PROTECTING THE BOTTOM LINE

Occupancy costs are a vital consideration in the restaurant business, encompassing everything from rent to taxes, insurance, maintenance, and common area maintenance (CAM). These costs can have a substantial impact on the bottom line, so understanding and managing them effectively is essential for profitability.

A great location paired with a fair lease agreement can set the stage for success. The terms of the lease, such as the type and duration, can significantly influence occupancy costs. Many restaurants opt for a “Triple Net” (NNN) lease, where the tenant is responsible for rent, taxes, insurance, and maintenance repairs. This lease type offers a clear understanding of costs but also places the financial responsibility squarely on the restaurant’s shoulders.

Some leases may include a “kicker,” where the rent increases if certain success measures are achieved. This can be a double-edged sword, rewarding the landlord for the restaurant’s success but also potentially putting a strain on profitability if not managed carefully.

For those sharing a location with other tenants, the CAM, or common area maintenance fees, can be an additional cost to consider. These fees cover the upkeep of shared spaces like hallways, parking lots, and restrooms and can vary depending on the property and co-tenants.

If the restaurant owns its site, understanding market rents in the area can still be beneficial to gauge profitability as if rent were a factor. Owning the site eliminates many rental concerns but still requires attention to maintenance, taxes, and insurance.

Paying rent on time and maintaining the property well are not just contractual obligations; they are crucial to keeping a positive relationship with the landlord. A well-maintained property not only keeps the landlord satisfied but also contributes to a pleasant guest experience, reflecting well on the restaurant.

In conclusion, occupancy costs are multifaceted and demand careful attention and management. From negotiating favorable lease terms to understanding the implications of different lease types and maintaining the property well, each aspect plays a role in the restaurant’s overall profitability. By focusing on these factors and being diligent with obligations, restaurant owners can position themselves for success in their chosen location without undue strain on their finances. Whether leasing or owning, a comprehensive approach to managing occupancy costs can contribute to a thriving and financially healthy restaurant.