Is Your Franchise Location an Asset or a Liability?

from John Woodburn, President of C.J. Woodburn & Associates.

As a prospective franchise business owner, you’ve read everything you can get your hands on. You’ve learned to:

  1. Get Disclosure Document and comments from franchisor – read carefully!
  2. Talk personally to many existing franchisees.
  3. Ask for a location – franchisor or real estate agent.

Assuming you’ve done the above points 1 and 2 thoroughly, are you ready to roll ahead? We hope not!

Your business location is probably the most important and ongoing expensive part of your decision. The location has either been found by the franchisor or an agent so how do you assess its potential worth to you?

Let’s accept that in life there is no such thing as a perfect person. So it is in location selection.

First the downside.

Should you have challenges in sales or operation of your business, you can call on your franchisor for guidance or help.

Not so with the lease. This lease document is binding on its parties. It could be ‘head manned’ by your franchisor. This shows he/she has confidence in the site. However, the franchisor doesn’t control the terms and costs – the landlord does. Should you have a problem, the franchisor has given assurance as a tenant to make good as and where required or even assume the location. In other words, there’s no legal requirement for the landlord to bend or alter the lease terms.

So – investigate the location yourself before you agree to it. Does it have:

  • Competitive lease costs for the area?
  • A landlord who works with his tenant and doesn’t ‘hardball’ them?
  • An area which contains a good density of people who could become your customers?
  • Easy entry and exit from your location? (No medians blocking or one way streets.)
  • Store signs easily visible from the roadway? How close are your competitors?

If the franchisor owns the property, be careful of costs charged as compared to the nearby market area. Remember your total costs will include not only direct rent but also what is known as TMI. This is the landlord’s Taxes, Maintenance and Insurance. Your portion of these costs will be based on the size of your location in the property.

A landlord is only interested in long term profitable tenants. He may have even inserted a ‘bump up’ bonus percentage for him once your sales pass a stated dollar level.

What personal liability do you have under the lease? Yes – your company may have signed it but in the same way you’ve had a franchise lawyer advise you on the franchise documents, have him/her also review the lease or sublease so you know what exposure you’d have personally, if any.

Now, let’s review the size and style of a location for your business. As you visit and talk with existing franchisees, ask about their location satisfaction. There’s a vast range of styles and sizes from which to choose. A lot of these details will be dictated by your franchisor’s/franchisees’ experience and their typical location demographics. Let’s quickly review your options and their general advantages and disadvantages. Here’s the range.

  • Freestanding individual building.
  • Unit in a strip mall – local or regional. (sizes vary)
  • Mall
  • Power Centre
  • Neighbourhood group

Freestanding:

All attention will be on you, however, the landlord must charge his total costs to recover his investment and interest to you as his only tenant.

Strip Mall:

You’ll be one of a number of tenants so cost per square foot should be lower. Make sure your position in the tenant location sequence is good for you. Avoid competition in the same strip. Is there easy access and lots of parking?

Mall:

This type of location is larger in size and will have a number of tenants which should attract a greater number of customers who can also find you. It will be more expensive than strip malls. Fewer malls have been constructed recently because of high building costs and saturation.

Power Centre:

This will be anchored by one or more large, strong stores. E.g. Costco, The Bay, Sears, etc. It has fewer tenants than a mall and may offer lower rent than a mall. Typically it will be open (no roof) between tenants rather than an enclosed roof like a mall.

Neighbourhood Group:

Here you’ll find a few tenants serving neighbourhoods. These will be mostly services such as dry cleaners, convenience stores, etc. Costs should be lower than freestanding power centres or malls but will be more expensive than a strip mall location.

Here are some suggestions.

  • Ask the landlord for an exclusive clause in the property.
  • Get an exclusive radius or territory for your location from your franchisor. This avoids a sister location cannibalizing your sales success.

Conclusion

After 36 years in franchising from all sides of the field – as a franchisee, franchisor and as a consultant – we’ve passed along some concerns which we’ve seen.

With the experience of helping hundreds of people launch a new franchise business, we’re aware that often the prospect doesn’t worry about the location but simply accepts what’s offered to their possible detriment.

Look before you finally sign the lease and make your location an asset!


John Woodburn Expert AdviceJohn Woodburn is President of C.J. Woodburn & Associates, a franchise consulting firm in Burlington that specializes in helping new and established franchisors market their systems and expand regionally, nationally and internationally. John has been involved in franchising for over 36 years and has experience throughout Canada, the United States, Europe and even the Middle East.

Phone: 1-877-322-2153 (toll free)
Email: john@woodburnassociates.com

 

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