calculating what you can afford for rent.

[k100danny]

I wonder if anyone out there can give me an example of how they would come to this figure, I know there ill be no hard and fast rules. What i mean by afford is not just if you have the money to pay the rent as that's pretty easy to work out. What I mean is what percentage of your gross profit should you be looking to use for rent?

I have outgrown my business premises, well I did quite a while ago but up until now nothing really suitable had come up. A unit has just come up to let nearby which is perfect but is 4 times out current rent plus rates, now im unsure if i think it's expensive because I'm on such a good deal now or if i'm just being overly cautious about having higher overheads.

I do believe even with me being a pessimist that the new unit will mean more profit, it means we can hold more items in stock instead of moving them on quicker at a lower price to make way for new stock, something e have to do now as space is restricting us. It is a big step forward for me and quite daunting so i just wondered if a client came to you and asked what should we be looking to pay out for rent if there is a way you calculate this?

we can afford the new rent on what we take now, i would have to take less money but it is perfectly doable so even if the increase didn't happen to the extent I think it will I know I can still pay the bills. We have also been told by the agent that this place is available on flexible terms, although I don't know exactly what these terms could be it does sound slightly less daunting that a 3-5 years lease should it not go to plan.

any help much appreciated.

 

[john1989]

As you say, there is no hard and fast rule. For example, a high street retailer will spend more in rent in proportion to turnover than a back street solicitor.

If the unit is 4 times your current rent, you should be budgeting for bigger overhead costs such as rates, gas and electric, insurances, staffing etc.

You also mention that the new premises will mean you will be able to have a longer stock holding period – have you considered the cash flow impact of this?

I’d also recommend getting a solicitor on board for the lease should you wish to proceed.

Before rushing into this I would draw up some in depth budgets and cash flow forecasts. A beer mat calculation is not the best way forward for such an important business decision.

 

[Opinion87]

I don't have much to add, but our rent works out around 9% of our T/O, including rates it's around 11.5% of T/O.