Author Box
Articles Categories
All Categories
Articles Resources

Opening a New Restaurant - How to Choose a Location

February 15, 2012 | Comments: 0 | Views: 168

Leasing Space For your Smoothie Shop

Doing the Spadework

Research your area thoroughly. Demographic information can usually be obtained at a prominent real estate office in the area.

• Use maps and zoning information. • Determine physical and psychological barriers. • Locate colleges, universities, factories, shopping centers and offices. • Differentiate between commercial and residential areas. • Newspapers and/or realtors may be helpful. • If a good location is occupied, watch it as it may suddenly become available.

Drive through the area extensively. Visit potential locations on different days of the week and at different times of the day to get a complete understanding of the population base and traffic patterns. This will help to determine a location's capacity for early and late business. Don't forget to analyze Saturday and Sunday traffic, too.

Take note of your initial reaction to the location. Make a list of its strengths and weaknesses. This will help you assess the quality of this location.

Characteristics of a Good Location

Look for locations that have one or more of the following characteristics.

1. 250 to 1,000 square feet 2. High visibility (both storefront and signage) 3. High traffic count 4. Strong population back-up such as a nearby college, university, high-rise office building, dense residential area or high traffic commercial area 5. Readily accessible parking 6. Busy shopping center or mall 7. High energy level

Use of Real Estate Brokers/Agents

Typically, the real estate agents receive a commission from the seller that is based on a percentage of the price paid for the building lot. It is, therefore, important to remember other real estate agents will be negotiating in the owner's, and thus their own, best interests. Conduct negotiations with the real estate agent in the same manner as negotiations with a property owner.

Analyzing a Potential Location

Once you identify a potential site, you need to consider many factors. Before an agreement is signed, you should have an idea of the related start-up costs and be completely familiar with the area. Check for zoning requirements and restrictions, extra fees that may be assessed for sewer services and/or water consumption, and anything else connected to operating in that location.

Factors to consider:

• Operating costs • High risk area • The cost of required improvements • Loan payment • The distance from the building to the street • Zoning requirements • Size and positioning of signage (check zoning restrictions!) • Common area maintenance charges • Taxes • Insurance • Break-even point

Break-Even Point

A break-even point is the minimum amount of sales that one must achieve in order to cover all costs before making a profit. The formula for calculating break-even is as follows:

Fixed Costs divided by Gross Margin Ratio

Determine the estimated break-even point of the site before committing to a location. See Figure 1 at the end of this chapter for a sample form we use for calculating a weekly break-even point. You will have to estimate each item included on the form to arrive at an estimated break-even point for the site.

Definition of Terms

Fixed costs are those costs that DO NOT vary with sales, but instead are necessary expenditures. Fixed costs include the following:

1. Gas 2. Electricity 3. Telephone 4. Garbage Removal 5. Insurance 6. Loan Payments 7. Miscellaneous 8. Repairs and Maintenance

Variable costs are those costs that DO vary in response to sales; that is, as sales go up, so do your costs. Variable costs equal approximately 48.0% and include the following:

Food (estimated) 25.0% Advertising Fee 3.0% Labor +24.0% 52.0%

Gross margin ratio is the total sales percentage minus the variable costs percentage. The gross margin ratio for a typical smoothie store is approximately 48.0%.



Taking all these factors into account, here is the break-even formula:

Fixed Costs divided by 48%

Keep in mind that no matter what method you choose, the figures you receive are estimates and the actual costs of operating in that location may vary.


Once a site is selected, the leasing process begins. Responsibility for negotiating your lease is yours. The recommended real estate agent will assist you in negotiating the economic terms of the lease. Once economic terms are settled, you and the real estate agent will finalize the remainder of the terms with the Landlord.

More often than not, an available location will have a sign with information on how to contact the Landlord or his agent. If contact is not immediately established, be persistent. Repeated phone calls to an answering service or even a visit to the Landlord's office will head off potential lessees from striking a deal with the Landlord before you've had a chance to speak with him.

If it appears that a site is available for rent and there is no information on how or where to contact the Landlord, contact nearby tenants or check with the city records for the Landlord's name. Again, make contact immediately!

Initial Meeting with the Landlord

First impressions are very important. When you meet with the Landlord you should know what you're going to say and anticipate some of the Landlord's questions.

1. Be straightforward, honest, and sincere. 2. Tell him that you will be operating the restaurant personally on a daily basis, if applicable. 3. The operation is totally committed to cleanliness and professionalism.

Preliminary Negotiations with the Landlord

You and the real estate agent will negotiate the economic terms of the lease with the Landlord. These terms include rent, term, build-out time, taxes, insurance, common area charges, landlord improvements, security deposits, etc. Carefully evaluate the Landlord's asking deal. Consider the condition of the premises, the cost of leasehold improvements and the overall strength of the location with respect to the asking rent.


1. Minimum Rent Initial negotiations will address minimum rent to be paid at the commencement of the term. Be sure this is reasonable, considering comparable properties in the same real estate market. Periodic rent escalations may be discussed as well and must be clearly stated in the lease agreement. Examples of methods of calculating escalations include:

· Annual increases of a fixed percent per year ("Rent shall increase 3% per year during the option period") · Consumer Price Index capped at 5% ("Rent shall increase in accordance with the C.P.I. In no event shall a rental increase exceed 5% per year") · A specific dollar amount increase for square footage ($14.00 per square foot during initial term; $15.00 per square foot for option)

2. Percentage Rent The rent you pay to the Landlord may be based on a percentage of sales. In this case, you may guarantee that a "minimum rent" will be paid to the Landlord with a percentage of sales paid as "additional rent." The sales figure at which you start paying percentage rent is known as the "breakpoint." It is customarily calculated as follows:

Annual Rent = % = Breakpoint

Always try to get the best possible deal: Low minimum rent with a reasonable percentage to be paid after a high sales level is attained.

3. Common Area Maintenance (CAM) Charges

Common area maintenance charges should be based on your proportionate share of the entire center. In the event the center is not completely leased, the Landlord should be responsible for the excess maintenance charges. Negotiate a limit ("cap") on the CAM charges. A cap for CAM in an existing center can be established by examining the accounting of the prior year's expenses. While it may be more difficult to anticipate the expenses for a new center, it is recommended that some figure be negotiated as a cap on CAM.


1. While you should be able to remain on the premises for at least ten (10) years with rent fixed by the lease, the initial term should be as short as can be negotiated with as many options as possible. An ideal lease term is a one-year initial term with nineteen automatic one-year options. A lease term written in this manner reduces tenant liability to a one-year maximum.

2. Rent for the renewal periods may be calculated in any number of ways: Fixed escalation of a percent per year, fixed escalations per square foot, escalations tied to C.P.I. with a cap (e.g. 5%). In all cases, rent for at least ten (10) years should be stated in the lease. Avoid agreeing to such vague language as "rent for the option periods will be at Fair Market Value" or "Rent will be agreed upon by the parties at the time of renewal."

Always negotiate sound economic deals.

Construction Responsibilities

Leasehold improvements are those improvements, which the Tenant makes to the Landlord's property. You, not the Landlord, should pay the cost of these improvements. Having the Landlord pay for improvements increases your liability and could make your rent higher.

Further Lease Negotiations

Here are some of the clauses typically negotiated with the Landlord. While it is the intention to conclude each negotiation as set forth below, concessions may be made on some of these issues during negotiations.

1. Use clause: The lease should read that the premises may be used for "A Business Name or for any other lawful purpose. Menu items will be sold for on and off premises consumption."

2. Contingency for permits: the Tenant should be able to cancel the lease if it is unable to procure the necessary permits to build and open a Business Name.

3. Assignment and subletting clause: the Tenant (the particular leasing corporation) must have the right to assign the lease or sublet the premises without the prior consent of the Landlord.

4. Your liability on the lease should be limited to one year's worth of rent, or $40,000, whichever is less. This is the maximum amount of rent that you would be responsible for in the event of default.

5. Tenant kick out clauses: These types of clauses allow the Tenant to get out of the lease at any time upon a payment to the Landlord (e.g. 3 months' rent). Alternatively, the kick out may be contingent upon one or more conditions such as the center's occupancy rate falling below 75%, or the sales falling below a specified dollar amount.

6. Landlord must permit the use of standard Business Name décor and signage. Signage should be as large as permitted by local codes and ordinances.

7. The Tenant will not agree to a radius clause, which limits the Company's ability to develop new locations.


After the lease has been negotiated and all modifications have been reached, and all changes have been made to the lease as agreed, you and the landlord will execute the lease. It is your responsibility to ensure that the lease document properly reflects your understanding of the terms of the lease, so carefully review all documents before signing your name. DO NOT take possession of the premises prior to complete execution of the Master Lease.

Commencement Dates

There are two dates that you'll need to be aware of: Term commencement and rent commencement. Term commencement is the date that your lease actually begins. Rent commencement is the date you start being charged rent. The difference between these two dates is the time that was negotiated for build-out of the location. The Landlord will notify you in writing of both the term commencement and rent commencement dates.

Security Deposits

In the event the lease did not require a security deposit or it required a deposit which is less than the two months' equivalent which you paid at the beginning of the leasing process, the balance will be returned to you upon the opening of your location. The Landlord according to the lease provisions will return the security deposit required in the lease, usually when the lease expires.


Renewal options are negotiated into your lease when you discuss economic terms with your Landlord. Each option period allows you the opportunity to renegotiate the lease or to terminate the lease with limited liability.

Expiration Date vs. Renewal Date

The expiration date indicates when your lease expires. You must take action to renegotiate or change your lease before reaching the expiration date. Once the lease expires, the Landlord has all the leverage and can request you vacate the premises.

The renewal date is the date by which you must notify the Landlord of your plans. In most cases the renewal date is specified to occur three to six months before the expiration date. To figure out the renewal date of your lease, simply subtract the "notice required" from the expiration date. For example, if the expiration date is May 15 and the notice required is 60 days, the renewal date is March 16.

Renewing Your Lease

It's very important that you are aware of your renewal date so plenty of time is allowed for renewal procedures. You can renew the lease as is, renegotiate, or terminate the lease. Whatever direction you plan to take, all plans must be finalized by the renewal date.

Why Renegotiate Your Lease?

Why not? At the very least, your lease will remain the same. Depending on the situation, however, you may be able to negotiate drastic improvements to the lease.

Your first step is to review your lease and evaluate your current situation. Decide where improvements can be made. Here are some areas you might target for improvement.

• Rent • CAM • Term • New Option Periods • Limitation of Liability/Buy-out clause • Exclusive language • Low occupancy clauses • Signage• Interior upgrades • Lease Agreement itself• Upgrade to Standard LeaseHOW TO CALCULATE WEEKLY BREAK EVEN FOR A Smoothie store (Total Fixed Costs/.48 = Weekly Break Even)

Gas Average Monthly Charge /4.8 =

Electricity Average Monthly Charge /4.8 = Telephone Average Monthly Charge __________/4.8 = Garbage Removal Average Monthly Charge /4.8 = Insurance Yearly Amount /52 = Rent (including CAM charges) Monthly Charges / 4.8 =

Miscellaneous (Taxes, office supplies, accounting fees, etc.) Yearly Amount /52 =

Repairs & Maintenance Yearly Amount / 52 = Total Fixed Costs =

Total Fixed Costs Weekly Break Even

Steve Galley is the CEO of Smoothieland Inc. If you would like more information on Opening your own smoothie shop visit

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:





Smoothie Bar



In India, employment opportunities are set to grow by a good margin in the coming year, a phase which was started in the turn of the second decade of the 21st century. organisation, candidates with

By: Sarkariexam l Business > Careers Employment l April 01, 2013 lViews: 11708

Sometimes it is amazing to see that certain jobs can precipitate huge turnouts in the recruitment drives. It is as if thousands of people were waiting for the vacancy advertisements and the moment

By: Sarkariexam l Business > Careers Employment l December 30, 2012 lViews: 690

In recent times, jobs in healthcare segments have grown tremendously. It is anticipated that this growth curve will continue for the times to come. Various factors are responsible for this

By: Sarkariexam l Business > Career Advice l December 27, 2012 lViews: 447

Are you in a dilemma whether to choose web based CRM or not? If yes, don’t worry. You aren’t the sole person having this doubt.There are numerous firms trying to make out whether investing in a

By: Reneta Vasileva l Business > Customer Service l December 23, 2012 lViews: 409

If you think about it you will realize the fact that each business has its own set of risks that are involved in it.The trade secrets that you have and the information related to the business is what

By: brumbrum1 l Business > Risk Management l December 23, 2012 lViews: 263

As the time is changing, concierge management services are now growing despite the slowing economies of the world. The main reason of it is the need that is highly specific to the people who like to

By: willsmith10 l Business > Management l December 23, 2012 lViews: 334

When it comes to bacteria and dirt accumulation, one of the common places where these elements occur is in the kitchen. Kitchens at home or in various commercial spaces can be considered as some of

By: Elizabeth H Iral Business > Restaurant Industryl April 18, 2012 lViews: 248

Dining out is a fairly normal pastime now. Restaurants have evolved from inns and taverns which were rife in the eighteenth and nineteenth century.

By: Raymond Jamesl Business > Restaurant Industryl April 17, 2012 lViews: 174

If you are going to be opening a restaurant, it is important for you to review some of the following tips which will help to increase your odds for success. Of course, no single list of tips is going

By: Thomas Fowler Shavel Business > Restaurant Industryl April 14, 2012 lViews: 221

Sustainable practices, such as using/incorporating reclaimed wood flooring in remodeling projects, are gaining popularity in the interior design and restaurant industries. Here is further information

By: Michael W Clarkl Business > Restaurant Industryl April 10, 2012 lViews: 183

As pressure grows within the UK to segregate and collect food waste at source, it's worth taking a look at the favoured food waste treatment process and some of the issues which affect its

By: Eric Monsonl Business > Restaurant Industryl April 08, 2012 lViews: 183

Finding equipment for your new coffee shop can be very difficult. (Not to mention expensive). Here are a few tips to help you source used equipment that can often be found at greatly discounted rates.

By: Kingston Elbrickl Business > Restaurant Industryl April 07, 2012 lViews: 199

Now that your floor plans are complete, it's time to begin the actual construction of your restaurant. Take your full set of plans to those city departments that must approve them. It is important to

By: Steve E Galleyl Business > Restaurant Industryl February 22, 2012 lViews: 166