Opening
The Doors
To Your
Franchise
Business
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Opening The Doors To
Your Franchise Business
What new business owner isn’t
looking forward to that special day
– The Grand Opening? It is a day
full of festivity – the ribbon cutting,
the crowds, the realization of your
dream. Getting there takes curiosity,
determination, and a steely resolve
to find the best location for your
business at the best price.
Location, Location, Location
Sure, it’s cliché, but when it comes to finding the right spot for your business, location is cardinal. Why?
Because it doesn’t matter how good your product is if customers can’t find you.
Fortunately, for new franchisees, the franchisor often has done the heavy lifting when it comes to site
selection. Good franchisors have strict criteria for locating a new business. That criteria takes into account
past experience; an understanding of the customer base, area demographics, and lease negotiations.
Franchisors may also require that franchisees get their approval before signing a lease. This is not punitive
in any way; it’s meant to guide the franchisee toward a quality location with high visibility and a higher
likelihood for success.
A good location buys a franchisee time to build the business and to focus on the things that matter most
in those first few years. A poor location – often one chosen based solely on cost – will force a franchisee
to spend an inordinate amount of time and money on advertising and other efforts aimed at helping
customers locate the business. In short, what you save in rent will go out in advertising – sometimes more.
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Finding a good location has been made easier thanks to online tools that allow users to create
parameters for their search. The parameters narrow choices and help the user quickly identify quality
locations with potential. Some parameters you may want to consider include:
• Traffic patterns
• Demographic and lifestyle data
• Proximity to schools, hospitals, office complexes or other establishments from which your business
might draw customers
• Proximity to competitive businesses
• Rent
With a short list of potential locations, it’s time to get curious. Visit every possible site that meets your
criteria. Sure, there may be quite a few, but this is your future, and you want to make an informed
decision about locating your new business. Think about the types of customers you want to attract. It’s
good business sense to be near businesses that are making money and will complement your business.
Ideally, such a location will boost traffic to your business. So, for example, if you are opening a toy store,
you may want to be near other businesses that cater to children and parents.
Determine Your Needs
Most businesses choose a location that provides exposure to customers.
Additionally, there are less obvious factors and needs to consider, for example:
Brand Image – Is the location consistent with the image you want to maintain?
Competition – Are the businesses around you complementary or competing?
Local Labor Market – Does the area have potential employees? What will their
commute be like?
Plan for Future Growth – If you anticipate further growth, look for a building
that has extra space should you need it.
Proximity to Suppliers – They need to be able to find you easily as well.
Safety – Consider the crime rate. Will employees feel safe alone in the building
or walking to their vehicles?
Zoning Regulations – These determine whether you can conduct your type of
business in certain properties or locations. You can find out how property is
zoned by contacting your local planning agency.
– SBA.gov
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After site visits, narrow your list to three or four locations that are ideal. Map out a plan to visit those
locations several times, and at different times during the day. Talk with nearby business owners.
Stop in a convenience store and ask questions about foot traffic and customers. If you’ve got a good
conversation going, ask about rent. Knowing what others are paying will help you negotiate a good deal.
Inside the location, imagine how it might look with the furniture and equipment you will need to conduct
business.
Is there enough open space?
Can you fit in desks or a reception area?
Will customers feel cramped?
Are there tight corners or wasted space?
Are bathrooms easily accessible?
Take care not to get emotionally attached to any one space. Once you begin negotiations, don’t give
the landlord clues that you have found the ideal location. The reason is obvious: You want the best deal
possible. By showing your hand, you open yourself up to a landlord who may be unwilling to negotiate.
Understanding the Lease
Armed with data about the location and an assessment of the actual space, you are ready to begin
considering leases. Commercial leases can run to hundreds of pages. They’re not like reading your
favorite novel, but they are important, and you should read every page. Some prospective tenants
seek advice from a lawyer to evaluate the lease. Additionally, a good franchisor can help franchisees
make a good decision.
Here are a few points to consider as you evaluate a lease:
Cost: Generally, commercial leases are calculated by the year, but are advertised by square foot. So,
a landlord may offer a 1,000-square-foot space for $24 per square foot per year. That means you’ll pay
$24,000 for that first year’s rent or $2,000 per month. Business owners typically look to spend no more
than 10 percent of their projected gross revenue on rent. In this instance, you’d need revenues of at
least $20,000 per month to make this formula work for your business.
Terms of the lease: The landlord
would love a long-term commitment,
but a long-term commitment may not
be ideal for a new business owner. A
better deal for the tenant is usually a
lease that has a short-term commitment
with options to renew. Consider your
franchise business and its peaks and
valleys, and negotiate a lease beginning
and end that suits the business. A lease
that ends in the middle of the summer,
for example, would not be a good
choice for a frozen yogurt franchise.
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Rent Increases: Negotiate rent increases over the term so your business isn’t suddenly and
unexpectedly hit with an increase that disrupts cash flow.
Utilities: These typically are the responsibility of the tenant, but it’s important to know how utility costs
are determined. Take electricity, for example. It’s one of the biggest operating expenses for tenants. You
will want to know if electricity will be paid by direct metering, submetering or rent inclusion.
• Direct metering means the utility directly meters your electricity and you pay for what you use.
• Submetering occurs when one meter in the building connects to the utility. The landlord may install a
separate meter to measure usage in your space. You pay the landlord, and the landlord pays the utility.
• Rent inclusion: If a building has only one meter, electric charges may be lumped in with rent, but it’s
important to know how the landlord determines your cost. Will you pay a set price per square foot of
space?
Common Area Maintenance (CAM) fees: Along with rent, some commercial tenants are required to
pay a share of maintenance costs for common areas, such as a parking lot. These rates can skyrocket if
you don’t set terms in your lease for a fixed CAM rate or a cap on CAM increases.
Maintenance and repair: What happens if the roof starts leaking in your store? Are you responsible
or the landlord? Typically, such structural elements are the landlord’s responsibility, but it is wise to have
responsibilities specifically spelled out in the lease. The tenant often is responsible for maintenance and
repair of items within a business’ four walls. Within those four walls, you want to negotiate the right to
make alterations and improvements without landlord approval.
Additional items you may want to negotiate include:
Kickout clause: Let’s say you make less money than projected. A kickout clause lets you get out of the
lease after a certain period of time if your revenues do not reach expectations.
Sublease: You may decide you want to move to another location before your lease is up. A sublease
gives you the flexibility to sublet your space to another business.
Exclusivity: Competition is good for business, but you don’t want the competition right next door.
Exclusivity agreements prevent your landlord from leasing to a direct competitor.
Co-tenancy: Suppose you locate in a mall and the anchor tenant leaves. The emptiness could have
an impact on your business. A co-tenancy agreement may protect you from such loss by allowing you to
break the lease if the landlord doesn’t find a new anchor in a given period of time.
Negotiating the Lease
Negotiation is a process of give and take – never give a “bottom line” until you have explored every
possible alternative. It’s wise to simultaneously negotiate leases at more than one location. By so
doing, you keep the process moving forward and can make a decision with all the relevant information
at hand.
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Know what others are paying: Talk with other tenants. See if they will share what they’re paying for
rent and any incentives they may have received. This will give you leverage as you negotiate your rent.
Know the rules: Visit local government offices to discover any city rules that apply to your business.
Are there signage restrictions at the city level or with the landlord? Can you host community events at
your location? Are there rules for hours of operation for your business?
Ask for a lower price than you are willing to pay: It’s easier to increase your offer than to
decrease it. Same goes for incentives. Maybe you want a few months of free rent. Ask for six months at
first, then be willing to accept three months.
Be prepared to walk away: Even if the location is ideal, you need terms that will not break your new
business. If you can’t reach an acceptable agreement, it’s time to move on.
Measure your space: You want to be sure the space is exactly what the landlord has said it is. Often,
office space includes areas that the tenant considers unusable. If the space has too many unusable
areas or if your measurements simply do not agree with the landlord’s, you have room for negotiation.
Get your best deal: Never accept the first offer. Go into the negotiations ready for the give-and-take.
Make counter-offers and work hard to get the space you desire at a price you can afford.
During negotiations, make sure the landlord knows if you need approval from the franchisor before
signing a lease. If you need approval, be sure to get it before you sign on the dotted line. Once you have
the OK from the franchisor, and you’ve signed all the paperwork, it’s time to start thinking about that
ribbon-cutting.
Evaluate Your Finances
Besides determining what you can afford, you will need to be aware of other
financial considerations:
Hidden Costs – Very few spaces are business ready. Include costs like
renovation, decorating, IT system upgrades, and so on.
Taxes – What are the income and sales tax rates for your state? What about
property taxes? Could you pay less in taxes by locating your business across a
nearby state line?
Minimum Wage – While the federal minimum wage is $7.25 per hour, many
states have a higher minimum. View the Department of Labor’s list of minimum
wage rates by state.
Government Economic Incentives – Your business location can
determine whether you qualify for government economic business programs,
such as state-specific small business loans and other financial incentives.
– SBA.gov
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The Grand Opening
What a glorious day when you open the doors to your new business. To make it even more satisfying,
it’s essential to lay some groundwork. Below are just a few tips to help make a grand opening even
grander.
• Get outside: Visit local business owners. Let them know who you are and what you stand for. Open
a line of communication that will remain open and vibrant as long as you operate in that area. Sign up
for the local Chamber of Commerce and share your story there.
• Get active: Find community organizations or groups where you can build relationships and a
customer base. Get active in those groups. Call local residents; let them know about your new
business and invite them to stop by.
• Get coverage: Seek out local publications and websites in the area and get the word out about
your business.
With the contacts you’ve made,
you can establish a good list of
people to invite to your grand
opening. In many locations, the
Chamber of Commerce will come
out for a ribbon cutting for a new
business. Invite local leaders
and let the media know – well in
advance – so that you can get
coverage in the local paper.
Make sure your office looks great
for the grand opening and that
you overstaff, so your potential
customers can see how your
business operates at full capacity.
You don’t want customers waiting
around for service. That’s not a
good way to start.
Opening the doors to a new franchise business is a thrilling experience. By understanding all that goes
in to getting the doors open, you can plan for the future and get your new business off to a good start.
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