In our last installment, jack and Diane (not their real names), our educated and highly motivated couple, had finally decided to sign a franchise agreement and wrote a hefty check for an oil change franchise in the Pacific Northwest. After much discussion and some emotional struggle, they made their home collateral for an SBA loan.
The Search Is On
Jack and Diane wrote a check for a $10,000 deposit to lock down the rights for their franchise. Their entrepreneurial dreams were finally being realized. "Instead of climbing the corporate ladder, I'm jumping off," explains Jack. "At age 42, I'm taking my hard-earned money and experience from 21 years in the advertising business, not to mention my house and my 15 years of marriage, and putting it on the line."
The search for the perfect franchise took Jack and Diane no less than six months--unlike most franchise shoppers, who typically make a premature decision about a franchise and then spend about six months rationalizing the decision. To their credit, our couple did prepare a short business plan and ran some numbers.
Because a franchise purchase is often so large, buyer's remorse is common. For years, many scholars have attempted to define the nature of the franchise relationship by drawing parallels with partnerships and other business associations.
Personally, I see a franchise relationship as more of a marriage contract--as long as both partners are pulling their weight and are always honest with each other, and as long as the net effect creates prosperity, the marriage stays intact.
However, considering you can't really spend time in bed with your franchisor before your contract is binding, the honeymoon often has a few surprises. When your franchisor fumbles on your behalf early in the relationship, the feeling is akin to the first sight of a big hairy wart on your new mate's back.
In Jack and Diane's case, finding a suitable site for their business has proved to be an unexpected hardship. Our couple now knows that location is probably the single most important ingredient for the success of a convenience-driven retail venture. The wrong curb cut or poor visibility can spell disaster for even the strongest franchise concept, and the name on the sign won't mean a lot if people can't find you or if they aren't able to make a left turn against the traffic.
Though it seemed Jack and Diane were on the fast track to a franchise, the couple waited a month and a half after signing the agreement before the site-selection process began via a third party chosen by the franchisor. And, much to Jack and Diane's dismay, the wait was far from over.
Months and months have now transpired, and Jack can hardly get the "professionals" in charge of finding his site to return any of his phone calls. His frustration is palpable. "I'm not getting a good feeling about this process--it feels like I'm doing more legwork than they are," he says. "They are not very organized. Had I known this before, I would have saved the $10,000 real estate assistance fee and just done all the searching myself." The honeymoon is officially over.
Imagine if Jack had quit his job when he signed his franchise documents, optimistically anticipating his new career. Do you suppose the tension of too much free time, personal frustration and growing financial anxieties could cause him to make a site-selection decision under pressure?
I've seen plenty of people in Jack and Diane's situation resign themselves to a less desirable location. However, Jack wisely continued working in his former career during this stage, thereby eliminating some of the stress.
Now, after months of frustration, the couple's patience is finally paying off: they have learned a prime site--in a huge metropolitan area--may be available. Jack and Diane are doing the right thing by being picky, but many franchise agreements contain a trap for the unwary: a clause that permits new franchisees only a certain period of time to select a site and/or open for business. Failure to do so can result in the disastrous loss of a protected territory or, worse, a default of the agreement.
When locations are hard to come by, you should ask the franchisor to modify or waive this requirement before you sign the documents. Or try to contact some commercial real estate brokers before you sign, and ask questions relevant to the type of business you're considering. Commercial landlords receive sales reports from their tenants and have a pretty good handle on what type of revenue is typical for your business. If you arm yourself with this information and develop these relationships before you need them, you'll drastically reduce your lead time to opening.
Todd D. Maddocks is a franchise attorney and founder of Franchisedecision.com. Write him at firstname.lastname@example.org.