How Franchise Business Differs From Regular Retail Deals

Franchise Business
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This article originally appeared on the News section of Centennial Retail Service’s website. Currently we are seeing a high level of growth for franchised concepts. The growth has not just been in the number of franchise concepts but also the types of businesses that are franchised.  There are concepts available for Franchisees at all levels of funding and interests from restaurants to medical to education.  

There is a whole universe of entrepreneurs who are looking to own their own business in our current economic climate. For many owning their own business is the traditional American Dream, and many of those future business owners look to franchise opportunities as any easy and less risky way to open a business. Why would you choose a franchising opportunity as opposed to opening your own business? With a franchise, you get all the benefits of opening a business and being your own boss coupled with the support from the Franchisor. The Franchisor often provides training, an established brand presence, and proprietary equipment, all of which make it a lot easier to step in on day one ready for success. Most Franchisors will also help with store design, financing, and even the real estate process. With a franchise, you are buying the support and branding that would normally take years to get if you were opening your own business. 

If you are a Franchisee looking for a real estate Broker, it is important that you take a few critical steps when interviewing and selecting that Broker. First and foremost, it is important to work with a Broker who has experience working with Franchisees. Experienced Brokers understand that often Franchisees have no or very limited experience in the real estate process and therefore require a Broker experienced in explaining and walking them through the real estate process.  

Although typically it is the Franchisee that signs the lease often the Franchisor participates in the real estate process providing the Franchisee with specific criteria for real estate site selection in order to help the Franchisee open the most successful store possible. 

Since typically it’s the Franchisee who is the Tenant, it is important that the Franchisee put its best financial foot forward in order to obtain the best real estate deal, especially in a tight real estate market like we have now. Well capitalized financials are critical especially if the Tenant is requesting Tenant Improvement (TI) dollars, a cash contribution from the Landlord for the Tenant buildout, because TI dollars are going to be dependent on your financial strength. As a Franchisee, being well capitalized from the very beginning will help you avoid many of the issues that arise when opening a new business. 

Other aspects of the Franchise process such as understanding what a franchise territory means to a Franchisee, what the lease process looks like, what rights the Franchisor has in the lease, and most of all do doing proper due diligence on the Franchise concept. 

As enumerated above there are a lot of moving parts to acquiring the right location for a Franchise business. Therefore, it is essential to have someone who has experience guiding Franchisees through the real estate process. 

Working with an informed and patient real estate Broker can make a big difference when it comes to finding the right location, especially for someone who has never signed a lease before. In addition to the site selection process, a real estate Broker can be invaluable in recommending local professionals such as real estate attorneys and contractors.  Although the Franchisor will provide guidance on the design of the store, it typically falls to the Franchisee to hire the contractor that will build out the space.  A real estate Broker’s relationships with local contractors can really come in handy when it comes time to recommend construction companies to bid the buildout construction. 

Finally, it is so important to get it right the first time. Once you’ve signed a lease, you are locked into a location for minimum of 5 years and often 10 years. There are many things that can make or break your business and real estate is very close to the top of the list. As it is with any retailer when they enter a market, that first store is critical, so you must get it right. If you don’t get it right, it will make your ability to open the second store more difficult.  

I started working with franchisees around 1994, working both the corporate and franchise side of GNC and since then have worked with many other concepts.  In addition, my partners Joey and Barry have extensive experience working with many Franchise concepts. 

If you are looking to learn more from a team of Brokers with expertise working with Franchises contact us, we would be happy to help you execute your entrepreneurial dream. 

Please feel free to contact Arthur Perlen, CCIM, author and Centennial Retail Services broker, to talk retail any time you’d like. You can email Arthur at aperlen@centenretail.com.

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