Lease Basics For Franchisees

Lease Basics For Franchisees

 

Today’s blogpost is about leases. Along with your franchise agreement and perhaps a personal guaranty, your lease is a contractual document that will be with you throughout your journey as a franchisee. In fact, many leases are written to mirror the franchise agreement in initial term and option duration. In today’s post, I’ve put together 5 important clauses that you’ll find in your lease. Make sure you familiarize yourself with these clauses before you execute your lease agreement.

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The 4 Elements of Site Selection

By Tiffany Toliver, P.E.

These four elements of site selection are pretty general; they will work for almost any franchised concept. And If you apply this structured way of analyzing real estate to your specific use, whether that be restaurant, retail outlet, entertainment venue, whatever, you’ll be able to compare sites apples to apples. This will help you make an informed decision rooted in data.

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What is on your mind?

By Steve Slowey

So I have written some blogs on various issues and I have talked about some of the challenges I have had in my career but I’d like your input on what you’d like to learn. 

I have made a lot of mistakes in my professional life and have learned from them. I have watched successful people and learned from them also. What do you want to learn? What are the challenges you are facing?

We (Paul, Tiffany and myself) have about 75 years of combined experience and it covers a broad spectrum; from being part of an existing franchise to starting a new concept. We have negotiated over 1000 leases and have owned more than 20 businesses. We could blog for years about running a profitable business, franchising, leases, and many other topics; but if there is a specific topic you’d like to hear more about, please let us know!

When I opened my first restaurant, I had no idea what I was doing. I would call the bank and get my balance and that’s how I knew I was making money. I did my profit and loss statement at the end of the year for tax purposes and learned the hard way about cash flow and taxable income. If I knew then what I know now, who knows?! But I do know now and I’m happy to help others that are currently in the position I was once in.

If you are considering leasing space and you have never done this before please let us know and learn from our experience. If you are considering a franchise let us know it is a huge decision that will contractually obligate you personally for the next 10 years. If you are struggling to make money in your business and don’t know what to do to turn it around then let us know.

I know there is tremendous value in my experience and would like to help you in your journey. I want this blog to be a service to you. Please comment below with any questions on franchising, leasing, construction, or running a profitable business. 

Understanding the Franchisor’s Approval Process

By Paul Giggi

As you research information regarding the franchised concepts you want to consider owning, you will eventually pare down your choices based upon a number of factors.  More than likely, these factors will include the concept’s financial requirements, the available markets, your comfort with the concept, your background in operating the specific type of business and other components we will cover in future blogs.

Once you reach the point of having chosen a concept to pursue ownership with, you will have an initial discussion with the Franchisor; I covered some of the base questions you should plan on asking in a previous blog (click here).

One of those questions was to ask for details regarding the particular Franchisors approval process and hurdles for new franchisees.  This is important area to understand as meeting these hurdles could potentially require an investment in your time and  some sort of financial investment. 

Typically, the approval process will cover the following areas and you should be prepared to discuss them during your initial discussion with the Franchisor:

·       Background & Experience – There may be a requirement of a certain amount of experience in the industry you are investigating or in not direct experience, some background in running a business enterprise.

·       Financial Resources – You will be required to submit an Application covering your background and your financial resources, but this will come up in your initial discussion and you should be one and honest about this important matter.

·       Industry References – If you have a background in the industry you should be prepared to discuss that experience and supply names of people you have worked with that would provide a reference on your experience and successes.

·       Franchisor Financial Hurdles – There are typically minimum Liquid and Net Worth hurdles for financial approval.  The Liquid area is the money that you can readily access and is available for you to invest. This could be cash investment or equity. The Net Worth is the difference between your total financial assets and your total financial liabilities. This speaks to the depth of your financial resources. You should also be prepared to discuss how you will be financial the investment beyond your liquid cash infusion.  If your financial resources do not meet the hurdles or are very close to them, you may not meet Franchisor approval and may want to consider a partner to join in the investment.

·       Personal Financial Resources – Be sure to understand the financial requirements of the concept from the entry fees you will be charged, royalties, build out costs and any costs that are not included in the build out cost range you should receive from the Franchisor. You need to be sure to enter into your due diligence phase with your eyes wide open to all potential costs you will incur.

·       Interview / Discovery Day – One of the requirements that most concept Franchisors will have is you and your partner’s attendance in a Discovery Day. This event is normally held at the Franchisor’s corporate headquarters and is typically a day of discussion.  This event serves a number of purposes. It allows the Franchisor to meet you and you should consider this an interview of you as a potential Franchisee.  In turn, it is your chance to meet the members of the Franchisors staff and the people who will be supporting you and your business going forward… it is your chance to interview them. You should attend prepared with questions of all areas of the support you will be receiving and of the concept itself.  Additionally, in many cases you will have an opportunity to visit one of the concepts that are local… be sure to attend.

We will discuss the Discovery Day in more detail at another time, but this is an important component of the approval / research process and not to be overlooked.

Success is a byproduct of commitment to goals

By Steve Slowey

So I have finished my first week at a restaurant that I have owned but recently took over all the GM duties and it was not easy.

I live a relatively relaxed life and enjoy my routine. Taking on this project has certainly changed all that. I started by making an honest assessment of what was needed and created realistic goals for myself and my management. I narrowed the focus of my managers so I would not overwhelm them and I took on the brunt of the load. This particular store had several systems in place and really it had too many. The systems were burdensome and created so much of a workload that the primary function of the employee was replaced by all the additional tasks they were made to do. An example would be the servers, their primary function is to take care of the guest and insure that the guest experience is of a standard that the guest would become a repeat customer. The systems that were in place had the servers doing so much additional work that they were unable to properly attend to the guests needs and it showed in declining revenues. First, I redistributed the workload and made the guest the priority and did away with excessive tasks. I also worked hard to win the respect of my employees so they would be more willing to accept me and my philosophies.

Success is a byproduct of hard work and commitment and it begins at the top of every business and trickles down to all involved. I have to be willing to put in the work and make the time investment to ensure that the goals I have set are accomplished. I also have to be the one who accomplishes my goals and cannot expect them to be met by handing them off to someone else. Every successful business has a strong leader and this particular store was in desperate need of that. What keeps me going is that if I do this correctly, the time I am investing will pay dividends in the future not only by increasing the value of this store, but also by allowing me the ability to enjoy my life.

So many times in my professional life I have come across businesses that are in decline because the owners are unwilling to give up their personal time to properly correct the issues. People do things for only two reasons, either they want to or have to and if you wait till you have to the risk of failure will be much greater.

These next couple of weeks I will work to have the systems in place that will allow me to fiscally manage my cost of goods and labor to insure profitability. The retraining of my staff will be ongoing during this process and will continue until I see it executed consistently and achieving the desired goals. Once this is complete and my foundation is solid I can rebuild my revenues and feel confident that they are stable.

Do you have what it takes?

By Steve Slowey  

Recently, I took over an existing restaurant operation and though I consider myself pretty smart, I was overwhelmed by the challenge and the magnitude of problems.

In 2012 the store was a powerhouse. It performed very well, but due to a number of issues, it has continued to regress to the point it is now; down 2% from 2015 which was down 2% from 2014 etc. Needless to say, the store is down and I have to fix it. I will share with you my assessment of issues and my plan to repair.

My first day at the restaurant, all the employees of course, were worried. They acknowledged things were bad but they were reluctant to change. They all wanted to let me know how long they have worked there as if that is some “get out jail free card”. (Personally, I would have stayed quiet, since the reviews on the store are really bad.) So I have a bunch of “entitled” employees (refer to previous blog posts) rather than productive employees. The other issues I saw are poor operational procedures and lots of discounted pricing. My guess is that the discounted pricing was used to increase traffic and/or to offset slumping sales {it did not work}. Labor costs were way too high and my cost of goods was 6% high due to discounting and poor procedures.

My biggest challenge is ME. I have to be willing to asses the situation, put a plan together, and execute. My plan takes me to my goal and to get there I have to be focused and committed without time and energy restraints.

If you’re faced with a similar situation, you had better be willing to do it the right way or you will add to the issues, and further devalue the business. This business is worth it. The first step I had to take; determine if the ROI was worth the time and energy and cost to repair what is broken.

This week I will put the focus back on the customer and not the employee. I will evaluate my staff to build the team I will need to accomplish my goals. My blogs going forward will be a journal, documenting my plans, struggles, and accomplishments. These are the realities of being in business and when you’re the leader of your business, you had better know what direction you are heading.

Who is the Prevailing Common Sense in your Business?

By Steve Slowey

Common sense is only common to the individual; there is no such thing as we are all different and, in business, there needs to be one perspective.

In the absence of leadership, everyone goes in their own direction and does so to protect what they think is theirs, even to the point of hurting their place of employment. Clear and concise systems, that read like a detailed map, that direct your employees to exactly the result you want, is what is needed. Invest time in putting your common sense in detail, doing away with any interpretation, in every position that your company has.

Every department should have it’s own KPI {key performance indicator} that is detailed to that departments’ expectations. If the detail is there, then training should align to the detail. If that is done, then you will be the ‘prevailing common sense’.

The two biggest cost factors in business are labor and cost of someone who does not fully grasp their impact or clearly understand what you believe to be common sense. Infinite detail is the answer again. Make the time investment and put your common sense in detailed form, leaving zero doubt what the outcome is to be.