Over the course of your career as a small-business owner, you will almost certainly try your best to accomplish two goals simultaneously: increase profit and reduce expenses. One of the biggest obstacles in this quest is one of the biggest line items on the “credit” side of the ledger: your rent payment. One of the ways that many small-business owners try to bring harmony to their monthly reconciliation is to sign a lease that represents a percentage of their gross income. Settling on this percentage is tricky, so it helps if you loosen the financial “rubber bands” that may constrict your outlook.

## Lasso the Numbers

Small-business owners tend to be realists, and they know that there are few hard-and-fast rules about finance. However, there are benchmarks, and this is how you should view your gross income-to-rent ratio.

The latter part is the simple part: Isolate how much money your business grosses every month – or every year divided by 12. Now you're going to rely on some standard income-to-rent percentages, which tend to range from 1 to 13 percent, depending on the industry:

• Appliance and electronics stores: 2.09 percent
• Educational services: 2.66 percent
• Finance and insurance companies: 2.82 percent
• Arts, entertainment and recreation services: 3.19 percent
• Food and beverage stores: 3.21 percent
• Books, hobby, music and sports stores: 3.30 percent
• Health and personal care stores: 3.37 percent
• Insurance agents: 3.46 percent
• General merchandise: 3.86 percent
• Health and social services: 5.52 percent
• Restaurants: 5.81 percent
• Furniture and home stores: 5.98 percent
• Legal services: 6 to 7 percent
• Hotels: 7 percent
• Clothing and accessory stores: 7.66 percent

## Crunch the Numbers

Take your company's gross income and multiply it times the appropriate percentage for your type of business. If you're a lawyer, and your gross annual income is \$2 million, multiply this amount by .06 percent – the benchmark for this industry. This equals \$120,000, which means this is the amount you “should” pay for rent every year.

If you're coming at this equation from a different vantage point and want to isolate the percentage of your income that goes to rent, divide your annual rent (\$120,000) by your gross annual income (\$2 million). This comes to 6 percent, which also means that for every \$1 your business makes, 6 cents goes to pay the rent.

## Rent as Financial Planning

As you probably learned well before you became a small-business owner, much about finance is relative. When you're stretched financially and every dollar counts, you're careful about how you spend every dollar. When you're enjoying a run of good fortune, you don't mind the occasional splurge.

Determining a reasonable rent payment helps bring stability to your business expenses and helps you navigate the slow times with a greater sense of calm. Yet, sticking stubbornly by a percentage runs the risk of obscuring the bigger picture and opportunities to grow.

Opportunities often present themselves in the form of attractive lease locations. However, “hot” locations often carry equally hot price tags. How should small-business owners assess such temptations? Determine if the site is worth the extra expense by estimating the increased income that can be generated at that site.

Given the complexities, it's little wonder that many small-business owners consider rent payments to be every bit as important to their short- and long-term financial planning as saving, investments and succession strategies. The cost to lease a workspace is part of financial planning. A conscientious commercial real estate broker should work with you as you consider potential leasing options and be every bit as flexible as you are.