For most franchises, the right location is key to success. The catch is that franchisor willingness to help find the site and negotiate the lease varies tremendously, says franchise consultant Michael H. Seid, co-author of Franchising for Dummies. When you're on the lookout for the perfect location for your shiny new franchise, here are three key considerations.
1. Get experienced support
Although your franchise agreement might include the rights to a particular geographic region, there are often umpteen potential sites. From strip malls to highway frontage, it's important to identify the best environment for your fledgling business to succeed. That analysis requires an experienced franchisor with a team that has studied the best environments for the franchise's success, and that works with experienced real estate brokers or a commercial broker network, Seid says.
"The franchisor is the one who defines the type of location, size of location, the tenants nearby, the traffic conditions and the cost," he says. "If I'm a potential franchisee, one of the first things I should be asking is, ‘How do you determine what type of location I'm going into and who is supporting me in getting there?'"
Doug Walker, a LaVida Massage franchisee in Tampa, Fla., found the parent company was exceptionally involved in the location selection and design. LaVida's franchise plan has distinct preferences about location, says company founder and CEO John Hoose. A typical location is approximately 2,400 square feet and located in a strip mall or other area with high levels of foot traffic and other consumer-oriented businesses, including a grocery store anchoring the complex.
Hoose says his company works with a large network of commercial real estate brokers to help franchisees find the best location in their areas. Once a location is found, floor plans are submitted to LaVida and, within 24 to 48 hours, the company produces sketches of the best possible space configurations for the franchise. Hoose says this process ensures the space is appropriate for a LaVida franchise and the landlord will be agreeable to the plans.
2. Analyze the area
A suitable building or shopping center is one part of the equation, but it's equally important to understand the area, including traffic patterns, demographics and even future building plans, Seid says.
Even if a location looks great on paper, it's important to inspect the traffic patterns around it. If it's too difficult to access, customers might not bother, he says.
Rick Franklin is no stranger to hunting for franchise sites. He and his wife own five Fantastic Sams hair salon locations--including one that's a Top 50 location--and plan to open a Jimmy John's Gourmet Sandwiches franchise in metro St. Louis, Mo. However, after building his first Fantastic Sams location, Franklin found that a new shopping center was being planned one mile away and included a hair salon.
"That really killed our first business," he says.
Since then, he found the contractor who handles the build-outs of his stores a great source of intelligence for new building projects. He also advises checking with the land use office of the municipality to find out about any new building projects--and the possible competition they might house.
Seid says having an understanding of an area's demographics is critical. His firm participated in a review of an ice cream franchise chain. He recalls one franchisee who was located in an Orthodox Jewish community but who didn't post signage that his ice cream was kosher--a very important consideration for many in the neighborhood.
"It was a market he didn't understand, so he couldn't work in that market," Seid says.
3. Sweat the lease details
While LaVida's Hoose gets involved with his franchisees right down to the details of lease and rent negotiation, other franchisors are not as aggressive when it comes to signing on the dotted line. Seid strongly recommends all franchisees retain legal counsel to review their leases to protect their best interests and ensure the lease allows for fulfillment of the franchise agreements, including space configuration, signage and other factors.
In Franklin's first lease negotiation, he didn't realize that signage on the property would incur extra charges. He left that out of the lease negotiation, and it ended up costing him more than he had planned.
There are other hidden charges. For example, Raymond W. Titus--CEO of United Franchise Group, the West Palm Beach, Fla.-based franchisor of sign franchise Signarama and embroidery franchise EmbroidMe--won't let franchisees lease space in a facility that requires "percentage rents," which set rents based on revenue. Titus also looks for potential problems, such as ensuring that facilities for his signage franchisees have enough power.
Franklin warns about common area maintenance (CAM) fees, which require tenants to contribute to the maintenance of common areas. These should be capped and allocated by square footage rented and not by occupancy levels, he warns.
But franchisors can use their muscle to find hidden concessions, too. Hoose and his brokers try to help franchisees look for "build-out money," where a landlord will fund a portion of the construction on the property in exchange for a specific lease period or other concessions. Since the economic downturn, he finds this money easier to negotiate and has helped franchisees secure as much as $40,000 to $50,000.
Even if your franchisor gives you exceptional support in each of these areas, it's important for franchisees to protect themselves, hire their own legal counsel and do their own due diligence, Seid says. Ensuring your interests are protected, while benefitting from an experienced and supportive franchisor and commercial real estate broker, gives you the best opportunity to find, negotiate and lease the best location.