Monday, January 14, 2013

Start a bakery business - Location : Step 4


Let’s say you have narrowed down the malls you are interested in. The next step is to contact them either by phone or email. Please make sure that you speak confidently and politely over the phone and that in your emails, you come off as professional and mature. No emoticons, LOL, short-forms, etc. Don’t create a bad first impression. 

Write a proposal :
You may be asked to email a proposal before the executive agrees to meet up with you. Ask him/her what is expected to be in the proposal. It will likely be:

- Name of bakery
- Names of baked products
- Tentative prices
- Photos of baked products
- Any other information about you and your business 

Attire and attitude:
Dress appropriately when meeting the executive. Don't dress too casually.
Don’t be late.
You may be thinking of bringing a whole entourage of people with you so that they can give you feedback on the shop. Don’t. This is not a class excursion. At most, bring two trusted confidantes (parents/friends/relatives). They should dress presentably as well. Tell your confidantes that they can ask questions during the meeting but to do so politely. Tell them not to voice out bad remarks loudly (as if for the executive to hear). It’s just plain rude. And you yourself should not do that too. If you want to be a successful entrepreneur, image is important. You do not want to be perceived as uncouth and loud-mouthed.  

Location of shop in the mall
Being situated in a popular shopping mall with very high human traffic does not guarantee that your bakery business will boom. It also depends on where the shop is located within the mall. Usually for eateries and food-related businesses, they are located at the lower levels. Since you plan to open a small bakery, the executive will likely offer you a unit at the basements or level 1.

Besides the shop unit that you view, you can also ask whether there are other units available and whether you can view them as well. If possible, ask for a layout of the mall so that you can highlight the units that you have viewed.

Area of the shop:
How big a shop should you rent? It depends on what you plan to bake and sell, and what kind of equipment you need. When I had my bakery business, my shop was about 250 square feet. I baked cakes, cupcakes and cookies. Although space was very tight, it was still workable.
Note that the bigger the shop, the higher the rent. But if the shop is too small, and if your business gets better each month, you can’t ‘grow’ due to the limited space. And you can’t cut short your contract with the mall because there will be penalties. (What you can do is discuss with the mall management and ask if they allow you to relocate to a bigger shop within the mall.)

Human Traffic:
Take note of how busy the place is. Ask the agent/executive what the busy periods of the day are eg. lunchtime, dinnertime, mornings, etc. However, it doesn’t mean that if there are lots of people walking around, that business will be good. These people could simply be getting from Point A to Point B and not planning to shop. 

Asking rent:
Ask the executive how much the monthly rent is. And is it negotiable? Is the figure quoted to you inclusive of GST? For example, if you are told the rent is S$5000 (not inclusive of GST), that means every month you pay $5000 x 1.07 = $5350. But if $5000 is inclusive of GST already, that means every month you pay $5000.

Usually popular shopping malls require tenants to pay percentage rent as well. Eg. You pay the fixed rent of $5000 plus a percentage of your revenue for that month.
OR it could be pay fixed rent or percentage rent, whichever happens to be higher for that month. So let’s say for January the revenue of your shop is $60,000. And your percentage rent is 10%.  And 10% of that is $6000. So for the month of January, you pay a rent of $6000 instead of $5000 because $6000 is higher than $5000. Then let's say your revenue for the following month is $40,000. Since 10% of $40,000 is $4000, which is lower than $5000, then for that month your rent is $5000.
Ask the executive whether percentage rent is negotiable.

I can’t tell you what is considered high rent and what is considered low rent. To me, if the location of the shop is very good and it brings me a lot of profit every month, then it is worth paying the higher rent. On the other hand, it is possible that even if your cakes sell out every month, the rent is so high that you can’t even break even.  But what if the rent is very cheap but the location is terrible? If it causes you to lose money every month, then no matter how cheap the rent is, there is no point. On the flipside, if you do not depend on walk-in customers, but you have a great website, are active in social media, advertise wisely, have a wide network of established customers already, reliable delivery help, then paying low rent every month will leave you lots of profit.

Rental deposit:
Ask:   How many months of rental deposit do you have to pay? If the executive says three months, and assuming the monthly rental is $5000, that means  you have to pay a deposit of 3 x $5000= $15000 upon signing the contract.  Sometimes the rental deposit can be as high as six months.

Electricity:
How many amps does the shop have? 60 amps is good. If you plan to use the industrial kind of oven that Breadtalk uses, then you need three-phase electricity. If you are using normal ovens eg turbofan, then you do not need three-phase. Single-phase (1-phase) will do. 

Industrial oven that uses three-phase electricity

















Oven that uses single-phase electricity 













Overall state of the shop:
Does the shop look clean?
Ask:  Is the flooring suitable for a bakery? 

Renovation:
Ask:  How many rent-free weeks are you given to do renovation? 

Opening hours:
Ask:   What time is your bakery expected to open and close every day? Are you allowed to enter the mall as early as 6.30am? Because you may need to start baking at an early hour so that your cakes will be ready for sale by let’s say 10am. Also, if you need to work overnight to fill large orders, are you and your employees allowed to be in the mall overnight? (Usually not allowed, because the entire mall will be locked up during closed hours. But if your bakery’s entrance is located on the outside of the mall, you may be allowed. But better to check with the executive first.)  

Water point and floor trap:
Ask if there is a water point and check where the floor trap is. The floor trap is for you to drain the water away after you wash the floor. NEA (National Environment Agency) requires bakeries to have a floor trap. 

Take pictures:
Take lots of pictures (if the executive allows) so you can remember how the shop looks like when you are at home pondering over your decision. 

Measuring tape:
Bring along measuring tape (the metal retractable kind that contractors use) and paper/pen. Measure the size of the shop to see if the shop is as big as the executive says it is. Draw out the dimensions of the shop on paper: length, breadth of the shop, and if possible the height of ceiling as well. Also measure the width and height of the door. Because if you plan to buy an industrial-sized oven, you must make sure that it can get through the door! 

What did the previous tenant of that particular shop sell? Did he/she not renew the contract or did the mall evict him/her?
Asking these questions may not yield honest answers from the executive. The previous tenant may have relocated elsewhere because of poor business and the executive is not going to admit that because it will make you think twice about renting the shop. Or it could be that the mall evicted him/her for misconduct or breach of contract. What if the previous tenant sold decorated cupcakes and you are planning to sell the exact same thing? Ask the executive if there is any lesson to be learnt so that you do not repeat the mistake of the previous tenant. If the executive does not want to answer, it’s OK. Don’t have to be pushy. But if the executive is not forthright and evades all your questions regarding this issue, this should make you more wary about renting the shop.

Go back to the mall again and again
Go back to the mall on different days and periods and see how busy the place is. Is it deathly quiet on weekdays or weekends? Superbusy during lunchtime? Does it serve more of an office crowd or residents or weekend shoppers? Can you picture yourself working there every day for the next few years? Would your bakery business do well there?

Talk to nearby tenants:
If you feel like it, you can strike up a conversation with the next-door shop tenants and try to find out more. But do note that most times they may be tight-lipped or they may discourage you from renting especially if you are perceived as their competition.

Some years back when I was scouting around for a shop space, I was interested in a HDB shop unit that was very near a popular supermarket. The shop was divided into two halves, and I thought of renting one half of the shop. I figured 300 square feet is just about what I needed. I decided to spend more time observing the place. Even though there was a busy supermarket nearby, the crowd did not spill over to the next door HDB flats. So in the end, I did not rent that shop.

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