Do Not Over Invest In Initial Renovations!
Lately I came across a prospect client, having invested too much on renovation of his store.
As per accounting principles, all renovation costs would need to be depreciated over the Tenure of the lease.
The monthly depreciation amount comes up to be more than the monthly rental amount!
This translates into monthly revenue having to overcome Rental, Food Cost and Manpower, also has to overcome Depreciation before talking about breaking even !
There are certain renovation budget benchmark in the form of PSF in the industry, varying only by locations.
Try to stick to the guidelines. Do not over spend on Renovation and Fittings. Will be a drain on Start up capital too.
For what you know, you may not be recovering back this investment throughout the Lease Tenure.
As a general guide, try to recover back your renovation costs ( cash capital ) by mid way of Lease life, leaving the balance lease life the opportunity to start making some real returns…
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