:dropcap_open:W:dropcap_close:hen opening a new practice, selecting a facility that best suits your needs begins with a solid foundation. Now, more than ever, countless chiropractors are being misled by representations from their landlord or realtor that, if not carefully understood, could cost you tens of thousands of dollars. Start with good questions and learn their language.
A Different Language
Landlords and Realtors have developed a language of their own, developed to slant negotiations greatly in their favor. The art of negotiations is a game that everyone has to play, but it goes much deeper than cost per square foot and triple net leases.
An Informed Shopper
As you shop different locations and view different size facilities, the first details discussed by your realtor are cost, either per square foot or by the month, as well as CAM or triple net expenses. There may even be offerings of “TI”, Tenant Improvement money. This is money that they are willing to offer you to improve the facility. In this economy, this could amount to as much as $20-$30 per square foot. In a deal for 1,600 square feet, this adds up significantly but, before you jump up and down with joy that they are willing to pay to build out your office, it is important to understand the starting point for this expenditure.
Facilities are offered in many different ways, such as: “As Built,” “Vanilla Shell,” and “Grey Shell,” to name a few. “As Built” means that you take it as it is and you are responsible for any changes and improvements needed. You get to save any walls that you feel you can still use; however, you are typically left with old and outdated infrastructure that will take more than just paint and carpet to fix. Old HVAC units may or may not function efficiently or at a level acceptable to you, and restrooms may not meet code. With the recent changes to federal building and accessibility guidelines, once you do any form of construction, you will probably be required to bring everything up to CURRENT codes. Just because a rest room has handicapped access bars on the walls does not make it ADA compliant. What you typically find is that “Grey Shell” offices come with higher TI offerings. This is because a grey shell is incomplete. You are responsible for the HVAC, Rest Rooms, and even electric service and ceilings. Essentially, TI money is used to fix, repair, upgrade or complete their facility. Nine times out of ten, the TI money won’t even get close to paying for the basic necessities and mechanicals, let alone anything you need to transform these bare bones into a chiropractic practice. A facility offered in a “Vanilla Shell” is the best way to control costs and avoid hidden nightmares.
Leasable vs. Usable
:quoteright_open:Facilities are offered in many different ways, such as: “As Built,” “Vanilla Shell,” and “Grey Shell,” to name a few.:quoteright_close:
When looking for space, you will always be offered “rentable” square footage. While they never disclose this, the difference between rentable and usable can be significant. When comparing one site to another, all that matters to you is what is USABLE. Usable is the amount of space you can transform into a chiropractic practice. Rentable starts with the same, but also includes the thickness of the walls, any exterior overhangs, your portion of the common areas, such as lobbies, elevators and mechanical rooms. Offices in High Rise buildings can have a difference between the two of as much as 35%. You pay for 3,000 square feet and can only use 2,000. In strip stores and free standing buildings, it is common to have this loss factor in the 5-10%. Professional buildings may be in the 10-15% range. When comparing facilities, divide the monthly cost by the usable space and then compare. All that matters to you is usable.
Less Is More
If you are starting a new practice or spinning off a satellite clinic or franchise, use the old adage that less is more. New graduates starting their career have had years of philosophy that says more is better. Seeing 450 or even 600 weekly visits is wonderful when thinking about improving the health of the planet, but be sure to match the growth of your practice to duration of the lease and, therefore, the size of your building. Balance your growth curve to the length of your lease. Think of your practice as an evolution, not a snapshot of your goals. Shorter leases are better when starting.
Scaling back in size does not mean scaling back volume. It is possible to see 2-300 or more weekly visits in 6-700 square feet (depending upon your clinical services offered). Leasing 1100 square feet instead of a 1600 square foot office can save you almost $70,000! Why pay someone else’s mortgage when you can keep this hard earned money in your pocket. This lowers your stress and financial burden, allowing you to focus on building a practice instead of how to pay your bills. Furthermore, your utility bills and staff payroll can also be lowered. Leasing 800 square feet instead of 1,200 will net you over $50,000 without having to do anything! Try to find that return in any financial institution!
Purchase or Lease
In starting a new practice, we disagree with most financial advisors’ suggestions to pay your own mortgage by owning instead of renting. Unless you have a 5-7 year business record that allows you to project your growth in volume and services, no chiropractor should purchase their own facility. Proof has shown us that doctors either over purchase and have huge overhead that they have to struggle to meet, or under purchase and grow out of their facilities long before their principal payments have made a dent in what they still owe.
Mark Victor Hansen always said that you never get anything unless you ask, ask, ask, ask, ask. We are seeing deals like never before, so be sure to ask for a better deal. You will be surprised at what you get.
So, when starting a practice, understand the foundations of negotiating, play the game better than they do, balance your growth, rent less than you think and purchase only when you are certain, design properly and, most importantly, ask!
Glen David has designed and outfitted over 4,700 chiropractic offices worldwide. More information on the evolution of your office environment as well as the efficiency and productivity concepts discussed can be found at www.DavlenDesign.com. Glen and his team can be contacted at [email protected] or at 1-631-924-8686 .