July 23, 2021 | Tannus Quatre, PT, MBA

3 Minute Read

Business School 101 for Physical Therapy: Review Your Lease

The Business School 101 for Physical Therapy series is designed for outpatient therapy business owners and leaders. Over the next several weeks, we will explore concepts and strategies within business operations, marketing, finance, customer knowledge, and more. Of course, it is not meant to replace a traditional MBA, but we hope it will provide helpful insights, tips, or refreshers for growth-minded business novices and veterans alike.

Four Steps to a Lease that Works

There are few decisions made by practice owners that have as long-term and far-reaching implications as that of signing a lease. Outliving the tenure of many employees, your decision on a lease will directly impact your patients, your workflow, and your bottom line for years following the decision to sign.

Even as such an important consideration, leases are often evaluated alone, neglecting the time and energy necessary to make sure the terms are favorable and affordable to the business entity. Evaluated properly, leases do not have to be intimidating, nor do they need to gobble up countless hours of precious time in determining whether or not to sign on the dotted line.

Follow these four steps and make sure your next lease serves you well for years to come:

  1. Always get a second set of eyes on the lease.  This can be done by a lawyer (highly recommended), business advisor, or even a savvy member of your staff. Regardless of whom you decide to review alongside you, find someone you trust and make sure they will review carefully and help point out considerations you may have missed.
  2. Negotiate the lease using a qualified representative.  Often taking the form of a commercial realtor or agent, make sure you negotiate favorable terms using someone familiar with commercial property in your market. Never assume the landlord or leasing agent will draft a fair agreement on your behalf. Their job is to protect their interests, not yours.
  3. Understand personal guarantees.  Even with the best representative, you will often be required to sign a personal guarantee in order to take over the desired space. Personal guarantees mean that if the business goes south, your personal assets can be sought by the landlord in order to satisfy terms which the business entity cannot. The line between business failure and personal bankruptcy is one that is important to understand, and personal guarantees can easily become the link between the two if not carefully considered.
  4. Project your revenues over the lease term.  You may be signing a lease now, but you’ll likely still be paying on it in three to five years. Project your revenues over the same period to ensure you are able to make the payments comfortably.

Getting the right lease in place will take more than five minutes, but making sure you don’t leave any stone unturned is as easy and quick as implementing the steps above. Put the time in upfront and save big in terms of headache and financial security.

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