Dealing with Your Landlord? This Is Better Than Begging!
- 3 MIN READ |
- 0 Comment |
- 577 |
- by ROI Co-Founders |
- April 20, 2020 |
- COVID 19 |
Let's assume your stores have been closed for weeks now.
We recognize how conscientious you are. So, after paying what you can to your employees (and yourself), the next most-worrisome dilemma is your rent.
- How best to get some immediate relief from each month's lease payment?
- And you wonder, what would be the best way to negotiate with your landlord?
As you likely have discovered, a common choice for many landlords is to offer to defer your payments. But that means taking on more debt, as those payments are only being postponed to a later point in time.
You need a better solution than that.
What you need is a Big Picture financial plan that you can share with your landlord who, likely, would like to be part of your solution, not just a problem.
Here are some steps to get you to that better solution.
Step 1: Look ahead to what "recovery" means
Use your 2019 results as your baseline for comparison. Then, compared to 2019:
- Make some assumptions about 2020 sales that seem defensible to you. For example, maybe you assume that the 2nd Quarter – April, May & June – will be off 75% from 2019; 3rd Quarter will be off 50%; Holiday will be off 30%.
- Next, make some assumptions about expenses. Be sure that these reflect the rent relief you are seeking. Again, be as realistic as you can.
- Using the Retailer's 3-in-1 Cash Flow Calculator (go here for free access), make those assumed entries for 2020.
- What would your P&L for 2020 look like? (We know; grim!) What about the Cash Flow?
Next, on to the 2021 plan!
Don't stop now (and don't look down.) The goal is to see how the "New Normal" could look.
- First, your sales assumptions: will 2021 be 80% of Pre-COVID? 95%? 120%? Choose one.
- What are your assumptions for the 2021 Expenses? (Be sure to show Occupancy costs increasing. Your landlord needs to see a promising future too.)
- Now, thanks to the 3-in-1 Calculator, what would 2021 look like? Any profits? Less of a loss than 2020? And what about Cash Flow?
Okay, now pause: take a careful look at this.
- If that is what recovery and the New Normal look like, do you want to get there?
- Does it have any appeal for you?
If yes, congratulations! Okay, armed with those plans, on to the next step.
Step 2: Set a meeting with your landlord.
Remember, your landlord has almost as much at stake in your survival as do you. Now is the time to team up!
Prepare these items for your show-n-tell.
- For a "baseline", show your 2019 results: Call out Occupancy costs, both in dollars, and as a percent of sales.
- Next, share your assumptions for 2020, specifically sales and expenses, including rent relief you seek.
- Then, show your projections for how 2020 would turn out (print outs from the 3-in-1 Calculator.)
-- Given the rent concessions you are proposing, call out the likely Occupancy costs (in $ and as % of sales).
-- Note how merchandise vendors are being impacted (eg, your purchases will decline at least 50% in 2020.)
-- Briefly review your projected P&L and Cash Flow.
Next, show what your vision of survival, the "New Normal" looks like...financially!
- Start with your assumptions: Sales for 2021; Expenses (especially noting increases in your Occupancy costs; more revenue for the landlord)
- Now, show your 2021 projections for profits and cash flow.
The Big Reveal
You reasonably expect your business to be thriving in the New Normal! And that means a thriving tenant for your landlord!
- In other words, you have not only a vision for survival, you have a defensible financial plan for getting there.
Yes, as a plan, it is only as good as the assumptions. But, you can explain and defend all of those assumptions.
And, you can expect your landlord to make some further suggestions, which can be very helpful. This is how you team up.
Step 3: And now, one more part of these discussions.
It's not just new lease terms you need to negotiate. You will be needing some additional leasehold improvements.
In order for your store to meet those sales assumptions for 2020 and 2021, there probably will be some changes that must happen BEFORE YOU CAN RE-OPEN.
- It is imperative that your store LOOKS safe and welcoming for your customers.
- This could mean physical changes to the store (some of which may be mandated).
For instance, changing the layout to allow more distance between shoppers; expanding aisle width; separating cash wraps; increases in lighting; enhanced cleaning, etc, etc.
- Identify all that you can; prioritize those that must be done before you can re-open.
- As many of them might be built-in, they represent leasehold improvements that will stay with the landlord whenever you vacate the space.
Be sure that you address these leasehold improvements: Who will be responsible? Who will pay?
Daring to Look Ahead
You did the hard work. You made the assumptions. Drastic sales declines; wrenching expense cuts.
And then you dared to look at what that might mean in financial terms. True, a grim 2020. But a business on a path to a better 2021 and onward!
Most of all, you positioned yourself as the reasonable business person you are, not a victimized tenant.
Much better than begging, right??