20 March

How Much Can You Afford to Spend On Occupancy Costs?

Synergy Restaurant Consultants | Restaurant Management
Synergy Restaurant Consultants

We have found that many operators and startups don’t have all the financial tools at their disposal to calculate what they can afford to spend on occupancy costs. Often they are given a cost per square foot AND an additional CAM charge (common area and maintenance) OR a Triple net fee (which includes all taxes) which must be included in the total cost per square foot.

As an operator of a new or expanding business, you need to know what the all-in cost per square foot will be. To do so, you multiply the total square footage TIMES the combined rent and common charges to determine the annualized occupancy costs. It’s imperative to know what that total cost will be in order to determine what you can afford to spend per month based on your projected sales.

We have put together a tool to help operators understand the revenue required to support occupancy costs that can be used when determining if an available space is suitable.

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When opening a new location or a new concept, we strongly recommend developing a realistic financial model with conservative projections, so you don’t get in over your head. Before deciding on a site, check to see if you can realistically achieve your revenue goals. Conduct a thorough feasibility assessment of the market including traffic patterns, street visibility, and market density throughout the day, competitive landscape, potential revenue streams, catering, and delivery opportunities.

Once you feel that you have a realistic understanding of projected annualized sales, divide that figure by the total square footage to determine estimated revenue per square foot. Using this calculating tool, you can determine what you can afford to spend. Simply enter the location square footage, actual base rent, and associated expenses for year one to calculate total occupancy costs per square foot. Once that has been determined the lower chart will detail the gross sales needed to achieve your occupancy percentage goals, which should ideally be below 8%.

If you need some professional guidance in developing your financial model, finding a new location, or any other aspect relating to your new location give us a call at (888) 861.9212 or get in touch info@synergyconsultants.com

Restaurant Management