After 22 years in the Air Force, Tom McMahon was ready for a change. Rather than take a government contracting job upon his retirement, McMahon was inspired by family members who had opened retail small businesses.
A Washington, D.C.-focused gift shop became McMahon’s dream for the next part of his career. Together with his SCORE mentor and other experts, he was able to make his dream a reality.
First step to success: evaluate needs
McMahon had passion, but knew he needed help to properly launch his business. His mentor, retail expert Richard Rose, started meeting with the aspiring shop owner to make a startup to-do list.
Their top priorities: finding a location with the help of a leasing agent, developing a letter of intent, negotiating a lease, and ensuring the landlord’s responsibilities for the property were fair.
“A surprise to me, the leasing agent is completely free to the tenant to be,” McMahon admitted after Rose helped him find an agent who could narrow down on the right neighborhood for his shop. “The leasing agent was there at each step along the way until we occupied the space,” he said.
Seek negotiation help
Once they discovered a space where McMahon could picture his shop, he worked with his leasing agent and mentor to develop a letter of intent, which begins the discussion for the most basic -- but essential -- aspects of the lease, like rent terms. McMahon’s letter of intent experienced several rounds of revision as both parties negotiated.
“If I had been on my own,” McMahon admits, “out of ignorance I would have likely just accepted the terms that the landlord presented in his initial letter.” Those terms could have sunk McMahon’s business before it even opened: the landlord had initially asked for a full guarantee, meaning McMahon would have been responsible for the full term of the 10-year lease even if he went out of business.
McMahon was also able to negotiate for several months of free rent. “Any new business needs a few months to get going, and my SCORE mentor stated that it was absolutely common and reasonable for me to ask for several months of free rent in order to posture for a successful beginning,” McMahon recalled. After receiving three months of free rent to build out the space and prepare to open, “We were able to open for business without being tens of thousands of dollars further in debt.”
Invest in experts
Once it was time to start negotiating the official lease, McMahon called on another expert: an attorney. “In addition to the lawyer reviewing every part of the lease with a fine-toothed comb, my leasing agent and SCORE mentor were there every step of the way, providing inputs and recommendations,” McMahon said. “Using a lawyer for lease development allowed us to proceed with decreased anxiety, knowing that we were entering into this new venture in the best legal position possible.”
The final part of the lease process was determining that the landlord and tenant had fair responsibilities for taking care of the property. “Without having any experience in this realm combined with dealing with a 100-year-old building, the build-out process could have been disastrous,” McMahon said of the initial terms, which put all permitting and build-out duties on McMahon. But the thoroughness of his letter of intent and lease development meant McMahon was protected from such great responsibilities. “The space was ultimately delivered to us in a condition that we could immediately start working in,” McMahon said.
“Without the assistance of SCORE, Urban Dwell may never have come to be, or would either still be in the development phase or worse, in a situation that put us in a very compromised position,” McMahon reflects. “I recommend that anyone starting a business utilize and leverage the years of invaluable experience that a SCORE mentor brings to the table.”
Have a leasing question? Team up with a SCORE mentor to make sure your small business plans are on the right track.