Sue had been operating her restaurant on the outside of town in a small rented location. She was doing well but knew that being in the heart of the city would be better.
Sue had wisely earmarked only a portion of her savings for this investment, $50,000. She had been online and found the right new equipment and locally identified a craftsman to create the tables and chairs, carefully considered for cost and ambience.
Her preferred location was on the main street but, unfortunately, there were not any available spaces for rent. There was a location merely two blocks away, in a high-density business and lightly-travelled tourist location. While not her preferred location, it was okay. The lease was signed.
What she did not fully consider was the condition of the space to be able to carry out her business: Health departments have requirements. Equipment often takes higher voltage than routine buildings have. Configuration of space did not meet needs. It did not adequately providing space for equipment, provide venting, adequately separate diners from food preparation, include bathrooms reasonable for clientele and employees, have enough storage capacity, etc.
Perhaps the $50,000 investment funds would have met the demands but, for this space, it was inadequate. The move required, instead an additional $90,000, digging deeper into Sue’s retirement funds, money not likely returned in the sale or operation of the business in the foreseeable future.
Sue was on the right track deciding to move downtown but,like with so many plans the devil is in the details, adequate planning and research was lacking.
Investment in infrastructure of leased space is often not returned to the seller in the sale of the business. Leased space is owned by the landlord, not the lessee, in this case Sue. Typically leasehold improvements stay with the landlord. The entrepreneur buying a business may enjoy these refinements but likely will not pay nearly the investment for them.
Sue went on to run a great restaurant in the new location. Upon sale, she will do well on the cash flow of the business but not fully realize that initial investment and have a greatly reduced retirement fund.