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Franchise Process

You have decided to become an Entrepreneur. Where do you start? There are numerous books, magazines and websites willing to help you in your search. But first you need to evaluate your skills and talents and also look at the ones you are uncomfortable with. This evaluation will help in the selection of what franchise is best suited for you.

After selecting some franchises in industries you are best suited for, contact the Franchisor. Ask to speak to the Franchise Development Department. Have them send you a marketing brochure. Check out their web site. These are just a few ways to find out if the franchise is right for you.

The Franchisor will send you a letter with their requirements for the purchase of their franchise along with a credit application for you to complete. The Franchisor will review your qualifications and run a complete credit check. This will take some time especially when numerous candidates apply at once.

If you have meet their qualifications, the following process will begin:

UFOC – Uniform Franchise Offering Circular

This document is the FTC mandated disclosure document that gives you information about the Franchisor. The form and composition of the document is standard with any Franchisor and must include information on a variety of topics.

The major areas are:

· The history of the franchise and its officers and directors.

· A complete description of the business.

· All costs and fees that you will be subject to under the agreement.

· All obligations of both parties during the term of the agreement and after the agreement are signed.

· Any relevant litigation history of the company or its officers.

· Any business failures, ownership transfers, franchise agreement terminations or other information relating to the success rate of the existing units in the system.

· Audited financial statements for three previous years of the franchise company.

· A list of the existing Franchisees.

· A complete copy of the actual franchise agreement.

Protected Territories / Radius Restrictions

A protective territory should be awarded to you. The territory consists of miles or feet around your business that cannot be developed by any other Franchisee operating the same type of business as yourself with the same franchise. It does not stop competitors which is why location is so important.

A radius restriction, usually measured in miles, is an area of no development normally surrounding a regional mall location for a regional mall tenant. This typical Landlord mandated and lease requirement provision is a condition of becoming part of a mall. This non-development area is subject to other existing corporate stores and their pre-existing radius restrictions.

Location! Location! Location!

The most efficient method is to identify where your customers live and where they currently shop. Also evaluate the shopping center location within “X” distance you think your customers are willing to commute. Sometimes this distance and the customer profile representing your target consumer will be in conflict. If this happens, you will have to expand your trade area or select another business. In some cases, relocation will have to be considered if the business is opened and struggling.

Demographics is a very important factor in the site selection process. Having demographics prepared on your potential site can give you the population, household income, race and other information which will assist in your location decision. If the Franchisor cannot run demographics for you, retailcriteria.com has the ability to do this procedure. All we need is the address, city, state and zip code and the nearest intersections of your location. With this information we can supply the above-mentioned demographics in a report form. (A sample demographic form is noted on website).

We recommend picking 4 to 5 different potential sites. This is suggested because many times your desired space size may not be available on your desired timeframe. You will also learn that each Developer or Landlord has his or her own “sense of urgency” in responding to your request.

The needs of your location will appear in the UFOC (Uniform Franchise Offering Circular), which you receive from the Franchisor when you apply for the franchise. Along with the square footage needed for the size of the store, will be other desired components you should consider in selecting allocation. Listed below are just a few:

·         The minimum number of parking spaces
·         The desirable co-tenants
·         The minimum store frontage
·         The minimum number of cars passing the front of your center
·         The desired income and density surrounding your location

Contacting the Landlord
If you cannot find the Landlord’s name in the phone book, ask an existing tenant. If you are comfortable sharing a little information, sometimes existing tenants are very receptive to sharing information to add a new retailer to their center.

As one of our services retailcriteria.com can provide you with a list of the centers in your perspective area by just giving us the county(ies) you are interested in. Our list of centers will include the following:

·             Landlord name
·             Landlord address, city, state and zip
·             Landlord phone
·           Center name
·             Center address, city, state and zip
·             Total square footage (GLA)
·              Major anchor(s) (if available)

Proposal
Once the location is determined the Landlord or Representative of the center will prepare a written proposal. The number of properties assigned to the representative will determine the length of time before you will receive the proposal. If the Landlord or Representative is assigned numerous properties, he may just quote a number over the phone.

If the quoted price is much higher than other properties you have contacted, the reason may be because vacancies in the trade area are few in number. If this is not the case, counter the price on the proposal. retailcriteria.com has the ability to research your proposed type of business and provide you with a summary of the typical occupancy structure your kind of business can afford. Also provided are the average sales volume for your chosen kind of business based on the kind of shopping center location you are targeting. These two variables will allow you to “back in” to the maximum rent you should pay for the desired space. For further explanation, go to Tenant Rent Formula.

After receiving a verbal or written proposal, return your response within 3 to 5 days. Do not respond the same day because this will send a signal you are too anxious. Also do not forget that you are competing with other current tenants who may pay more than you are offering based on their profit margins. Keep it realistic.

A realistic counter proposal is determined by supply and demand. Is there an overabundance of new centers opening in your prospective area? Has the community prohibited new growth? There is no blanket answer. But the more Landlords you talk to, the better “feeling” you will have as to who is chasing whom.

If your new location search is moving slower than expected, remember the Landlord may not be the one that is being unreasonable. This is because in almost every shopping center in America, regardless of the size, there are always one or two tenants that are considered the ANCHORS. Maybe it is as small as a Starbucks or as large as a Wal-Mart, but there is always at least one anchor. This is the tenant who received numerous concessions as an inducement to locate where they did.

Letter of Intent
The signed Letter of Intent states both parties have reached an agreement and the lease will now be drafted. The Letter of Intent does not signify the space is officially yours. Only when a hard copy of a fully executed lease, signed by both parties, is placed in your hands, is the space considered yours.

Lease
After the initial negotiations, your Landlord may take up to 2 weeks to draft and send your lease. Upon receipt of the lease, read it carefully and we recommend having a Real Estate Attorney review it before execution. We at retailcriteria.com do not provide legal services at this time, but we do have attorneys that will negotiate complete legal comments. When this process is completed the lease will be submitted to you for your review and signature. This offered service will be billed directly to you by the Attorney and normally does not exceed $3,000. Contact retailcriteria.com for more information.
Once the final draft of the lease has been sent to you for your signature, be responsive. Depending on the number of changes made, the lease execution by the tenant should normally happen within 1 to 2 weeks. Remember, another tenant may approach your Landlord while you are sitting on the lease.

The real estate expression “Time Kills Deals” is a very real statement.
When the negotiations are completed the lease is tenant executed and returned to the Landlord. You should receive the fully executed lease in 2 to 3 weeks depending on the size and bureaucracy of the development company.

Landlord Construction
The length of time it will take for the Landlord construction depends on whether he/she invested any time prior to the lease being executed. Since some tenants back away at the last moment, some Landlords wait until the lease is fully executed before starting their construction responsibilities. Communicate with your Landlord throughout the lease execution and you will have your answer.

Notice of Turnover
Upon completion of the Landlord construction, you should receive a certified or registered letter. This letter is called the “Notice of Turnover.” It indicates the Landlord has completed his/her part of the construction and you may begin your construction.

Before you sign the Notice of Turnover, you should inspect the premises to confirm the Landlord fulfilled his construction obligations according to the lease. With lease in hand, take a “walk through” your store as if you were purchasing a home. If you are not knowledgeable in this area, hire a professional Contractor. Make sure the construction is completed as stated in the lease.

Accepting or rejecting turnover has numerous ramifications. Accepting is always the most desirable way to go because now all of the variables standing between you and your new store opening are within your control. Sometimes Landlords do not complete the work as they were required to do and now you must make a choice. Evaluate the complexity and expense of the unfinished items prior to rejecting the "Notice of Turnover". If the Landlord neglected to install handrails in the bathroom which cost less than $50 and takes less than an hour to install, retailcriteria.com would recommend signing the Notice of Turnover. On the other hand, if the Landlord did not install the ceiling with the cost exceeding $1,000, then a more formal rejection letter is necessary. It is up to you on how “picky” you want to be. Remember - rejecting turnover will delay your opening

Examples of Rejection and Accepting Turnover Letters are available from retailcriteria.com

Rent Commencement Date
If the space is accepted, a “Notice of Turnover” will be signed and returned to the Landlord. At this time your rent commencement date will be established which indicates when you will start paying rent on your space. Unfortunately, some Landlords will generate a Turnover Letter while their contractors are still working in your space. In this case, the Landlord will actually be accelerating your rent start date if you do not respond.

To ensure you have enough time to complete your construction, begin the process of construction when the Letter of Intent is signed. The following list contains some of the items that need to be completed before you start construction:

· Bids for Construction
· Preparing of Store Blueprints
· Placing Ads for Employees
· Identifying where and how you will advertise your grand opening.

To determine tenant construction time, try to allow 1 to 2 weeks per every $10,000 you expect to spend on construction. Add 2 to 3 weeks after the contractors finish for employees to stock the store and complete the displays.

If you are experienced in organization and planning, you may be lucky to have “Free Rent” for a few days. For example: If Rent Commencement Date is 60 days after Notice of Turnover, but you complete your construction, open your store and generate sales in 55 days, you will receive 5 days of free rent. This free rent “bonus” is based on lease wording.

The Rent Commencement Date will be noted in the lease. Landlords will frequently try and mandate a specific date in the lease for your rent commencement. This should be avoided. You should try to tie the rent commencement date to “X” number of days after turnover. There are two widely accepted sentences to address this issue. The lease should state one of the sentences below.

This sentence would indicate no “free rent”:

“The rent commencement date will be “60” days after turnover or when Tenant opens for business whichever comes first.”

This sentence would indicate “free rent” but only if you open within 60 days of accepting turnover:

“The rent commencement date will be “60” days after turnover regardless of when the Tenant opens for business.”

The number 60 used above is subject to negotiation. It could be 30 or 120 for example.

Grand Opening
The day has arrived. The store is completed, employees hired, shelves stocked, and ready for business. The long process is completed and you are your own boss. But what about the Entrepreneur’s store that isn’t ready by “Rent Commencement Date?” Unfortunately, this is the worst situation to be in. If you see that your store is not going to be ready, try to motivate contractors with overtime incentives, etc. There is nothing worse than having to pay rent while not generating sales.

We hope you have found this overview valuable. We welcome your feedback and look forward to expanding this website to provide additional services in the future.

Good Luck to You and Your New Adventure!