This article is for Franchisees and prospective Franchisees. Virtually every franchise system has Franchisees that are doing well and Franchisees that are struggling to make a profit. Franchises operate on a "cookie cutter" system where each franchise store should more-or-less look and operate the same. Considering this, then the one main variable is the location or site they occupy. Over 95% of all franchises lease their location. So, it stands to reason that the site you lease (and the lease terms) is largely going to determine whether you are successful or not. It is critically important that you establish and manage your expectations of the Franchisor regarding your business location and lease terms. Here are some important points to remember:

Headlease or Sublease - Will the Franchisee lease his/her space directly from the landlord or sublease it from the Franchisor? I have written articles on this subject in which I explain that one route is not necessarily better than the other, it’s more a matter of understanding the pros and cons as they apply, and getting a fair shake.

For example, if you are subleasing, you would want to make sure you receive any and all inducements. Such inducements are allowances, concessions or benefits offered by a landlord to a prospective Franchisee tenant in order to encourage that prospective tenant to sign a lease commitment. If your Franchisor enters into a headlease agreement with the landlord and receives monetary inducements and free rent following those negotiations, don’t assume those inducements are all being passed on to you, the Franchisee subtenant.

2. Site Selection - A disgruntled entrepreneur who recently contacted The Lease Coach had signed a franchise agreement and then began the site selection process on his own. The Franchisor was not actively helping the Franchisee look for a site, and went on to reject every site the Franchisee selected. After several months of this, the Franchisee broke away from the Franchisor in frustration, hired The Lease Coach for help, and opened an independent store. Here again, you need to create and manage your site selection expectations with the Franchisor in advance of signing the franchise agreement.

3. Real Estate Training and Support - Many Franchisors do not offer substantial training or support to the Franchisee regarding site selection or the actual negotiation of the lease. However, almost all Franchisors claim they will take care of the real estate aspect of the deal. If all the Franchisor does is turn you over to a local real estate agent (who is being paid a commission by the landlord) then who is really representing you, the franchise tenant? Remember, your name is going on the lease agreement and you are the one paying the rent. You must take charge of the leasing process.

4. Territory Rights - A Franchisee will normally receive rights to operate from a specific territory or for a site-specific location (meaning a particular plaza or mall). Either way, you must try to establish your area and exclusive rights therein as part of the franchise agreement. Frequently, Franchisees will complain to me that their Franchisor put another store too close to their store or territory, thereby dividing the business the Franchisee thought he/she would get from a local trading area. Your competition may not only be from a competing franchise system but right from within the franchise system you joined.

5. Lack of Suitable Sites for Lease - A very well-known Franchisor was directed by the court to refund over a million dollars in franchise fees it had collected from new prospective Franchisees because the Franchisor had essentially oversold the territory and could not produce suitable sites in a timely manner. Meanwhile, many of those Franchisees had quit their jobs and wasted up to a year trying to get into business.

One Franchisee who I was consulting specifically picked a certain franchise concept to join because there were none of those stores in his immediate trading area, near the Franchisee’s home. After signing the franchise agreement, the Franchisee started to look into leasing some of the plazas in his area. Unfortunately, all of these great locations for lease were more expensive than the rent proforma allowed for by the Franchisor. You must remember that what you see is not always what you can afford.

6. Store Size - It is the nature of the beast that sometimes the only space available for lease in a particular plaza is too big or too small. Smaller space may inhibit your ability to achieve your full potential. Bigger space will not always result in greater sales. Sometimes you need to pass on a great plaza because the correct amount of square footage in not available. A cafe client reported to me that the corner unit he desired to lease was 2,400 sq. ft. and could not be demised (or separated) according to the landlord’s listing agent. The tenant had resolved himself to taking the entire area until I talked him out of it. When the landlord realized we were walking away from the deal, he agreed to divide it in half, at his expense, and my cafe client still got the prime end unit with more windows.

7. Shape and Size - For most retail type franchises, the amount of visible storefront exposure is very important. Having 28 feet of frontage (the area of a store which faces the street or pedestrian walkway) is better than just 18 feet. A long, narrow bowling alley-type space will not be desirable to shoppers or customers. Generally, a square or short rectangular-shaped space is optimum.

8. Signage - What could be more important than signage? The ability to put a temporary banner above your door could help draw an extra 10-30% more customers. Whether it’s your sign above your entrance, pylon signage or temporary roadside signage, negotiate for as much as you can get. Even if it means paying a rental fee for the signage space, I recommend getting all you can - include a clause that allows you to give back some signage if you don’t need it. In most plazas, there is a shortage of signage and you should never take for granted that when you enter into a lease agreement you will automatically get accompanying signage.

9. Exposure and Visibility - As pretty as trees look, they can completely erase visibility to your space. Exposure to shoppers who are walking or driving by is critical. Almost 99% of franchise tenants make one mistake, they don’t put their phone number on their space or on their sign so drive-by shoppers can order their products or services. I have stayed with a hotel franchise chain over 10 times because they posted their phone number on their signage. With my being on hotel row in that city, there were ample accommodation choices available; however, this one hotel posted their number. From my car I was able to call to check their prices and room availability. They then finished the sale by talking me in over the phone. It’s a cell phone world. If your customers can’t easily see or call you, it’s costing you business.

10. Accessibility - The reason my wife always prefers to go to one particular video store (versus the other franchise store down the street) was because of right-hand turns. Reaching the competitor’s store required two (more dangerous) left-hand turns across oncoming traffic plus cutting through a parking lot the video store shared with the neighbourhood police station. One of my clients in Washington DC claims the local Metro system (which runs right by his front door) brings him more customers right to his door. Parking, of course, is another matter. No parking or paid parking (versus free parking) means fewer customers and less profit.

While Franchisors will have name recognition and marketplace experience to offer, this is not always enough to achieve business success. As a potential Franchisee, you must remember that whether you thrive or fail is largely dependent on the commercial or retail site you occupy and the lease terms you agree to. If you ever want to sell that franchise your location will be all that more important to the prospective buyer. Don’t do site selection by looking for the cheapest location - look for the location that will allow your franchise to maximize its sales volumes. Once you open your franchise store the hardest thing to change is its physical location.