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Five real estate questions potential franchisors need to be asked

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In the modern world, building a successful brand is a labor-intensive one. And add the intense competition for consumer dollars to that. To ensure a lucrative brand (with a steady revenue flow), one needs a tactical business plan.

Franchisees can also profit from the franchisor’s aid in managing the difficulties faced by the firm. Regarding specific profits, each franchisor must include sales and projected earnings in their FDD or Franchisor Disclosure Document.

Following are five crucial inquiries to make before investing in a franchise.

Firstly, a franchisor earns a star if the individual/entity has paid corporate employees whose primary responsibility is to help its franchisees with the real estate transaction. Usually, a real estate broker will represent the franchisee when choosing a location and negotiating the contract terms. However, the in-house real estate manager is essential in supporting the franchisee’s broker. The internal real estate manager will give the franchisee’s broker specific site requirements catered to the needs of the franchised branding.

A sales department is necessary for franchisors to sell franchises and develop their brand. A prospective franchisee should know how big the franchisor’s sales department is. It could be a warning sign if a business has a sizable sales department but only some franchisee support employees.

Secondly, a franchisee’s location requires franchisor approval. Before a franchisee signs a lease, the approval procedure must always occur. Franchisees may be worried if the franchisor needs a process for approving their future business location. The lack of an approval procedure could indicate that the franchisor is eager to create new franchises and does not place a high priority on the sites’ quality.

The next point is an important one, regarding the framework for the lease. It comes in form of a letter of intent. The letter of intent contains the majority of the lease terms, consisting of base rent, extra fees, rent hikes, the lease length, alternatives, the tenant improvement allowance, landlord delivery, free rent, and the start date of the rent. The use clause for the tenant and the franchisor’s advice on essential exclusives are also included in the document. The franchisor should give text describing the intended use of the premises, which the renter must disclose to the landlord.

Additionally, the franchisor must be clear about its expectations for an exclusive. For example, when a landlord leases to a rival tenant for the same use, exclusives shield the tenant from that landlord.

The terms for delivery of the premises are outlined in the landlord’s work letter. The paper includes the precise needs for utilities (electricity, water, and gas), heating, ventilation, and air conditioning (HVAC), and the number of restrooms, flooring, and ceiling, to name just a few. It will demonstrate experience if the franchisor gives the franchisee a letter from their landlord attesting to their efforts.

Then comes the franchisee’s intent to know where to open its firm before purchasing a franchise territory. The franchisor needs to be asked about how many additional franchisees have bought territories nearby as well. It would be beneficial if the franchisee asked the franchisor what safeguards prevent a rival franchisee from setting up a shop near their region.

Last but not the least, be precise about how near another franchisee can open an existing store. Franchises can only lose money if they grow slowly.

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