Season 2, Episode 3-New Medspa Location Construction Planning and Hidden Costs

Construction is where many med spa visions either come to life—or quietly fall apart. In this episode, Ashley James breaks down what really happens behind the scenes of a med spa build-out, and why entering a lease or construction phase without a strategic plan can cost you hundreds of thousands before you ever open your doors.

In Season 2, Episode 3- Ashley walks through the real numbers behind build-out costs, explaining how tenant improvement (TI) dollars are often misunderstood—and how “free” TI is typically built back into your lease terms. She shares how to negotiate smarter, secure true concessions like free rent, and avoid getting locked into agreements that limit your flexibility or drain your capital.

You’ll also gain insight into the most overlooked lease clauses that can shift significant financial risk onto you—from non-compete protections to excessive security deposits and hidden maintenance responsibilities like HVAC systems that can result in unexpected five-figure expenses. Ashley outlines the full development timeline as well, including design, architecture, MEP engineering, and permitting—highlighting how delays can impact your funding strategy, especially if you’re using SBA or private financing.

On the construction side, Ashley shares how her team at DAC vets general contractors, what to look for when comparing bids, and how to identify costly gaps in scope that most owners miss. She also explains how contractor staffing, project management, and contract structure directly impact your timeline—and how to protect yourself with the right terms in place.

If you’re planning to launch a medical spa, this episode will give you the clarity and strategy you need to build the right way—without sacrificing the capital required for marketing, staffing, and growth.

DermAesthetic Consulting Group
DermAesthetic Consulting Group: Your partner from seed to success in building and scaling medspas

Medspa Business Builder
Business Builder: More than a CRM—scale your medspa & boost revenue up to 150%

Amspa
American Med Spa Association: Education, compliance, and resources for medspa success

Disclaimer: This post contains affiliate links. If you make a purchase, I may receive a commission at no extra cost to you.

Transcript

Welcome And Season Focus

SPEAKER_01 0:00

Welcome to MedSpa Unlocked, the podcast for ambitious medical spa owners who want to build, scale, and dominate in the world of aesthetics. Each episode delivers the strategies, tools, and insider knowledge you need to create a thriving multi-million dollar practice. Hosted by Ashley James, known to many as AJ, former award-winning multi-practice aesthetic owner and operator, international speaker, sales and business mastery expert, and best-selling author of the MedSpa Growth Formula. AJ is also the founder and CEO of Derm Aesthetic Consulting Group and the visionary behind MedSpa Business Builder, a cutting-edge performance and sales system that accelerates growth and drives real results for medical aesthetic practices. Today, she's one of the most highly sought-after aesthetic practice consultants in the nation, widely regarded as one of the industry's top authorities, and she knows exactly what it takes to rise above the noise, outpace the competition, and build a truly profitable, sustainable business. Join AJ and industry leaders as they unlock the secrets to success in aesthetics right here on MedSpa Unlocked. Now, let's get started.

Lease Negotiation Before You Sign

Tenant Improvements Explained With Numbers

Lease Clauses That Prevent Surprises

SPEAKER_00 1:13

Hi everyone. Welcome back to another episode of MedSpa Unlocked. I'm your host, Ashley James, CEO of Dermachetic Consulting Group, co-founder and CEO of MedSpa Mobile Solutions. Welcome to episode three of season two. This season we are really kind of digging into the startup costs so that you are positioned for long-term success with your medspa. And in today's episode, we're going to be talking about construction. Um, navigating your medspa construction without going broke is really kind of the foundation of today's episode. So this episode is really about helping new medspa understand the financial and contractual and operational risks of construction while giving you guys practical strategies to avoid costly mistakes, protect your timelines, and really stay productive. Um, you know, if if in that there are delays within the construction process. So, guys, I really want to hone in on this. I mean, we're talking about all the financial planning and obligations that new uh practices have. And construction can sometimes be one of the most costly line items in your startup costs. And unfortunately, a lot of owners underestimate the costs that go into construction. So one of the things that happens a lot for me is I able to get a client that calls and says, Hey, AJ, I really want to work with Dermostatic Consulting Group. I want to open up my own med spa. I've already begun and I've leased a space. And that happens more than I can tell you guys. Um, for whatever reason, I think the mindset shift is, you know, I'm gonna open up a business, I'm gonna file my LLC, I'm gonna go look and lease a space, open up a vendor account with Allergan, and I'm gonna be ready to go. And although that can be done, that is a very dangerous uh way to do it from a cost aspect. Um, because you may be negotiating something with your landlord and not know the hidden costs that are included into that. So let's break down um, you know, where we go. Let's start off with negotiating the lease. So, you know, you should never go in and lease a space without having an attorney look over it. There can be a lot of hidden costs. For example, TI is one of them. So let's say you're building out a facility or you're leasing out a facility that's gonna need a little bit of a build-out. Your landlord will say, you know what, I'm gonna give you some tenant improvements complimentary. You guys, it's never complimentary. Those TI improvements are then wrapped back into your lease. So you're paying for them no matter what. So at the end of the day, you wanna make this space as functional for you as possible. And so you want to try to get as much free TI as possible, as well as additional TI for what you need to be. So what TI is is tenant improvement. So let's say you have a 2,000 square foot facility that you're building out or that you're leasing, right? If your landlord says, I'm gonna give you$20 a square foot in tenant improvements, they're only giving you about$40 to improve the space. So that's gonna maybe cover a fresh coat of paint, maybe some new carpet if you have carpet in your facility. Maybe it's gonna include some new door handles or just a refresh of the space. That doesn't go a lot of long way, guys. And you're gonna be in this space for usually five to 10 years. Um, that's what most leases will um will will, that's the timeline that they'll have. And so you really want to make sure that you're getting as much bang for your buck as possible. What I tend to suggest when negotiating tenant improvements is if it's a gray shell, gray shell means there's nothing. There's no flooring, there's no nothing. Um, I push for about$150 a square foot of tenant improvements. If it's a vanilla shell, meaning that everything's kind of there, just a white box. Um, I would negotiate anywhere from$75 to$100 a square foot. And if it's a space that I'm just moving into and it's functional, meaning like another business had been in there and it's gonna work, um, I would, I would still negotiate at least$50 a square foot. And that being said, it's important to know that whatever you're negotiating, the landlord is gonna try to wrap that into the back of the lease. So for example, if they're gonna give you$50 a square foot for your 2,000 square foot facility, that's$100,000 that they're going to roll back into your lease. So let's say that you have a five-year lease, that's 60 months. So they're gonna take that$100,000 that they're giving you and they're going to roll that back into lease, they're gonna add an additional minimum without interest, about$1,600 onto your lease. So what I always recommend is try to negotiate a portion of that to be free, meaning it's not roll back into your lease. If a landlord is gonna give my client$50 a square foot, I'm gonna ask for at least$20 to$25 of that to be on the landlord. And my negotiation tactic is this look, I don't own the space. My client doesn't own this space. Whatever we do is going to enhance, it's gonna elevate the space, it's gonna make it more sellable when we're done using it. So, you know, when we when we build out or we design a facility for our clients, I'm gonna tell you guys, we build out the most beautiful facilities you've ever seen in America. My partner, Michelle, is the MedSpa Interior Design guru of the industry. And she's my partner over at MedSpa Mobile Solutions. And she just, guys, nobody builds and creates a more beautiful space than Michelle and I do. And so um we want our clients to be wild when we walk in. We want to make sure that the flow of the facility is ideal for the patient journey, the overall experience. Because again, in this industry, you've heard me say it a million times people purchase with people. Everybody has the same services. And what sets you apart is the environment. It's the patient journey, it's the relationship that you're building with your clients. And so your space is your first impression, right? So it has to be beautiful, it has to be put together, and it has to be functional for you. And so when we're negotiating these, the the tenant improvements of these spaces, this is what's built out into your lease agreements. We want to make sure that again, if we don't own the space and we're gonna be elevating the space, that the landlord's got some skin in the game, right? I mean, yeah, some of this is gonna be on us, but if we're gonna be here for five, 10 years, they need to be paying for some of these elevations for what we want to do to keep us here, right? You have to go into this in the mindset that you are their client. They want this space rented. And so what are they going to do for you to make you stay in the space as long as possible? And that's where we come in with the TI negotiations. You scratch my back and give me what I need to make my space functional so that I can be here for the longest amount of time. And then I'll sign a lease for that amount of time. So that's very, very important. Don't just sign a lease and accept what the landlord is giving you. You guys have the power to negotiate. And unfortunately, I have a lot of clients that come to me after they've already leased a space, not knowing that these are opportunities that they could be missing. And these opportunities, guys, could be saving you money or it could be costing you money. Again, like if you have a landlord that's giving you$50 a square foot for tenant improvements up front, that seems really, really great. But if you don't know that that's just rolling back into the amount of money that you're gonna be paying on a monthly basis, it could be costing you more than you think. Okay. So these are things that you really wanna be paying attention to when you're negotiating your leases and your contracts. In addition, you wanna be making sure that there's a non-competitive clause. And what I mean by that is let's say you're in a strip center, right? And let's say you've got, you know, let's just call it elevated med spa, because I've used that word already to say elevated med spa. You wanna make sure that if elevated mud spa is doing microneedling and laser procedures and neurotoxins and IV therapy, that your landlord isn't going to allow, let's say, an IV therapy studio to come into the same facility. So you want to make sure that there's a non-competitive clause. You want to make sure that there um is going to be a situation where if you're locked in for 10 years, they can't bring in another business that's gonna directly uh compete against you guys. So um, that being said, that is one of the things that you definitely want to negotiate in your lease. You also want to look at the HVAC clause, guys. I see this happen all the time. The HVAC in your facility is a structured item, a structural item, guys. So what that means is that you are not responsible for it. You cannot control the structure of the building. You cannot control the space. This is not your building. You do not own this space, you are leasing or renting the space. And a lot of contracts, a lot of lease uh contracts will actually indicate that the that the tenant, you is responsible for maintaining the HVAC. And guys, I push back on this so much. And you it and if you have a lease where you are responsible and they will not put that back onto them, you need to find out what kind of HVAC system it is. When was it maintained last? How old is the HVAC? Because guys, let's say you lease this space out and you've got a five-year lease and your HVAC goes out year one, that's an expense. That could be a$15,000 to a$20,000 expense that you did not sign up for. So for whatever reason, landlords always try to make the tenant responsible for the HVAC. And I'm telling you guys, push back. That is an area that could be very costly in your lease that you're not aware of that you can negotiate. And if you cannot get out of being responsible for maintaining the HVAC, you need to know that information. You need to know how old is the HVAC system, what is the maintenance schedule look like? Have there been any issues with the HVAC before you agree to that? Okay. Um, the other things that I want to talk about is your deposits. So when you're going into lease, leasing your space, um, usually you're gonna have to have a deposit. Now, I've seen the typical first and last month's uh deposit, but I've also seen some landlords require up to six months of rent up front for new businesses. And this is this is common in bigger cities because this these are the landlords trying to, you know, mitigate some of their risk. Um, so you need to be prepared for that. Signing a lease sometimes is going to require a lot of money up front. And again, if you are not financially planning for that, this is eating into the amount of money that you have, eating into your budget that you have for your entire startup. So now let's get into the design and let's get into construction costs. Because again, this is an area that is just sometimes unknown for new owners, especially if you've not done a construction or build-out project before. Um, you may not understand exactly what you're getting into. So I will tell you that construction costs in itself, what I have seen in the last couple of years with the way that our economy is, is that your construction costs are going to be anywhere on a very, very low end,$275 a square foot up to what I've seen be sometimes more than$400 a square foot. So what does that mean, guys? If you have a 2,000 square foot facility, let's say it's a vanilla shell, and you want to build out that facility. And let's say you are um you are gonna build at everything from start to finish and your costs are gonna be about$300 a$335 a square foot, guys, that's a$700,000 build-out construction expense. So when we go back to negotiating TI, this is what I'm talking about. If you have a vanilla shell and it's gonna cost you$375 to build out that facility, that's$700,000. If you are negotiating, let's say,$150 a square foot for that tenant or for that$2,000 square foot facility, that means that your landlord is going to give you$300,000 towards that build-out. So why that's important is because if you are planning on getting an SBA loan or needing to get financial backing for your startup, your construction cost is often the biggest expense in your line item for your startup. And so again, if this is a 2,000 square foot facility and you're getting bids that break down to about$375 a square foot, you want your landlord to cover a good portion of that because again, guys, this isn't your space. You don't own it, you're renting it. And so if you're going to be investing$700,000 into beautifying and making this space amazing, but you don't own it, your landlord needs to have some skin in the game. And that amount of money, that TI, a good portion that needs to not be wrapped back up into your lease because then ultimately you're just paying the$700,000 anyway. So again, if you don't have a seasoned real estate commercial agent that is really, really good at um negotiating leases or isn't really that familiar with build-out costs and TI improvements and what actually goes into that, please give us a call because our agents are, and we're very, very good at negotiating leases. Um, and again, if you don't negotiate your lease the right way, your construction costs could be more than they really should be, or what I consider to be fair. Um, when we are planning for a med spa, again, going back into you never want to lease a space before you have a financial plan because there's a lot that goes into it. So if you are designing or you're building out or doing any types of renovations, like again, my partner, Michelle, she's amazing. We typically give ourselves anywhere from 10 to 12 weeks to design and and and and kind of plan out what that looks like. So if you're not negotiating free rent in your lease and it's taking you, you know, eight to 12 weeks design your space, that is eating into when you can open up your business and start making some money. Um, so just to give you some realistic timelines, you know, design and interior space planning is typically anywhere from like eight to 12 weeks. From there, your architect has to finalize your construction drawings. From there, you'd get a mechanical engineer involved that does the mechanical engineering plans, the MEPs. And then only after you have all of those three things completed, you're able to go and submit for permitting. Now, permitting is another beast of a business. So it depends on where you're at in the country. I have seen permits take a month to get approved, and I have seen permits in let's just use Houston for an example, take a year to get approved. So again, not knowing these things going into your lease signing can be a critical, critical setback in your business startup funds. Um, if you have$500,000 allocated to start your med spa and you don't know that, and let's say you have free rent for three months and you don't know going into it that getting permits to renovate is gonna take a year. Guess what, guys? You are paying for a space for nine months before you can ever build out because you negotiated three months, and I'm using Houston as an example. You have another, you have a year of getting permits approved. So these are the things that you have to know going into it because you could be paying for rent for a whole year before you're actually able to even build out and start generating revenue, guys. So this is where I see a lot of owners get really upside down because they go through all of their startup budget because they're waiting for construction to be completed or they're waiting for permits for an excessive amount of time before they can even start the build out.

SPEAKER_01 17:28

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Design And Permitting Timeline Reality

Choosing A GC And Comparing Bids

Contract Protections Working Capital And Wrap

SPEAKER_00 18:38

The other area that I really want to talk about when it comes to your construction is just again making sure that you know all the costs that are going into it. So we've already talked about making sure that you have the right tenant improvements budget from your landlord, that some of that tenant improvement is going to be free TI so that you're not responsible for all of it. We've outlined how that TI is typically rolled back into your lease payments. We've talked about free rent, we've talked about timelines for designing and architect work and mechanical engineers and permitting, but now let's talk about the construction. Let's talk about the GC. Guys, I recommend, and if you are one of my clients and we're managing this for you, we typically recommend that you obtain a bid from anywhere from three to six GCs. And the reason is is because every GC does a little bit different, a little bit of things differently. And you, and and what this bid is gonna do, it's gonna take your plans and it's gonna estimate the cost for the build out. And some of the things that you want to pay attention to in these bids, um, where money can kind of get out of hand, is what is actually included in the bid? How much are you charging me for demolition? Um, are you charging me for demolition in a space that requires no demo? Um, what are you charging for your management fee? And how often are you going to be on site managing the construction project? Are you sourcing the materials or am I sourcing the materials? And what that means, guys, is let's say you've got fixtures and finishes and wall coverings in your in your architectural plans. Is the GC gonna be sourcing those, buying them and then installing them? Or are you responsible for sourcing them, buying them, and then giving them to the GC? Guys, this is really, really important because I have seen owners make really, really bad mistakes by just not knowing this alone. So if you're bidding out a project and let's say GCA quotes your project to be, let's say$300 a square foot, but then GCB is saying that it's gonna be$450,000 a square foot, uh, or I'm sorry,$450,000 total project, and you're looking at the bids and you're like, wow, this GC is a lot less expensive. I'm gonna go with him. You may not be comparing apples to apples because let's say J GCB is sourcing and including all of those products and those fixtures and those finishes for you. You may go with GC number A, but then not realize that you're gonna have another$200,000 of finishes and fixtures and wall coverings that you're responsible for. So you've got to really look at what the GC is bidding in your project. I will tell you that seven out of 10 times when we give a general contractor our plans and they bid out a project, there's something in the plan that they've left out to make the bid look less less expensive because they know that we're gonna go with the most affordable option. So if you don't know what you're looking at, when you're looking at a bid or you're you're interviewing general contractors, just ask questions. And some of the questions that I would ask is Are you sourcing my finishes and fixtures in the wall coverings? Are you managing the project and how many hours a week are you going to be on site? Another area, another thing you want to ask is how many construction workers are going to be at my location building out my facility Monday through Friday? This is really important, guys, because if you have a general contractor, let's say that says it's going to take three months to build out and finish your tenant improvements, and then you have another one that says it's going to take six weeks. Usually the one that is estimating more time has multiple projects that are going on and a limited amount of contractors. And so those contractors may only be on site a couple hours a day or a couple, a couple days a week. And so that's going to take your project a lot longer to finish versus someone who can get it done in six weeks because they've got someone on site every day, all day, 40 hours a week. That's important, guys, because again, if you've negotiated free rent in your lease and it takes one GC three months to build that space out versus it takes the other one six weeks to build a space out, you still have quite a bit of time with the one that is going to build your space out in six weeks to actually benefit from that free rent. You can get in, you can start business before you have to actually pay rent. So this is where I talk about where it can cost you money if you don't know how to negotiate your lease and if you don't know how to pick the right GC. Um, another thing that I see general contractors do is um they always go over their timeline. Uh so one of the things that I like to put in general contractor um contracts is a clause about penalties if they don't finish the project on time. So I typically do not have issues with general contractors going way out of line, but I did have a project one time where we were not a part of really picking the general contractor. Um we had a we had a client in North Carolina that um the project was supposed to be done in three months. And you guys, I'm not kidding you, it was over a year long. Um, and the reason being is because the general contractor was very slow, he was very lazy, um, they they were not sourcing things correctly, and it took a very, very long time. And my client and I had only negotiated about six months of free rent. So going into it, we we believed that it would take a few months to build out the space, and then they'd still have a few months of free rent to really ramp up their business. And you guys, we had to get legal involved. Um, we ended up fighting to get this general contractor to pay my client back some fees. We had to go back to the landlord and negotiate some additional free rent because these were things that were out of our control. And so it is very, very, very important to vet your general contractors, read the contracts. If you guys are getting a contract that's a one-pager guys, find somebody else. You need something that is very, very specific that you know everything that's going into that contract and what they're doing, what they're sourcing, how many people are gonna be on site, how long it's going to be, and then always, always, always negotiate a clause in there that says if you don't get done, when you say you're gonna be done, you're gonna pay a penalty to me because that's costing you business, guys. Um, and so these are things that you can put into your contract, but if you don't, it can end up being a very costly expense in your startup. And again, can eat through your budget for your total project. Um, and so, you know, we you really want to make sure, again, like never, never, never, if you want to open a business, never just go look for a space, negotiate, sign your lease, and think that that's done. I I will tell you that the clients that I have worked with who have done that before bringing us on board, you usually end up losing money in this whole process by at least$100,000, just because they just didn't know. And so I really wanted to talk about this today because if you are that that client that is is, or if you are that that provider in the industry that is thinking about opening up a med spot or you are already leased a space and you're gonna be opening soon, these are things that you really need to kind of take a step back in and really understand and know the costs that go into and then the things that you need to be negotiating and the timelines that you need to be having so that you realistically know really when you're gonna be open and what that cost is going to be. Because, guys, if if if you are not negotiating free rent, if you are not negotiating free TI, if your construction costs go way beyond what they're supposed to, this is all money out of your pocket that can take away from your operational cash that you need to really launch the business. And that operational cash in the first six months of open is the most critical because that's what you're using to market yourself. That's what you're using to pay for your employees, that's what you're using for your opening orders with your injectables and your supplies. And these are things that you need to actually run the business. And so if you don't properly plan for the costs that go into your lease and the costs that go into renovation, you can end up upside down very, very quickly before you even realize it because these costs are typically hidden. So, again, let's review some of the mistakes that people make. Um, signing a lease without understanding the build-out timelines is a major, major mistake. Choosing the lowest bidder instead of the most qualified, or not evaluating multiple bids with different general contractors and really looking at what you're getting for the cost that they're estimating that bid to be. Not negotiating enough free rent, guys. Again, this is something that you can have that the landlords don't want you to have. They don't want you to know that this is your opportunity. You've got to go into these leases knowing that you are the customer. It is in the landlord's best interest to have this space leased as long as possible. And if you are going to live there, if you're gonna be in that facility and you are going to need to renovate it to make it your home, they need to invest in that. Because at the end of the day, when you outgrow this space and you leave, everything that you built into that space, all the money that you put into that space at the end of the day is not yours. So, again, going back to my example, if you're leasing a 2,000 square foot facility and your GCs are saying that it's gonna cost$375 a square foot to make it yours, and that's that's a lot of money that you're walking away from. So your landlord has to have skin in the game. And if you're having difficulty getting that point A and point B across to your landlord, please give us a cause. Our commercial agents are amazing. Naja is one of our commercial agents with the CBRE group, and she is absolutely amazing and she is a bulldog when it comes to negotiation, guys. So um, the other thing that I want to talk about is just really making sure that you have an additional three to six months of working capital in the event that you do have delays. Um, if you are in a larger city like Boston or Miami or Houston, you may have delays that take up to two to three months, and you need to make sure that you have an extra cushion of operational expenses to allocate for that. So I really, you know, I don't know if any of this is resonating with some of you, but again, like these are some of the things that we really harp on with our clients to be made aware of and to be educated about before going into leasing a space and then what build-outs look like. Um, because if you don't do it the right way, and if you don't know what you don't know, like are they supplying um your fixtures and your finishes? Are they sourcing um how many people are gonna be on site? How long is it gonna take you to build out your space? Are there any protections for you in the event that the build out takes longer than expected? These are all things that can drastically add a lot of money to your budget without even realizing it, guys. So um again, the build out phase is often the most one of the most fun parts of launching your business. It's really fun to have a vision for your business and see it come to life with the space, with the beauty, with the workflow of it. But again, we don't want it to be a mistake that costs you money, that eats up into your operational cash that can help, can make you go upside down before you even get started. So if you like what you've heard today, guys, and this is resonating with you, or if you're having one of those oh shit moments, AJ I didn't do this right, please give us a call. Reach out to us at dermasetic consultinggroup.com. Um, follow us if you are enjoying what you're hearing and you believe that this podcast will help you position yourself for success. That is the goal. Um, please make sure to join us next time. Um, today, again, is all about construction costs and how to avoid costly mistakes. It has been a really, really fun episode for me because I am very passionate about construction and the costs and again, budgeting and making sure that clients are positioned for success. So until next time, guys, keep driving, growing, and thriving with information and strategy. Keep using this information to help position yourself for success. And until next time, have a great rest of your day. Bye, guys.

SPEAKER_01 31:28

Thank you for listening to Med Spa Unlocked. True success in aesthetics is never accidental. It's the result of vision, precision, and disciplined execution. If today's episode resonated with you, we invite you to subscribe so you won't miss future conversations and to continue unlocking what's possible for your business, your brand, and your legacy. For more resources, education, and strategic support, visit us at dermastheticconsulting.com or connect with us on social media at Dermasthetic Consulting. And if you're ready to take the next step in building your aesthetics practice the right way, we'd love to help. Until next time, lead with intention, operate with excellence, and never stop evolving.