Tuesday, January 15, 2013

Start a bakery business - Location : Step 5

This post will focus on what to look out for when leasing a HDB shop space for your bakery.
Let’s say you have been scanning the classified ads and have called or SMSed agents/landlords and arranged meetings with them to view the shops. So what do you look out for?

Location of shop
Go to the shop earlier to check out the surroundings. What do the neighbouring shops sell? Will they have an effect on your bakery? For example, if the shop next to yours sells car tyres, there will be a constant rubber smell. Will your customers be put off by the smell when it drifts into your bakery?      

Take note of the human traffic. If the shop is located near the bus interchange, MRT station or in the central where there are lots of people, that will be very good for your business. However do note that heartlanders will prefer to buy everyday food such as buns and bread. So if you are thinking of opening a high-end cake shop there, you may not do so well. Let’s say you decide to bake bread to cater to the heartlanders’ needs. But to bake bread to sell in the morning, you will need to come in to work very early every day. Are you a morning person? Can you imagine dragging yourself up in the wee hours of each morning? If you are not, perhaps you need to rethink.  

HDB shops located in busy areas can command rather high rent too. It does not mean that since it is HDB, rent will always be cheaper than in the malls.  

Also, notice the people who frequent the place. If they are undesirable characters, would you be OK with them coming into your bakery, befriending you and ordering cakes from you? 

Area of the shop:
The usual size of a HDB shop is about 600 or 700 plus square feet. A number of landlords put up a dividing wall to split the shop into two shops so that it is easier to rent out. So each half is about 300 square feet, which is quite ideal for a small bakery.  

Sharing of facilities:
If you are planning to rent half the shop, it means you have to share the toilet facilities with whoever is using the other half of the shop. Ask the agent/landlord how the cleaning duties will be divided.
If there are occupants living in the quarters upstairs, do they have access to the shop unit below? If there is no door to segregate, then there may be security lapse issues.  

Asking rent:
Ask what the monthly rent is and whether it is negotiable.   

Rental deposit:
Ask how many years is the rental contract (usually two years) and how many months of rental deposit to pay.  (Usually for a two-year contract, the deposit is two months’ rent.)

Ask how many amps the shop has. If it has 60 amps, that is fantastic because 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. But most HDB shop units do not have 60 amps. So you may have to stick to buying equipment that uses single-phase electricity. Note down how many amps the shop has because this determines how much equipment it can support.

If the agent suggests to you to ‘step up’ the amps so as to get the 60 amps, take note that this is an expensive procedure, costing thousands of dollars. And future electricity bills can be quite high too.  

If there are occupants staying just above the shop, then it is likely that you share the same water and electricity meter. This sometimes can result in conflict and arguments because the landlord may decide that the occupants upstairs will pay a fixed amount every month, while you pay the rest. So let’s say the bill comes up to $900 for January. If the landlord decides that the occupants upstairs pay $300, then you will have to pay the remaining $600. Let’s say the bill goes up to $1000 the next month, the occupants upstairs still pay $300 while you pay $700. Because it is automatically assumed that since your shop is a place of business, you had higher sales and therefore you baked more cakes that month, so you should be the one to pay the variable amount. Conflict may arise if you do not agree with that. You may argue that since they pay a fixed amount, there is no incentive for them to save water and electricity, so it is possible that the increase in usage is from them, not you. One way to resolve this is to have separate water and electricity meters, but to do this involves paying quite a lot of money to get this procedure done.

It is good to iron out all these issues before you sign any contract with the landlord.  

Overall state of the shop:
Is the shop well-maintained? Does it have a pest problem, eg. rats, cockroaches, ants, flies?
Look at the flooring. Is the flooring suitable for a kitchen?

If the shop is in a bad condition and needs a lot of money to do extensive renovation, ask yourself whether it is worth it to do so. Remember that the landlord has the right to ask you to reinstate the shop at the end of the contract. Reinstatement means to remove everything including tiles, built-in cabinets, lighting etc that you put in at the start of the contract.  And contractors charge thousands of dollars to carry out reinstatement.

Visit NEA (National Environment Agency) website to familiarize yourself with the necessary requirements of setting up a bakery. Print out a copy and refer to it often.

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

In humid Singapore, it can be a challenge working with fondant cakes. So if the HDB shop does not have air-conditioning, it is not advisable to bake and sell cakes decorated with fondant. You can choose to install air-conditioning (must get permission from the landlord first) but that will be another cost you have to bear. At the end of the contract, the landlord may ask you to remove the air-con units.

 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 so you can remember how the shop looks like when you are at home pondering over your decision. You should also take picture of any existing defects so that the landlord knows you are not to blame. 

Measuring tape:
Bring along measuring tape (the metal retractable kind that contractors use) and paper/pen. Measure the size of the shop. Draw out the dimensions of the shop on paper: length, breadth of the shop, and if possible the height of the 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? Why did he/she not renew the contract?
The agent/landlord may not tell you the real reason why the previous tenant moved out. But it is good to ask anyway. It is also good to ask what the previous tenant used to sell in that shop.

Talk to nearby tenants:
You can try to make friends with the next-door shop tenant and nearby tenants to find out more. But some may not want to talk much and some may talk too much and even try to dissuade you saying what a lousy place it is to do business and that it is very hard to ‘survive’ there, etc. Always do your homework and trust your own judgment and not what others say because sometimes you don’t know what their motives are.  

Go back to the shop a few more times
If you are really interested in that shop, you can go back on different days and periods and look again. But note that the agent/landlord may not have time to meet up with you during your subsequent visits. But if you need to enter the shop to take a second look, go ahead and call the agent/landlord. That is what they are here for if they want to do business with you.

A final note for this post: Can you picture yourself working there every day at that shop for the next two years? Would your bakery business do well there? Think about it and pray about it too.


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