Site Selection: Other Factors To Consider
As discussed last week, finding the best site for your new franchise unit (assuming your brand is not mobile or home-based) is a critical decision, one that should be based on the cold, hard facts--the numbers. Finding those numbers is easier today than ever before, but making sense of them as you consider where to set up shop is more complex. Don't be shy about asking for all the help you can find in the site selection process.
Tremendous amounts of data and information are available today, making site selection more scientific and less seat-of-the-pants than in the past. Demographic and psychographic databases, combined with traffic flow, maps, and future projections can be crunched to perfection by today's data analysis and modeling software. Ask your franchisor if they can provide access to these tools. For more on how franchisors are using these tools, see www.franchise-update.com/article/667/; for more on how franchisees are, see www.mufranchisee.com/article/718/.
Rent/lease vs. buy/own
Money is nearly always a limiting factor when starting any kind of franchise. In addition to the franchise fee and build-out costs, new businesses take time to turn a profit and need a cash cushion to keep afloat until they begin to show a profit. That's a strong reason to consider renting when you start out: it reduces your risk by not locking you into monthly payments on a property. How do you know a site will work until you've tried it for three or six months or longer? Leasing with an option to buy could work, but many advise not to buy until you have a greater level of certainty about the profit the business will generate. All circumstances are different, and tax considerations could come into play as well.
Build or existing unit?
In the case of standalone concepts, it's less expensive to take over or move into an existing unit than to build a new one from the ground up. Some franchisors may stipulate that you build a new unit, but at this stage (signed franchise agreement) you will know this. In the boom years preceding the subprime recession, it was a seller's market for real estate. After the economy tanked, the pendulum swung quickly, opening up many "A" locations and great deals on rents, tenant improvements, and more. Those able to take advantage of this market before it swings back (and markets always will) will position themselves for success and have a competitive advantage for years to come.
Negotiating with landlords
Landlords negotiate leases and rents for a living. Do you? That's why it's smart to find some help, from your franchisor, a real estate professional, or both. It's also wise to shop several sites to give you an idea of prices, terms, fees, and what is and is not negotiable in your territory. You'll also learn a lot as you speak with different landlords and shopping center managers, which will serve you well in your next negotiation.
Brokers, agents, and attorneys
As noted, you're new to this game. Hire a professional to help you get the best deal--and to avoid getting taken for a ride. Brokers or real estate agents should have local experience and connections. They should know something about franchising if possible, and ideally about your industry. And before signing any lease or contract, run it past an attorney who understands franchising and knows the territory.
You've found an underserved area just clamoring for your product or service, and are eyeing what appears to be a prime site. Now it's time to start asking questions:
What's nearby in terms of other retail? Is there critical mass to draw customers to the neighborhood, or will you a sole destination for the foreseeable future? It's good to get in early, but can you afford to wait for the neighborhood to develop?
Or perhaps you've found a gold mine of customers but it's not a residential area and there's no public transportation. How will your employees get to and from work? Will they put up with a long commute if they can get the same minimum wage where they live?
Things change: Check with local and state officials on any plans for future development. Traffic patterns may be ideal today, but will they remain so? Ask local, regional, and state planners if changes are afoot in the coming years. Will a major road reconstruction cut off access to your front door? Will nearby streets go one-way and reduce your critical drive-thru traffic? Conversely, is there a project in the works that could increase your traffic? Look ahead as best you can for the duration of your lease. Unexpected changes could make or break you.
Malls and kiosks
In 2008 and 2009, mall tenants cleared out in droves as retail and commercial real estate took it on the chin. In previous years, locating in a mall with strong national anchor tenants was the goal. But with large national retailers failing and/or reducing their number of stores, smaller retailers began to have second thoughts. A franchisor in Florida who tried for years to get into an upscale mall said that when space became available after some prime tenants exited, he had second thoughts about opening there. While you can write into your lease that your rent will be reduced by 50 percent if Kmart or Circuit City or Borders moves out, you still need foot traffic to succeed.
Patience gets you an "A"
Seasoned franchisees advise that it's better to wait for an "A" location than to open in a "B" or "C" site just to get going. While speed to market is always a consideration, "Haste makes waste" rules the day if you select a less-than-optimal site.
Safe or sorry?
Sometimes a location appears perfect but has problems you can't see. Talk to the police about the site and the neighborhood, asking for its crime history, and for any other perspective or advice they can provide. Check crime rate trends. Is the neighborhood on the rise or in decline? Speak to the business owners in the area and ask them about the neighborhood. You will not only find out valuable information, you'll likely make friends and build alliances as you go.
Ask successful franchisees
Another great source of help and advice can be found in current franchisees. Ask them what makes their location successful; what they wish they did differently in choosing their site; and what advice they might have for you. Compile a list of the features they cite as contributing to their success, as well as those to avoid. They're not in your territory, so they're not competitors - and if they're smart, they'll like seeing another successful unit to help build the brand and penetrate new markets.
You can save a lot of money if your area has tax incentives you can use. Check with local, regional, state, and federal officials to see if any of the sites you're considering qualify for tax breaks on hiring, job creation, or other grounds. See www.franchise-update.com/article/834/ for a better idea of how this can work.
1) The "Franchise Site Evaluation Form" in the book "Franchise Bible" by Erwin Keup (6th Edition, 2007, pp. 37-41), contains a detailed checklist of what to look for when evaluating different sites. Go to Google Books and search by the book name. The pages are online.
2) For restaurant franchises, read QSR magazine's short article "Site Selection 101," which offers advice from basics such as visibility, access, and parking to lesser-known factors such as easements, flood plains, and other survey items.
3) Lease negotiation (and renegotiation) tips can be found in an article by Jeremy Behar, CEO of Cirrus Tenant Lease Services: www.mufranchisee.com/article/648/.
4) More negotiating tips can be found in "Dear Landlord: This May Be the Best Time in Years To Be a Tenant," by Dan Rowe, CEO of Fransmart: www.mufranchisee.com/article/721/.