Finding The Right Site and Avoiding A $500,000 Mistake—

The West Coast Franchise Expo in Los Angeles was a tremendous setting to kick the tires on a lot of new concepts—and some tried and true old ones, too—but I heard very little about location from the franchisor representatives and consultants, and few franchise shoppers asked. Sure, most of the bullet points in their brochures and FAQs included “ real estate support", but what does this mean?

• An in-house real estate department. Good allies here, but their objective is to get you into a site—hopefully the right one. They are tied to the objectives of the franchisors to grow royalties by getting stores open as quickly as possible to meet projected revenue streams and lender obligations. And, they don’t sign the lease, you do. . .

• A commercial broker. Well-intended, intelligent people here, too, and the tools at their disposal—demographic and customer-profile modeling—are very valuable, as is their knowledge of the marketplace. Their objectives are certainly to help you find the right site, but their timeframe can be commission-driven, and their relationship with the franchisor depends on their production, i.e. how many franchisees they get into sites. And, they don’t sign the lease, you do. . .

• A consultant group. When you dig through this, it’s often a commercial brokerage group in another format. Chances are they’re also commission-driven, since their compensation also includes commissions and the same “get the franchisees into a site” objective as the in-house real estate department and commercial broker. And, they don’t sign the lease, you do. . .

So what to do?  Well, first, the time to think about location is BEFORE you buy. See Do This Before You Buy.  

Franchise consultants, experts, and kings? Franchise journalists and bloggers? Your neighbor in the real estate biz? Your brother-in-law? (OK—obviously not your brother-in-law). Unless one of the above has hands-on experience working with franchisees and tenants exclusively on their behalf across the whole span of  the site selection process, including lease negotiations (3 Ways to Have The Landlord Finance Your Tenant Improvements), you may want to look elsewhere. 

Oh--$500,000? Multiply your annual rent by the term of the lease (your contingent liability ie: you have to pay it), add your construction costs and the cost of your franchise agreement, plus miscellaneous things like legal fees, and you’ll be lucky if the total is only $500,000.

I’ve been working with franchisees and business startups for 25 years. Trust me — choosing the wrong location and not fully-negotiating the lease can put an enormous dent in your financial future and personal well being.  So when choosing the right business and putting it in the right place, let’s get it right — right from the beginning.

_______________________________________________________________________