January
03
2017

How To Sublease Your Space

By Chris 0

You’ve taken a big leap: committed to rent, and loans, and time. You’ve dedicated yourself to attracting people to one little spot. You’ve painted the walls, assembled a desk, plugged into the Internet.

You haven’t built a gym. You’ve built a platform.

On this platform, you’ll build your living. Every square inch exists to buy your groceries. It might not be a blank slate–you put up that big rig, after all–but every little corner should be used to generate revenue. One way to leverage unused space is to sub-lease to a massage therapist, dietitian or other pro.

Here’s what you offer:
Physical location – heat, lights, cleanliness, parking, snowplowing (maybe that one’s just me)
Business costs – lights, insurance (maybe), internet access, transaction setup (debit machines,) booking and billing automation
Business processes – cleaning is covered, staff can book appointments, Prescriptive Model includes multiple services
Branding – access to a pool of trusting, high-earning clientele
Space – furnished or unfurnished.

The opportunity you’re presenting is FAR more than just space. It’s practically a turnkey business. All those business setup headaches that YOU’VE already figured out have been solved in advance for your tenant. That’s very valuable. Keep those in mind for the next step.

Here’s what you charge:

Start with the bare-bones math to determine the minimum value of the space. I’ll use an example from the TwoBrain Group this morning.

Gym size: 4160sqft at $10.96 per square foot (includes NNN)
Rental room size: 108sqft
Rental rate to break even: $1183.68 per year ($98.64 per month).

But the room is part of your business platform. You’re not renting it to break even.

According to our 4/9 model, you need to cover your fixed costs (2/9, including all Physical Location and Business Costs listed above) AND protect your profit margin (3/9). The only thing you’re NOT providing is the labor.

Your base rent is $98.64 plus 5/9 – that’s the opportunity cost to use the space. Minimum. Because you could always use it for something else.

That gives us $153.44 per month, plus transaction fees (usually 2.5-3% of VISA, M/C transactions, assuming they’re using your debit machine.)

We could stop there. Draw up a lease (TwoBrain mentoring clients get a sample version, and help filling it in) and announce your new tenant.

But there’s something ELSE of tremendous value to offer the new tenant. What’s the scariest part of starting a business? It’s not choosing the paint color…it’s RISK. What if you took on some of the risk for them?

Let’s say, for the first three months, the new tenant had the option to build their business at no risk. You simply took a percentage of their earnings in return for a higher cap. It looks like this:

Base rent: $153.44 per month
– OR –
55% of earnings up to a cap of $250 per month.

You’re taking the risk back, so the reward increases. This isn’t greed: you’re leveraging your cash resources to help them. It’s an investment. You’re still motivated to get them to profitability, and so are they. If they hit the $250 cap in the first month, they can lock in to $153.44 anytime. But if they don’t, they haven’t lost a cent; you’re paying the lease on the space until they do.

This has been a great system for me in the past. The tenant gets risk-free time to build their company in a warm, stress-free environment. And every time, they hit the cap in their first month with my help, and choose to lock into the rental rate.

But wait…there’s MORE!

As many TwoBrain gym owners have realized, you know WAY more about business than most people in your town. This CrossFit journey has meant firing-line lessons. You’ve had to learn FAST. Most people in your town aren’t even using Facebook pages, let alone ad targeting and retargeting. They don’t have staff handbooks or written policies. They’ve never negotiated a credit card rate. You, my friend, have a LOT of knowledge that will save them a LOT of money. So offer it.

If you’re paying a staff person to handle your social media, for example, they can easily add the new Massage Therapist’s social media vehicles to their workload. If they’re collecting your receipts for the bookkeeper, they can collect the therapist’s receipts too. If they’re writing Christmas cards or newsletters or blog posts…you get it. That’s worth something.

You could even negotiate a two-business rate with your bookkeeper, or save money on transaction volume with your bank…there are many ways to make this work out even better for both of you. Make sure that value translates to an increased rate, because your time (and mistakes and education) is worth a lot.

Done right, with a written lease and expectations, a tenant can build on your platform. But charging per-use rates, or trading for imaginary value (“They’ll bring new clients through the door!”) is worse than worthless…because you can always do something ELSE with that space.

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