Three Hurdles to Clear for Franchise Success

Hurdle #1: Real Estate Trends

The potential of your franchise rests heavily upon both the commercial and residential real estate trends in your area. Are people and businesses moving in or moving out? Are vacancy rates increasing or decreasing? Are commercial lease rates going up or down? You need to understand these trends and how they will affect your business. For example, if you are contemplating a home-improvement opportunity and your area is hit hard by lots of foreclosures, those factors may affect your projected sales volume.

Tip: Contact local leading real estate brokerages, both residential and commercial, and ask for reports on the local real estate market.

You may have been raised to never care what others think about you, but in the franchise world, it's an entirely different story. How your landlord perceives your franchise is crucial.

Especially when considering an opportunity that requires commercial real estate, it is very important that you know how the landlord community regards your franchise. This will have an impact on how easy or difficult it will be to secure real estate and how much you are likely to pay.

Tip: Take a knowledgeable commercial real estate broker to lunch. Probe him or her on the general perception of the franchise, and ask the broker their opinion on the concept. What you learn may surprise you!

Hurdle #2: Employment Trends

You may have uncovered much of this information in your national and local research, but you'll also want local information as it relates specifically to the types of employees you will require.

Tip: Wander around the neighborhood where you are most likely to acquire your business. How many "help wanted" signs do you see in the types of establishments that are employing your prospective employees?

If you see many signs, you can be sure that it will be quite difficult to recruit employees for your business. Second, you will probably pay more for your employee compensation than you anticipated. Third, your turnover rate is likely going to be higher as other employers compete for your employees.

Hurdle #3: Legal/Governmental Trends

Before you invest in an opportunity, you need to have a clear understanding of the legal and governmental trends that may have an impact on your operations. Before you invest a dime, answer this question:

How could recently enacted or proposed local, state, or national legislation affect your business?

Pay special attention to:

• Community development plans. The local politicians might be working with developers to improve a neighborhood. How could that affect the opportunity you are considering? Will your neighborhood suffer as another nearby experiences significant renovation?
• Employment legislation. For instance, San Francisco enacted legislation that required all employers to grant 1 hour of paid sick leave for every 30 hours worked, essentially increasing payroll costs by 3 percent. What are the trends that could affect your operation?
• Regulation. How regulated will your business be? If you deal with hazardous materials, food, the elderly, or a lot of hourly workers, you need to factor in the costs of complying with regulations. You also need to anticipate which direction regulation is moving. For example, in the restaurant business, many communities are banning plastic bags and Styrofoam and moving toward banning any packaging that is not biodegradable. Is your franchisor ahead of the curve on this, or are they burying their heads in the sand and hoping this trend goes away?
• Permitting. Do you need special licenses or permits in order to operate? If so, how much do they cost, and how long does it take to get them, and are even more permit requirements on the way?