Pizza on Fire: January-February 2013
By Tom StankiewiczFeatures Business and Operations Premises
Rent or own?
When it comes to renting versus owning your pizzeria’s location, I’ve
discovered in the last few months that there are pitfalls and pros to
When it comes to renting versus owning your pizzeria’s location, I’ve discovered in the last few months that there are pitfalls and pros to both situations. I have observed that most business owners who open a brand new start-up pizzeria rent the space and some of us purchase a property once the business is well established.
Many factors need to be considered when deciding to invest in a business property. As we know, location is one of the most important factors in helping the business be successful, especially if it is a start-up operation. With that in mind, very often the best locations for your business don’t offer any properties for sale because these prime spots are usually in a commercial plaza that offers units for lease only. In a situation like this, where the only option to consider is to lease, it is straightforward to go ahead and lease if the location fits perfectly with your business plan.
Once the business is well established, the owner can take the risk of moving it to a different location, as loyal customers will follow. The move can be tricky though, so my advice is to consider it very carefully before the final decision is made. The new location itself should be in very close proximity to the old one if you’re counting on your customers to continue buying your pizza. You might even mention to the clients what your plans are in the near future and note their reaction. If most of it is positive and the idea is received well then your customers will follow you.
The other advantage to owning the premises is that you have control over what the place looks like. Owning the building allows you to make the place very unique and different from other pizzerias out there. As long as you obtain permits and follow the city’s bylaws, you’re free to design and modify the space you own. This could be seen as a great advantage, especially if your goal is to stand out from the crowd of other pizzerias in your city. That’s not to say that if you’re renting you can’t redesign the premises. It all depends on your landlord and how open he or she feels to change. Your landlord needs to feel comfortable that the changes you are proposing won’t limit his or her ability to rent the space to another business when you leave.
Most of us who have been in the pizza business for a while and plan on doing it for many more years see this as our ticket to well-deserved retirement. From that perspective, buying property makes a very good business and personal investment. It will definitely increase the equity of your business and make it more attractive to buyers when you decide to sell it.
It is also interesting to note that some owners purchase the property under a newly registered business that is separate from the pizzeria. The pizzeria then leases the space from the newly created company. A conversation with a chartered accountant would be a must to ensure you understand the tax savings and implications in this situation. On the other hand, if your pizza business happens to go through a slow and rough period, the property itself is protected from creditors. Again, my advice is to speak to a legal professional to get more clarification.
One advantage to renting is that you can easily vacate the property. You’re not attached to the building and if there is something you dislike about it, it is not your obligation to fix it. You have the option of waiting until your lease expires or paying the fee specified in your lease agreement and leaving early. Some people like the fact that they don’t have to worry about having additional expenses when something needs to be replaced, for example, windows or a roof. On the flip side, when you own a property, the only way to get rid of it is to sell it. Depending on how well the building was maintained and what condition it is in, selling might not be an easy thing to do.
I think the biggest risk and worry for business owners is that most, if not all, business loans or mortgages require that you sign a personal guarantee. That means that, in the event of your business not making the required monthly payments, the financial institution will go after your personal assets. I think that is a valid concern and that is why it is important to review and analyze your business’ financial statements before you commit to anything. In tough economic times it is possible for any business – even one that has been prospering for years – to see a decrease in its sales.
In the end, each of us knows our own pizza business inside and out. We know what works best and we know our customer base pretty well. If it makes sense for you to venture into investing in business property, then there are opportunities out there, for sure. Make sure you do your research and go into it with eyes wide open. If renting a space has been an advantage for your business, then keep on doing it. There is no need to fix something that isn’t broken, particularly if the repair doesn’t net an improvement.
Tom Stankiewicz has been in the pizza business for more than 15 years. He has been the proprietor of Bondi’s Pizza in London, Ont., since 2000, and is president of the Canadian Pizza Team.
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