By Rieva Lesonsky
Skyrocketing rents are just one of the inflation challenges small businesses currently face, but it’s a major one that can affect the survival of your business. If your business is struggling with high rents and fewer customers after the pandemic, you can try renegotiating with your landlord. Today, more and more landlords are willing to lower their rents to avoid looking for new tenants or dealing with empty storefronts.
Rent is not the only inflationary problem entrepreneurs currently face. Many business owners feel pressured to cut costs, but trying to retain employees while we’re still in the midst of ‘The Great Resignation’ becomes an added challenge.
To get some insights, I recently spoke with Ben Johnston, the COO of Captainan alternative lender, on how small business owners can save money and work their way through inflationary pressures.
Rieva Lesonsky: Inflation affects so many small businesses these days, and rental costs are one of the main stressors faced by entrepreneurs. How can entrepreneurs renegotiate the rent with their landlords?
Ben Johnston: Entrepreneurs must be transparent with their landlords. If you’re struggling with higher costs, discuss with your landlord how much rent you can afford and what the alternative would be if you can’t agree on that amount. Landlords do not want to be confronted with empty shop windows. Come to the bargain armed with current market rents from other similar locations.
Lesonsky: Are the negotiations different for store and/or restaurant owners and those in office buildings?
johnston: The strength of the current rental market varies by geographic location, but we are seeing a resurgent rental market for restaurants and retail in many locations. This is especially the case in residential areas.
Office buildings in many locations have yet to return to their pre-pandemic occupations as companies remain flexible in working from home and hiring full-time remote workers. And restaurants and shops in and around many office buildings continue to suffer from a decrease in foot traffic. So when negotiating with your landlord, keep an eye out for recent trends in foot traffic in your location and consider linking rent to vacancy rates in certain nearby office buildings.
Lesonsky: Many office-based companies encourage their employees to return to the office. Would they be better off keeping their distance (to eliminate rental inflation) until inflation starts to subside or the threat of recession is over?
johnston: Many office-based companies have completely reinvented the way work is done since the start of the pandemic and have become increasingly comfortable with remote working and working outside traditional office hours.
While some companies encourage a return to the office, only a minority require everyone to be back five days a week. This means that over time, companies will shrink the size of their office footprint relative to their workforce. For companies struggling with inflation and an uncertain economy, shrinking office space can be a smart way to preserve margins.
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Lesonsky: What are other ways for companies to lower their operating costs to fight inflation?
johnston: Wage inflation and a shortage of qualified workers are forcing many companies to add technology that can reduce labor needs. Many implement software that facilitates order taking, payments, inventory management and accounting. Manufacturers are developing robotic and 3D printing technologies, while other companies are looking abroad to secure administrative functions and call center functions at a lower cost.
The current strength of the US dollar makes attracting foreign workers even more attractive.
Lesonsky: Since one of the biggest challenges small business owners face today is employee retention, should you work around salary or benefit cuts?
johnston: It’s a hot job market in the United States today, so companies looking to cut costs will struggle to do so by focusing on the salaries and benefits of current employees. Instead, they should focus on finding ways to make their employees more efficient and consider low-cost ideas to improve employee satisfaction, such as flexible work schedules and remote working if the job allows.
Lesonsky: Instead of cutting costs, do you have any ideas on how to increase revenue in times like these?
johnston: Times of economic stress are often times of great ingenuity. In today’s economy, companies struggle not only with higher costs, but also with longer lead times and an uncertain global supply chain. Companies that can use technology to produce products locally can shorten the supply chain and give their customers confidence in on-time delivery. Today’s customers will be willing to pay a premium for the speed and reliability of sourcing.
About the author
Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been covering small business and entrepreneurship for over 30 years. Get more insight into business trends by signing up with her free Flow newsletter.