One of the most commonly-asked questions we hear is, "How do I know how much rent my business can afford to pay?" This question typically comes from entrepreneurs who are planning to open their first business or even buy a franchise.

Working from the end in mind, backward, is the best approach. First, a tenant must calculate or predict what sales volume they expect to achieve. By projecting your annual revenue, you can more accurately predict your "ability to pay rent." This is an actual commercial real estate industry term — and the tenant's ability to pay rent is often fairly predictable.

For example, we've just returned from speaking at the Florida Restaurant & Lodging Show for the fifth year in a row. One franchisor told us that in their system (chicken wings) their concept allows for gross rent not to exceed about 5 to 6 percent of gross sales. One of our Mexican restaurant clients tells us that 10.5 percent (of their gross sales) is the maximum they can afford to pay in gross rent. Every industry has a sweet-spot number or range.

A few points to consider:

1. Think in terms of gross rent. A tenant may be paying $22 per square foot in base rent, but on top of that is the tenant's proportionate share of operating costs or CAM charges that you must also pay. Add it all up and that is your gross rent.

2. Factor in your slow months. Some businesses or industries are seasonal — such as tanning salons, touristy locations and even jewelry shops. Overall, we are talking about annual rent, and it's not wrong to negotiate to pay lower rent in the low season months and a higher rent in the high season.

3. Factor in the area you are leasing. Even if you are paying a proper rent per square foot, you may not be able to afford that location if your square footage is 25 percent too high. This is common and important to focus on. We are working with a franchise right now that needs to downsize all their locations by 40 percent in order to stay viable and competitive compared to the size of premises they were leasing 10 years ago. Times change.

4. Market rent is deceiving. It is perfectly justifiable for a landlord to expect each tenant to pay market rent. But not every industry can afford to pay these rents. For example, a chiropractor leasing space side-by-side with a Starbucks typically could never afford to pay what the coffee shop is paying in rent. Just because the landlord's asking rent is a fair market rate doesn't mean the tenant will sell enough product or services to be profitable.

5. Consider percentage rent. Some retail or foodservice tenants may also be faced with paying percentage rent if their sales volumes are strong. This, along with all of the other business terms, should be negotiated at the beginning of the leasing process.

6. Watch for rent increases. Many landlords will start a tenant at a reasonable or market rental rate, but add 3-5 percent increases each year following. This may not look too bad now, but by the time you are six or seven years into your lease term, annual increases as a percentage or for the Consumer Price Index (CPI) will cut into your profits.