Jeff Elgin: Buying a Franchise
Choosing a Great Franchise Location
Tips to help you select the best spot for your new business
By Jeff Elgin
| June 28, 2004
URL:
http://www.entrepreneur.com/franchises/buyingafranchise/franchisecolumnistjeffelgin/article71508.html
The topic of finding a good location and then negotiating a
favorable lease is one that all franchisees face when they are in a
site-based franchise system. Because most new franchisees do not
have any experience in finding a location, they can experience
significant anxiety if the proper assistance is not available from
the franchise company.
Most site-based franchises have support available to help with
this issue, but that support varies from company to company. One of
the critical issues to address in your research of prospective
franchise offerings is the amount and type of such real estate
support.
There is usually a team approach to finding the location and
negotiating and finalizing the lease. The team consists of you, the
franchisor, a local commercial real estate broker and a good lease
attorney.
Most franchisors provide you with specific selection criteria
for finding a good site. This information covers topics such as the
demographic characteristics and population density, traffic and
parking parameters, and the importance of site visibility to the
success of your business. They often provide other helpful
information, such as the type of tenant mix that is preferable in a
shopping center you are considering or which side of a busy street
you should be located on.
Most franchise systems assume you'll do most of the legwork
in terms of locating a prospective site, based on the selection
criteria they have provided. In many cases, the franchisor requires
that they have consent to any site and may ask you to provide them
with information (often including pictures or videos) about the
site prior to consenting. Some franchisors send one of their
operations support staff out to your market to personally verify
the acceptability of the site prior to consent.
After you have found one or more acceptable potential locations,
you will move on to lease negotiations. This is where you determine
the economics of the locations you have found and also any other
considerations that might be important to your specific
business.
The economics of a location revolve primarily around the rent.
Another possible factor: percentage rent clauses that escalate your
rent as your business grows over time. There are also commonly
clauses requiring you to pay for common area maintenance, real
estate taxes, landlord insurance and other expenses. You need to
work with the franchisor and the local real estate broker to make
sure these other expenses are reasonable.
The franchisor and the broker should also help you identify
financial assistance available from the landlord. This commonly
comes in the form of free rent allowances and tenant improvement
allowances. This can represent a significant amount of money, so
make sure you pursue this area.
When the principal terms of the lease have been agreed to, you
will typically have the lease reviewed by the lease attorney. This
is a specialized area of the law, and you need to make sure
you're dealing with an attorney who is experienced in reviewing
leases.
The franchisor should also have support materials to assist you
and the lease attorney in the lease review process, such as sample
language for "use" clauses that need to be included in
the lease, or suggestions for language restricting competing use by
other businesses in the center. The franchisor will typically also
have language suggestions relating to other normal and standard
clauses lease contracts.
In some cases, the franchisor may even have a suggested lease
document they would like you to propose to the landlord. Keep in
mind, though, that your bargaining power with landlords is often
not as strong as theirs, so you typically have to work from their
standard lease document.
Throughout this entire process, you are the main player. The
rest of the team, including the franchise company personnel, should
be your support system to help you get the best site on the most
favorable terms possible.
When you are investigating any franchise company, always ask the
existing franchisees about their experiences with the real estate
process. Ask about each of the factors mentioned above and find out
whether they had any other unforeseen problems. Finally, make sure
to find out how long the entire process took them from start to
finish and whether their time frame was normal and met their
expectations. This type of research takes time, but will arm you
with the knowledge you need to avoid unpleasant surprises when you
become a franchisee.
Jeff Elgin has
almost 20 years of experience in franchising, both as a franchisee
and a senior franchise company executive. He is currently the CEO
of FranChoice Inc., a company that provides free
consulting to consumers looking for a franchise that best matches
their needs.
The opinions expressed in this column are
those of the author, not of Entrepreneur.com. All answers are
intended to be general in nature, without regard to specific
geographical areas or circumstances, and should only be relied upon
after consulting an appropriate expert, such as an attorney or
accountant.
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