by | Jan 30, 2016 | Finance

Having a professional clinic or office space to work out of is one of the first things you need to establish for yourself. Not all of us are fortunate enough to have an at home office with a separate entrance that allows us to keep most of our profit because overhead expenses are very low.

 
Whether you are just starting out, looking to relocate or even to renegotiate your current lease agreement there are key points you should be aware of. Below I will outline 10 things for you to think about when you are going to profit share, but before we do that let’s take a look at the pros and cons of renting.

 
When I first started out I rented office space at my chiropractor’s clinic. I had a desk, chair and a light. That was it. The receptionist took care of the scheduling and I was able to run my billing (if I ever had any) through her payment terminal. I was enticed by the promise of referrals.

 
I didn’t know about negotiating for the first 3 months rent-free because I was just starting out. I didn’t know that there is a big difference between just a referral and a quality, targeted lead. I spent too much money (before I even made any) designing business cards, brochures and a website. I was way in the hole before I even started at the clinic.

 
If you know my story, you know it didn’t get any better. I was paying out my monthly rent without any profit coming in. My arrangement at the clinic only lasted about 3-4 months because I couldn’t afford to stay there and grow my practice (not that I knew how to anyways).

 

Pros and cons of renting office space

 
Let me just state my opinion about renting. I do not think anyone should ever rent space, especially if you are just starting out in the industry. You cannot afford to allocate a specific amount of money to anyone else when you don’t have any clients.

 
Under the pros and cons I am not including any of the negotiable roles and responsibilities.

 

Pros

  1. Dedicated office space – not sharing with anyone else (usually)
  2. Potential for referrals and leads

 
Cons

  1. Paying out a pre-determined amount of money on a monthly basis regardless of incoming profits
  2. Less chances of getting quality referrals and leads because the location owner is getting your money regardless of whether you make money or not (they don’t have any skin in the game or motivation to help you make money so they make money)
  3. Having a fixed hard cost – hurts the cash flow

 
There isn’t really an upside to renting unless you are paying a low cost by the hour. The only way I would agree to pay someone rent is if I could pay as I went – like for a group of at least 6 people where the hourly rent was between $30-$50/hour.

 
So then one of the participants would cover the rent. I would still make $1750 ($350 x 5). Not a bad payday for 10 hours of work.

 
If I had to profit share that amount at the usual 70/30 split my take would be for 6 participants instead of 5 = $1470. In this example paying a flat hourly rent rate would serve me better.

 
But what if I had to pay $300 per month for rent. I would be paying out $300/month during the 3 months of my 10-week program.

 
$900.

 
All of these numbers would be okay if I had a steady incoming flow of clients. As we all know when you are just starting out that doesn’t happen easily and without spending additional money on start up.

 
That is the reason I recommend to my WOW! Practitioners to profit share with their location owners. It forces the owner to have some skin in the game and help you in order for them to make money.

 
I suggest negotiating a sliding profit sharing agreement first. It can look something like this.

 
1st 2 Months 90/10

2nd 2 Months 80/20

3rd 2 Months 75/25

70/30

 
Go in asking for a set 80/20. If you are lucky enough to get it then don’t back peddle and offer a sliding scale. Those are your profits and you want to retain as much of them as possible. The only time you should resort to negotiating is if you aren’t getting the deal you want.

 
Here is some advice on the contract or agreement. HAVE ONE. I don’t care if you are getting space from your mother or best friend. You need to have an agreement. It’s all nicey nicey until someone gets annoyed. The agreement is there to save your professional relationship. Work out the details at the very beginning and no one gets hurt. You are running a business, not a free co-op or volunteer organization.

 
Based on my experience having negotiated profit sharing agreements many, many times I have come up with a list of 10 things you need to define before you sign on the dotted line. There are way more than 10, but these are the key components I’ve noticed people do not think about.

  1. Who is paying the % for the payment terminal?
  2. Do you make a % when you bring in a new client and the other practitioner sells them on their services? (Example – you bring in an outside person and the chiro gets them to buy sessions – do you make a % from that or is it a one way street?)
  3. Do you have unlimited access to the clients – emails, phone numbers, addresses – can you email them directly whenever you want, or does it have to be approved first?
  4. Are you a part of every single piece of marketing/advertising both internally and externally? How are you splitting the cost?
  5. Can you use the existing office supplies – colour printer, photo copier, computer – how often? When is it too much?
  6. What are you being supplied with and do you have to share office space? Scale, filing cabinet, desk? Is there a massage bed in your office? Can you put stuff up on the walls?
  7. Who does the scheduling?
  8. Who owns the new clients – you or the location owner, and can you take them if/when you leave?
  9. How long is the lease for and how easy is it to get out of?
  10. How is the owner going to provide you with referrals? By word of mouth only, schedule them in for consults with you, hand out your card? Any set number per month?

 
These are the details that need to be discussed prior to signing your lease agreement. What is the location going to provide you with so that you feel it’s fair to give away 20-30% of your hard earned profit?

 
If you have never gone through this process before ask someone who has. Ask them what they would do differently now. Hindsight’s a bitch!

 
As always, I am happy to answer any questions you have. Leave a comment below and I will provide you with some helpful feedback.

Pin It on Pinterest