A guide to due diligence for businesses on the move
If you’re a business owner, you’re certain to encounter one or both of the following milestones: selecting your business’s first commercial location and deciding where to transition once you’ve outgrown your existing space. One is a hopeful sign of the amazing things to come for your new business and the other is a benchmark of progress and growth that signifies a need for change.
Delving into the world of commercial real estate can be daunting. There are seemingly endless things to consider – and your due diligence is required when selecting a property for your business.
“When contemplating site selection, space planning or anything related to commercial real estate strategy, a business owner would be greatly served by making a checklist,” said Nathaniel Eyde, member of The Eyde Co. “That checklist, however, is much less of a to-do list and much more of a statement of the core values of the business.”
So, where do you begin? What’s the best location? How much will it cost? What features are a necessity?
If you’re struggling to answer those questions or uncertain what to place on your checklist, Greater Lansing Business Monthly is here to help you navigate selecting and purchasing or renting your next location.
Identify your Needs
According to Eyde, a business owner’s site selection checklist should start with this question: What exactly do I need in order to succeed in this business?
“With some businesses, it’s very simple, such as ‘I have a trucking company, so I need to be near a freeway,’” said Eyde. “With others, it’s more complex. ‘Should I be downtown or in the suburbs?’ ‘Do I really need four parking spaces per 1,000 square feet of office space?’ The best thing a business owner can do is to start with their own most major intentions or needs, then work down from there.”
Buy or Rent
When determining whether to buy or rent, it’s important that you have a clear understanding of your business’s financial standing. As a business owner, it’s up to you to determine which is best for your organization’s future. Buying commercial property has a larger upfront cost and typically requires a more thorough vetting process; whereas renting exchanges property management and lower upfront costs for what will likely be a higher cost over an extended period of time.
Seek Professional Guidance
While the decision remains in your hands, a little help from someone familiar with commercial properties is a welcome asset. According to Amy Richter-Perkins, senior associate and retail adviser for Martin Commercial Properties, you may want to talk to your certified public accountant about the benefits and ramifications of purchasing versus leasing a building or space for your business. Or you may work with a commercial property manager directly to see which of his or her available properties would serve as good fit for your business.
Once the core values are identified, then the time comes to consult professionals and partners. In the commercial real estate game, there are several resources when it comes to site selection.
Commercial Real Estate Owners
“Often, a business owner will elect to work directly with an owner of a property or properties,” said Eyde. “This approach has its own advantages in that the business owner can gain a more granular knowledge of a specific building or space, and that owner can have the benefit of a clear and direct communication between two principals without the intermediary.”
Real Estate Agents
“Hire a real estate agent to represent you. While any agent licensed in the state of Michigan can assist you, it is recommended that you work with a broker specializing in commercial real estate in the area you are looking in” said Richter-Perkins. “If you don’t know an agent, you can ask for recommendations from municipal officials, your lender or other business professionals, or even perform a quick Google search to find an agent in your area.”
Third-party Commercial Brokerages
Brokers play a unique role in the process and, in most cases, it’s best to have one available to assist with the negotiation and acquisition process. Brokers can keep you on track and help ensure you’ve followed your checklist to a T.
“A commercial broker will help guide you through the process, will help negotiate the best possible purchase price and terms,” said Richter-Perkins. “They’ll also ensure that your due diligence period is sufficient to investigate all necessary aspects to determine if the property is suited for your use, which may include performing required environmental inspections, obtaining lender required surveys and appraisals, receiving municipality approvals, and evaluation of improvement/construction costs for your intended use.”
Limitations and Rules/Regulations
Knowing the lay of the land is valuable information for selecting a commercial destination, especially if you’re moving into a municipality where you’ve had limited interactions. Each municipality has its own set of rules and regulations regarding property management, zoning and more. These details could limit the function and processes of your business or present new obstacles if selecting to purchase a property that may need to be modified for adherence. Vetting each property with a working knowledge of the municipality could save you from major unanticipated costs and fines down the road
Your Key to Success
Throughout your quest for a new commercial property, be sure to ask questions, seek out professional advice and do whatever it takes to be certain you’ve done your due diligence. The key to success lies within your approach. Creating a clearly defined set of goals, determining your financial standing and considering necessary personnel for involvement will place you on the right track.
“The key to a successful site search is having clear goals and intentions,” said Eyde. “You must then select a service provider who will listen to and process that and follow up with question after question and answer after answer that leads to your fulfillment of those values and, ultimately, the space to do business that is right for you.”