So, you’re thinking to yourself…
“Self, this whole mortgage broker franchise thing sounds like a great way to expand and diversify our real estate business. And Motto Mortgage makes it pretty darned easy with their whole Mortgage in a Box deal.
But, we’ll potentially need to find a place to have this new business.”
Figuring out the best franchise location can be one of the most challenging things about starting up a new franchise business. As Carolyn Miller, author and founder of the National Franchise Institute puts it:
“Where franchisees put their new location matters – a lot! In the grand scheme of things, a franchisee can do every other thing ‘right’ but if the location is wrong, they can still fail. With so much on the line, finding the right location is one of the most important decisions of any new business owner, whether franchise or independent.”
Ack! No pressure there!
No worries – we’re here to help with a few tips on how to track down an awesome location for your new franchise.
1. Get help
Chances are, you already know and probably live in the area where you want to launch your new franchise.
You’re a real estate agent? Even better!
But, even if you are in real estate already, it will probably be worth partnering up with someone who specifically works in commercial real estate (unless that’s also you!)
They’ll have the insider knowledge on what’s going on with the local retail scene, and they may have the scoop on what is coming available in off-market deals. They also may know if a brand new shopping center or business park is going up in the next 18 months that could impact your business and what to watch out for in the fine print before you sign on the bottom line.
The land use office for the area can be another great resource to find out what new building projects have been planned.
And what possible competition they could be bringing in.
Your franchisor can be an additional source of great location information. They’ve probably done this a few times before and are usually pretty interested in setting you up for success.
They can know what works and what doesn’t (down to nearby traffic patterns) and whether you want a spot in a strip mall or a building in an office park.
2. Do your research
If your target market loves to schmooze in downtown clubs or shop farmers markets in the square, chances are setting up shop somewhere in suburbia isn’t going to drive a lot of traffic your way.
Study your demographics.
Know their preferences and buying habits. For example: if you are moving a deli franchise into a primarily Orthodox Jewish neighborhood, make sure they know that your product is kosher.
Well, unless it’s not. But you get the point.
Double check that you are moving into a market that actually has demand and support for your services.
If you are a mortgage broker in a historic neighborhood where families have lived in the same house for generations, you might struggle to find folks interested in selling their home which might lead to new buyers needing to finance those purchases. (Though, refinancing to utilize equity might prove a viable market in that area.)
Verify that the area you are moving into has the population, income levels, spending habits, homeownership/tenancy rates, and whatever other factors your business needs to be successful.
3. Evaluate the area
Is it already saturated with similar businesses?
Does your potential location have good visibility? If so, are you paying such a premium price for it that it’s might hurt your bottom line rather than help it?
Consider your potential foot traffic and parking options – can your target customers get to you?
You should be asking yourself all these questions (and more!) as you weed through various location options.
Take a solid look at your hard costs.
Don’t forget to factor in things like taxes, labor costs, or any permits or license fees specific to the area in addition to the usual things like rent and utilities.
Your potential income will need to be able to support all these expenses with room to spare so that you ensure your business is profitable.
You’ll need to find a spot where the local economic environment has the potential to support your growth.
And, pay attention to future development plans.
If a competing brand opens in a brand-new shopping mall that all the locals are buzzing about and is less than a mile away, you may suddenly find that your customers have pretty much disappeared.
Ugh.
On the other hand, if you’re planning to run an ice cream shop, and a popular new pediatrician’s office opens across the street, you could be in for a hoard of post-shot kids in need of some frozen “therapy”.
Yes, please.
4. Analyze the competition
Identify your competition’s strengths and weaknesses and see how you can be different or add something more to the party.
Is the current market already dominated by well-known, well-regarded, and well-established competitors? If so, it might be worth searching for an area where you can be a bigger fish or have a smaller pond to swim in.
You’ll also have better success if the area you choose aligns with your competitive advantage. If you specialize in first-time home buyers, leave the industrial part of town to the commercial folks and look for an up-and-coming area full of young professionals.
Bottom line…
If you are going into an area that already has a fair amount of competition, make sure you have something new to offer or a way to stand out… and that there is enough room for all of you to play in the same sandbox in the first place.
Remember that competition isn’t always a bad thing!
Because of the competition, the market is already familiar with the type of product you offer and might be more ready to buy.
5. Pay attention to the lease details
Especially if you are a first-time franchisee, sweating the small stuff could save you money.
There can be hidden fees, like:
A surcharge to have signage on the property (yes, seriously.)
Fire and destruction insurance for the building in addition to the liability and business insurance you already have.
Or even…
Administrative fees for property managers.
These can pile up on top of your base rent, leading to a much chunkier monthly payment.
Be aware of something called “rentable square footage” that is above and beyond the actual square footage you are paying for. Rentable square footage includes a part of all shared areas in the building and is added to the total square footage used to calculate your rent.
Some landlords may try to include things like elevator shafts or external features so make sure you know what you are paying for.
Also pay attention to the CAM fees.
CAM stands for “common area maintenance”, and while these fees are typical in commercial leases, make sure you understand exactly what is included.
Don’t be afraid to stand up for yourself!
You are allowed to ask your potential landlord to take out charges that don’t make sense to you.
Beware of “percentage rents” – a rent rate based on revenue.
While that may sound like a good deal in lean months or as you’re ramping up, once your business gets going you can end up paying much more in monthly rent than you would if you negotiated a consistent rate in the first place.
On the positive side…
There may be money on the table for things like building out the space or renovations. Called “build-out money”, a landlord may be willing to fund part of a construction you want done.
“Since the economic downturn, [franchise business CEO John Hoose] finds this money easier to negotiate and has helped franchisees secure as much as $40,000 to $50,000.” (Entrepreneur)
That could be a serious chunk of change, so don’t be afraid to ask!
Now, as much as free money would be amazing, it’s not really “free.” There may be trade-offs like a longer lease term or you may have to give up a thing or two you were hoping for.
You might want to weigh the pros and cons of potentially lower startup costs versus whatever the landlord is asking for in exchange.
Finally, it’s always worth running any lease by a commercial real estate lawyer before you sign on the dotted line.
Their job is to find and point out questionable terms, hidden fees and other potential pitfalls that could cost you big bucks in the long term.
Hang in there!
Unfortunately, searching for the perfect franchise location does not have an “easy” button.
But combining these bits of location wisdom with your budget and projected sales/revenue numbers can lead you to the perfect location for now AND for the future.
Remember… it’s not just about finding the “best” site.
Finding the right balance of location, deal terms, rent, costs, and factors that make for happy customers means a happy home for your new business.
So, get out there and get looking!
Armed with these tips and your own savvy business sense, finding the best franchise location just might turn out to be much easier than you thought.
And a whole lot less scary.
Published on September 11, 2023
