going back in the post s way back. i remember a post when people were asking about gross sales. the number came up$375 sq ft . is a number for gross sales . so my place is pizza/bar 3,000 sqft would that be $1.1 million.not to be stupid is that the potential of the place i cant imagine your first year that can be done. what kind of net could you get out of that number. 5-10%.population is 13,000, plus neighbor towns another 12,000
There really is not a formula that will predict sales based on sq ft. If getting to 1 million was as simple as expanding my place and putting in a bar I would have done it a long time ago. Formulas are great and should be used as an aid but its no substitute for going out in the neighborhood and seeing what other businesses are doing – not just pizza or restaurants.
Make a spreadsheet based on possible p&l’s – a performa. Determine your break-even point and at what point the investment makes sense. Then go see if other similar businesses in the area are coming close to that, exceeding or are not even close. You can determine that from their customer count and ticket avg based on what is one their menus.
A performa will tell you what kind of net you can get at those sales figures.
Sales per foot is more closely related to how much sales you CAN do than to how much you WILL do. It is also an excellent benchmark when evaluating a lease. (most businesses can do pretty well when occupancy expense is less than 10% of sales) In other words, if your sales are $375 per foot a lease rate of $35 per foot including rent and triple net expenses can be acceptable.
When all is said and done, lease rates migrate to a number that relects the business potential in the area. As the potential rises, more tenants will be willing to pay higher rents and will succeed. When potential declines, businesses will not sign leases at higher rates or tend to fail when they do so. So… you could take your annual lease rate with all expenses rolled in and multiply by 10 to get a number to use for a minimum annual sales goal. Clearly you will do better if you can get to 12 times that number or higher and you will be in danger of failure if you can not maintain 8 times.
Additionally, the suggestion to come to some understanding of what sales per foot other busineses in the area are doing is a good one. That is a good benchmark for custommer traffic which is the prime driver for a sit-down establishment.
thanks alot for the info greatly appreciated. the one thing i will have a great advantage in is i wont have any rent to pay. we own the building so rent wont be a problem the other stores will pay the mortgage.
Talk to your accountant. There are some very good reasons to pay market rent anyway. Rental income is passive income and not taxed the same way as earned income. If the business is loosing money after paying market rent, you might be better off knowng that. You can also write losses off against other income of the same category. You can always loan the money back to the business without interest. If that creates a negative balance sheet and this a problem, you add the money back in as capital instead.
Also, if/when the time comes to sell either the business or the building, having a consistent arms length relationship between the two where the business pays market rent is beneficial. It helps to establish fair value for both entities.
Also, you have to take downside into account. If your business fails (unpleasant thought, but one you have to include in your considerations) and there is an accumulated loss you can write it off. If you never paid the rent, you will lose that portion of the writeoff.