said he managed a tire store. That is experience.

So before you keep calling me names, look at your posts. I could poke many more holes but I won't.

And calling me arrogant, you must think CC revolves around you. Just because you ask questions that clearly show your level of experience doesn't mean the there are not many readers who read the business forum and see the plain clear advice. Every business owner sees clearly what I have pointed out. I have gotten plenty of pm's on this thread wondering why I would bother helping someone who has no idea about business. I'm not helping you. I'm helping those who think clearly about their business path and want to make sure they don't put the cart before the horse.

Prove me wrong and let us know the demographics by income and location (do you know where to even get this information), target market, branding, marketing plan, COGS without the rent variable (or better, COGS showing what rent fits the model, % in your state for bakery WC, type of accounting planned,utilities estimate by sf, your liability insurance, vehicle, and equipment insurance, equipment outlay, buildout rough estimates, grease trap requirements, sf needed, and capital. What has your plumber and electrician said about what to look for in the rented space? Surely if you are this far in the process you have already had those two consultations to get a rough idea of buildout according to the specs required by your local HD. Of course you haven't had that consultation because those are the people who answer the question. Not CC members.

Sorry, but calling me names doesn't work. For those of you seriously looking to open a business that makes it past the first year, make sure you clearly understand the list above that is only a small amount of information needed for a complete business plan.

Remember, 85% fail due to inexperience and undercapitalization. I hope all of you who are serious will not be a statistic.

Ask for advice, not here because you will get mixed messages. Ask a friend who brokers mortgages, your local bank (even if you don't need a loan, they will give you sound advice), similar businesses in neighboring towns, an accountant, and any successful small business owner in your town. Check with you Chamber of Commerce. They are a wealth of information.

If you don't know the answers, put off your plans and get the information. Enroll in some business classes. Find a mentor. Your dream can be a reality. Just make every effort to make the dream last past the first year.

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KoryAK Posted 20 Feb 2012 , 5:44am
post #14 of 15

scp, I think I love you

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scp1127 Posted 20 Feb 2012 , 6:06am
post #15 of 15

Hey KoryAK, I always stop to read your posts.

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