How much rent can my business afford before a new shop, office or clinic?

You’ve found the shopfront, the corner suite or the clinic space. The agent has quoted a rent, the location feels right, and the lease is about to land in your inbox. Before you sign, there’s one question worth answering properly: how much rent can your business actually afford?

The honest answer isn’t a flat percentage. It’s the rent your sales can carry in your quietest month, after your margin. As a starting guide, the ATO’s 2023–24 small business benchmarks put rent at roughly 5% to 19% of turnover for shops and cafes, lower as turnover grows. This guide gives you the benchmarks, the break-even sum, and a scorecard to run before you commit to a lease or a fit-out loan. (Already in premises and facing a rent increase? Our rent review guide is the one for you.)

What does the ATO say rent should be as a share of turnover?

The ATO publishes small business benchmarks for more than 100 industries, showing the range of rent to turnover that businesses of your type and size typically report. They’re a guide, not a rule, but they’re a far better starting point than a rule of thumb from a US blog.

Here are two examples from the 2023–24 benchmarks:

Industry	Turnover $65k–$250k	Mid band	Top band
Clothing retailing	11% to 19%	8% to 14% ($250k–$500k)	5% to 10% (over $500k)
Coffee shops	10% to 17%	8% to 14% ($250k–$600k)	6% to 10% (over $600k)

Check your own industry’s page on the ATO site, as the turnover bands differ. You can see the clothing retailing and coffee shop tables directly.

Two things stand out:

1. Smaller businesses carry a heavier rent share. Rent is mostly fixed, so it takes a bigger slice of a small turnover. If you’re a new site selling $200k a year, expect to land in the high band, and plan for it.
2. The range is wide. A seven-point spread is the difference between a comfortable business and a tight one. That’s why the break-even test matters more than the benchmark.

What counts as occupancy cost, beyond the base rent?

The rent in the agent’s email is often the smallest surprise. The real cost of the premises is occupancy cost: everything you pay because you’re in that space. Add these up before running any ratio:

• Base rent, plus any scheduled increase in the first few years.
• Outgoings the lease passes on, such as council rates, water, building insurance and common-area cleaning or repairs.
• Your own running costs: electricity, internet, contents and public liability insurance, waste, security.
• GST. Rent is usually quoted excluding GST. If you’re registered you’ll claim it back, but you still need the cash in the meantime.
• Bond or bank guarantee, often several months’ rent, tying up cash for the whole term.
• Make good at the end of the lease, which is easy to forget now and expensive later.

For retail shop leases, state rules help you see this before signing. In NSW, the Small Business Commission says the landlord’s disclosure statement must reach you at least seven days before the lease is entered into. Other states have their own timing and forms, so check your commission. Whichever state you’re in, compare the outgoings estimate in the statement with what the agent told you. If they differ, ask why.

How do you work out the sales your rent needs?

This is the sum that decides it. A percentage tells you what other businesses do. Break-even tells you what yours needs.

1. Weekly fixed costs = rent and outgoings + wages you must pay regardless + insurance, software and utilities + any loan repayments, all divided into weekly figures.
2. Gross margin = (sales − cost of goods) ÷ sales, as a decimal.
3. Break-even weekly sales = weekly fixed costs ÷ gross margin.
4. Compare with your quietest weeks. If your slowest month can’t reach that number, the rent is too high for the plan.

Not sure of your margin? The business health check takes you through finding it in about five minutes.

Illustrative example: a second boutique

Illustrative only. Not a real client.

Priya runs a clothing boutique doing about $420k a year. She’s looking at a second site with rent of $66k a year plus about $9k in estimated outgoings. Her gross margin is around 55%.

• Rent plus outgoings: $75k a year, about $1,440 a week.
• Other fixed costs for the second site (one part-time team member’s minimum hours, insurance, software, utilities, a loan repayment on the fit-out): about $1,900 a week.
• Total fixed costs: about $3,340 a week.
• Break-even sales: $3,340 ÷ 0.55 = about $6,070 a week, or roughly $316k a year.

Is that realistic for the new site? Her first shop does about $8,100 a week on average, but the new suburb has less foot traffic, and she’s counting on slower trade during the first months. If she expects the new site to reach $4,500 a week in its first quarter, she’ll be $1,570 a week short of break-even for months. That gap is a cash need she should plan and fund, not a surprise she discovers in month three.

Her rent share of turnover at break-even is 75 ÷ 316 = about 24%, well above the ATO’s range for shops of that size. Her options: negotiate rent-free months and a lower starting rent, choose smaller premises, or arrange enough working capital to carry the ramp-up. All three are better to know before signing.

Your “can we afford this rent?” scorecard

Score 2 for yes, 1 for partly, 0 for no.

#	Coaching question	Score
1	Is your rent plus outgoings within or below the ATO benchmark range for your industry and expected turnover?
2	Can your quietest realistic month reach break-even sales?
3	Have you seen the outgoings estimate and disclosure statement in writing?
4	Is there a ramp-up plan (rent-free months, stepped rent, or a cash buffer) for the first 3 to 6 months?
5	Could you cover rent, wages and the loan repayment for 8 weeks if sales came in 30% under plan?
6	Have you compared at least two other sites or asking rents?

How to read it:

• 10–12: Rent looks affordable. Negotiate the terms, then plan the fit-out funding.
• 6–9: Workable but tight. Fix the weak answers first: usually the ramp-up plan and the buffer.
• 0–5: Not at this rent. Negotiate down, find smaller premises or wait. A good lease signed at the wrong rent is still a bad lease.

Question 5 is the one most owners skip. Our cash runway guide shows how to turn your buffer into weeks, which is far more useful than a feeling.

Does the industry change the answer?

Yes. Rent works differently depending on what each square metre earns:

• Retail and hospitality are the most rent-sensitive. Trade depends on location, so you’re paying for foot traffic, and your sales swing with seasons. Test against the slow months after Christmas.
• Health practices and clinics usually run higher revenue per room, but ramp up slowly while the diary fills. The risk isn’t the percentage, it’s the months before patient numbers cover rent and wages. See our health practices page for how funding lines up.
• Offices and professional services can often sit in cheaper space, or work hybrid, so rent is a choice rather than a necessity. Be honest about whether the address earns you anything.
• Workshops, warehouses and trades yards are about access and storage, so compare cost per square metre against alternatives, not against turnover.

business.gov.au’s guide to choosing your business location is a handy checklist for whether the site suits your customers, not just your budget.

When should you line up funding for the fit-out?

Before you sign. A lease is a five or ten year commitment, and the fit-out, bond and opening cash buffer often cost more than people expect. Lenders generally want to see the whole plan: the rent, the break-even and how you’ll cover the ramp-up.

If you’ve run the numbers and the rent is sensible, the next question is how to fund the move. Our page on funding a fit-out or a move to new premises explains the usual options. If you’d like to see what might fit your situation before the lease is final, you can check your options with a quick enquiry. There’s no credit check when you first enquire.

Know your numbers first, then see what fits you

Choosing premises is one of the biggest bets a small business makes, and you’ve already done the hard part by working out what the rent really needs from you. The next step is making sure the money is ready when the keys are.

That’s what we help with. The enquiry takes about 60 seconds, and enquiring doesn’t touch your credit file. We don’t pass your details around a pile of lenders, so you won’t be fielding a string of calls from strangers. A real person reads your answers, looks at your lease plans and trading, and rings you to talk it through.

One favour: please fill the form in accurately, including what the money is for, roughly how much you’ll need and your monthly deposits, so we can match you with the right option first time. If you’d like to explore first, the 2-minute funding profile ranks your options and tells you what to prepare.

See if you qualify →