Building Size, Layout, Appearance

April 13, 2006

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The physical structure and layout of your facility should function as a tool that helps you to efficiently do all the things necessary to bring your business's products or services to its customers.

Retail and service businesses: Retail and services businesses that depend on customers coming into their facilities must place considerable emphasis on their appearance. The facility's exterior and interior design, decorating, and maintenance should make customers want to come into the business. Depending on the type of the business, the interior of the facility may be primarily set up to maximize efficiency (the idea being, "get them in, get them out"). This could be the objective of a tool rental business or a neighborhood convenience food store. Or the facility could be set up to encourage customers to browse through the store, hopefully finding something to buy in addition to what they came into the store to get.

Retail and service businesses vary greatly in their facility size requirements and in their need for on-site inventory or supply storage. Businesses where customers are confined to a small sales area, and that have little or no inventory storage requirements, can exist in very small facilities. This is not the case for businesses where the customers must utilize a lot of space (such as on a golf course!), or where the items kept in inventory are large and numerous (such as is the case for a new car dealer).

Wholesalers and manufacturers: Wholesalers and manufacturers generally do not have customers come into their facilities. Because of this, their facilities can be Spartan, although the effect of the facility's appearance on efficiency and employee morale should not be ignored.

Wholesale businesses often require large, open facilities that put a premium on efficient material handling. This may take the form of wide aisles and storage racks that allow the use of lift trucks, large shipping and receiving docks, and a location that gives the facility good access to transportation facilities.

Small manufacturing businesses may not require any specialized facilities, their prime need usually being enough space for their supply storage, manufacturing processes, and product shipment. The facilities of manufacturers may need to be highly specialized to accommodate heavy machinery and assembly lines.

Modifications to building needed: Regardless of the type of your business, you may run into this situation. You find a facility that is well located, with a building that generally meets your requirements for size, layout, and appearance. In fact, the building is almost perfect. But, there is one thing about it that must be changed before you can use it. This could be something like adding or widening access doors, or increasing the capacity of the ventilation system. Before you jump into acquiring this almost perfect facility, you should consider these factors:

How much would it cost? At a minimum, you will need to get a detailed estimate of how much the additional work would cost. If the work will be costly and vital to the operation of your business, you may want to press for price or rent concessions from the seller or landlord. You should also carefully consider getting actual bids on the work, and negotiating a clause in your purchase contract or lease that will allow you to get out of the deal if the work is not completed by a specified time before closing the real estate or lease transaction. If the work can't be finished before closing, a portion of the sale price or lease security deposit should be held in escrow (that is, deposited with an impartial third party) to guarantee completion.
Sales contract or lease clauses that provide for different terms based on the happening (or not happening) of a specified event are called contingency provisions. These type of provisions can be extremely useful, particularly when you are entering a transaction that could be financially ruinous if you "don't get it right." But to effectively protect you, such a contingency provision will almost certainly have to be customized to fit your particular situation. To do this, we strongly advise you to seek the advice of an attorney who is knowledgeable in the field of commercial real estate transactions.
Will the change be allowed? You'll need to investigate which permits (if any) you would need from local authorities to do the work, and whether you would need a zoning or building code variance for the modification.
How long would it take? If the modification to the building would be costly, and would be going on as you use the building, this could have a negative effect on the operation of your business.