Considering a Switch in Your Corporate R/E Service Provider?

Considering a Switch in Your Corporate R/E Service Provider?

The proverbial “grass is greener” mindset causes many Corporate Real Estate (CRE) departments to consider launching an RFP process and switching service providers. For those companies that have newly outsourced (or outsourced for the first time), the feeling can come well before the relationship has fully matured – usually sometime within the first two years of a five-year contract. For companies that have long-term outsourcing relationships, the decision is usually procurement-led or based on a protracted degradation (or perceived degradation) of service over time.

The question is: Does switching service providers have greater benefits over the long run versus keeping the existing relationship? If you are an end-user, before you make the decision to switch and start over, there are some important points to consider.

REVISIT YOUR COMPANY’S GOALS

Remember, the initial decision to outsource was based on several qualitative and quantitative factors. Surely, you haven’t forgotten the Request for Proposal (RFP) process and the countless hours poring over proposals, responses, qualifications, references, scope documents, etc. Chances are, your desire to switch is based on only one or two emotional factors.  Stop, take a step back and reassess your decision by checking it against some of the original measures such as:

Workload – Is your service provider handling the workload adequately? Are they understaffed to handle the load? Overstaffed? Is there a way to realign the resources without disrupting the engagement? Sometimes boosting performance is simply a matter of placing the right resources at the right place and the right time.

Process Improvement – Has the service provider proposed more efficient and effective ways of doing business? Have you taken steps to implement their recommendations, or at least made an attempt to? Would a third party critique of the existing process be helpful? If there is a gap between knowing the right thing to do and actually doing it, then the problem may be solved by focusing efforts on process rather than people and bringing in outside help.

Value-Add – Are you getting your money’s worth? Today, service providers can bring transaction resources in-house, and through fee-sharing and reduced fees, the out-of-pocket costs to a client are non-existent or very limited. Consider whether a different service provider will make a significant difference to something that is fast becoming a “commoditized” plug-and-play service. Instead, focus more on the ancillary services – such as valuation and advisory, research, lease administration and others. What truly sets a service provider apart is the ability to extend the client’s reach by responding quickly and appropriately to their needs. But, as the client, it’s incumbent on you to specify those needs. Service providers are not mind readers and maybe a re-structured agreement or service model is all that’s required.

REVISIT YOUR OUTSOURCING PHILOSOPHY

Perhaps you outsourced your CRE as a defensive move to avoid larger cuts in staffing because CRE is not your company’s “core business.”  If so, is your service provider really at fault for your current situation or is it a direct result of the morale in your department? Sometimes employees in a CRE department feel threatened by the service provider because their leadership did not present the outsourcing initiative as a “win-win.”  If morale is low, perhaps you can strengthen the relationship so that the service provider feels part of the client team and vice versa. Off-site team building workshops can be beneficial. These workshops can improve communication and decrease the stress of change. Behavioral assessment tools and techniques have evolved and some now provide a multi-lens view into team dynamics.  An improvement that can be put to immediate use with outcomes that are tangible and can be measured.

Here are two “hot buttons” – attributes most companies look for in a service provider.  If, during your reassessment, either of these items is missing or lacking, I agree you’d be wise to consider a switch.

Reputation – Your service provider must have a solid reputation in the business.  Ask for references and follow up with those references – not only during the RFP and bidding process but regularly.  Are new customers satisfied?  What about long-standing customers?  With the number of mergers in our industry, you’d be wise to check in with references every six months to a year.  Make sure they’re delighted with their outsourcing arrangement.  If not, find out why not. Compare notes to make sure you’re getting what they’re getting.  Which leads to:

Consistency – You’d stop visiting your favorite restaurant if the food was not consistently up to par.  Likewise, make sure your service provider gives you consistent, reliable service and delivery.  The provider’s employees should have skills that are highly developed and maintained. They should bring an approach to their delivery model that is unique and built on solid, leading-edge technology.  Clearly, if the service provider relationship is not reducing your workload or adding value, by all means consider making changes.  But before you do, make sure you are not just making change for the sake of change.  Like any good relationship, small adjustments can often lead to big improvements.

Are you thinking about making a change to your real estate service provider? Wondering if maybe a “tune-up” is all you need?  You might consider having the existing relationship evaluated by a third party…think of it as “CRE marriage counseling”.

This article was contributed to the National Franchise Institute by Vik Bangia with Verum Consulting   (952) 807-1949

 


Risk Mitigation for SBA & Franchise Lenders

Risk Mitigation for SBA & Franchise Lenders

 

YOU’RE APPROVED! These are two of the most exciting words for a new franchisee to hear and for a lender to say. After painstakingly digging into the details, weighing the risks, crunching the numbers, and figuring out ratios, this milestone is the jumping off point that sets new wheels in motion. The Happy Dance begins!

 

Unfortunately, sometimes those wheels can drive naïve franchisees right off a cliff!

 

The money that was borrowed to get their business open is often eaten up (even gobbled up) by costly mistakes they had no way of knowing even existed:

 

  • The set-up of their company was done according to advice from well-intentioned friends or family members who may not have realized the tax ramifications. If the intended corporate structure does not match the actual registration, the Tax Man will cometh! Regardless of what the money was originally borrowed for, Uncle Sam will take his cut off the top (and seldom is that ‘just a little off the top’). What remains may not be enough to actually get the doors open. As the lender, how will you get paid back?

 

  • The Franchise Agreement has been signed – and now, so has a lease. Without realizing the role that local zoning plays in areas such as permitted uses and utility requirements, this poor franchisee unknowingly gifted $75,000 of your money to its landlord because they didn’t know what they didn’t know. With a signed lease comes the ties that bind. “I’m sorry” or “I didn’t know” won’t grant this franchisee a do-over. With a $75K haircut, will this franchisee make it? As the lender, how will you get paid back?

 

  • A different franchisee to whom you loaned money decided that boiler-plate legal jargon in the landlord’s standard lease was standard practice and proceeded to sign the lease without proper legal representation. As luck would have it, a critical ‘out’ clause (like the inability to secure a liquor license) was conveniently missing from the landlord-friendly lease. This franchisee will still open its doors and operate the business, but with significantly lower sales because they are prohibited from serving alcohol. Will the lower sales still cover overhead costs and the monthly note on the loan you have with them? As the lender, how will you get paid back?

 

The list of possible ‘what ifs’ can stretch a mile long. The dollars associated with those ‘what ifs’ can easily stretch into the tens of thousands. The dance is not so happy now and if I were the lender, I would be shaking in my shoes!

 

“When there is a $5,000 mistake on a franchise project, the

franchisee has a problem. When there is a $100,000 worth of mistakes

on a franchise project, the lender has a problem.”

 

A significant portion of lenders’ due diligence comes from the very important question of ‘How will I get paid back?’  This is such an important question that it is often asked several times while running through various scenarios.

 

Despite all of the number crunching and due diligence that goes into approving smart loans, few lenders take the time to qualify borrowers about their knowledge and ability to actually get the doors open. This is super scary because the build-out of their location is likely the biggest reason the franchisee needs your money in the first place.

 

Yes, it is true that established, national brands often play more of a hands-on role with their franchisees in these key areas. With new concepts hitting the scene almost daily, there is a critical gap in the assistance that new and emerging franchisors are able to offer to their franchisees. It is not a matter of wanting to, the fact of the matter is that they have not grown large enough to be able to bring these resources in-house. This leaves franchisees to figure much of this out on their own. All the while, everyone’s fingers are crossed:

  • The franchisor’s fingers are crossed because if the franchisee fails, it is not only a very public failure with consumers, it also gets reported to the FTC and becomes a disclosure to future prospective franchisees;
  • The franchisee’s fingers are crossed because their life savings, their future income potential, and their livelihood are on the line – not to mention their family’s safety and security;
  • As the lender, your fingers are crossed because you are really hoping that the intelligent person who brought a business plan, financial statements, and past business experience to the table is wise enough to know their construction limitations and will seek the help they need.

 

The Risk Mitigation Tool That Lenders Are Adding to their Toolbox

 

Lenders ToolboxIn two days and for a fraction of the cost of one mistake, the National Franchise Institute’s ESSENTIAL COMPETENCIES program is an insurance policy that helps to mitigate a lender’s risk on loans that fund the building of new locations.

Borrowers include the cost of this program into their loan;

As an incentive, some lenders are rewarding borrowers with a more favorable interest rate for participating in this program and significantly increasing the likelihood of success

 

Click Here for a pdf About This Vital Program

 

Franchising is the fastest-growing method of conducting business in the world. Lenders love franchising! Lenders really love successful franchise loans.

 

When costly mistakes are prevented on the build-out side, franchisees significantly increase their chances of success and they are in a much better position to meet their loan obligations. The franchisor, the franchisee, and the lender all start toe tapping, gearing up for the Happy Dance.

 

Sessions are scheduled every six weeks in Denver and are limited to a maximum of 25 people!  The ideal timing for the Essential Competencies program is after a Franchise Agreement has been signed but before the search for real estate begins (and DEFINITELY before a lease is signed!).

 

Click Here for Program Dates, Details and to Register


A Tale of Two New Franchisees

A Tale of Two New Franchisees

PHOTO - two restaurateurs

Entrepreneurs who choose to become franchisees enter the industry with a double dose of excitement because statistics prove that ‘it’s only a matter of time’ until they begin to see success and start making money.

 

While the franchise model continues to prove itself across thousands of different concepts and brands, the success of individual franchisees lies largely in their own hands.  Before a new franchise concept can operate, it first needs to open. While the paths may be similar, each journey can be very different.

 

 

Take, for instance, two restaurant professionals who recently signed Franchise Agreements:

Operations Experience

Corporate Experience

This entrepreneur had been working in QSR and fast-casual restaurant concepts for years. The goal was to learn the ropes and eventually become a franchisee. This person knows operations inside and out and worked hard to make their dream a reality. Fast forward a number of years and this person achieved their goal: They signed a Franchise Agreement to own and operate their own restaurant franchise. This entrepreneur has a degree in marketing and been a business professional for the past 15 years.   For ten of the past fifteen years, this person worked on the corporate side of three different multi-unit restaurant franchise concepts, each time crafting marketing campaigns that were very successful. After much consideration, this person also signed a Franchise Agreement to own and operate their own restaurant franchise.

 

So which new franchisee is better prepared for the road ahead and more likely to open a successful restaurant? Toss a coin!  Most people are shocked to hear that the outcome of such a major career decision comes down to a simple coin toss.  Surely that can’t be possible – right?  To a surprising extent, it is.

 

Because of each one’s past business experience, both will likely be successful once their restaurants are open. The tipping point will come down to how much development experience each one has (or learns) once the Franchise Agreement has been signed but before real money starts flying out the door. Whoever is well versed in calculating development timelines and realistic costs, in understanding all of the intricacies and the ‘right’ resources that go into getting their restaurant built, and whoever effectively manages the timeline, resources, and on-site challenges once the clock starts ticking will definitely have a more successful restaurant opening.

 

The task of getting the doors open is an important component of franchise success and yet many newer franchise professionals don’t realize just how much is involved until the tally of costly mistakes becomes painfully obvious. Many are left weary, financially strapped, and scared.

 

This scenario plays out across the board for concepts that operate from brick and mortar locations: restaurants and breweries, fitness concepts, beauty and healthcare/wellness concepts, entertainment concepts, you name it.

 

Doctors, dentists and orthodontists are becoming franchisees of chiropractic, men’s health, and dental concepts.  Professional athletes are in the game too.  Each knows their craft very well but few are familiar with the build-out tasks of getting their locations open.

 

If you or someone you know is joining the franchise ranks, NOW might be a great time to look into the National Franchise Institute’s Brick & Mortar Franchise Success program.  A great concept, a proper plan, the right knowledge, and experienced resources will make all the difference so your success extends beyond simply getting the doors open but building your legacy (and your bank account) in the process!

 

To your success…


Continuing Real Estate Education Credits Through the National Franchise Institute

Continuing Real Estate Education Credits                                      Through the National Franchise Institute

If you are a Colorado commercial real estate professional who needs to earn continuing education credits, look no further than the National Franchise Institute!

 

DORA recently approved both of our programs for six continuing education credits each.

 

  • Brick & Mortar Franchise Success
  • Should I Franchise My Business?

 

Invest in your career and the expertise you provide to your clients by joining us at one of our upcoming sessions. We hope to see you soon!

Click Here for Program Details, Pricing and to Register


We’re In The News Again! Franchise Times’ Book of Brands

Franchise Times - BOOK of BRANDS (Spring.Summer, 2016) NFI on Pg. 11We’re In The News Again!                                       Franchise Times’ Book of Brands

The National Franchise Institute is honored to appear in the Spring/Summer 2016 edition of Franchise Times’ Book of Brands. 

 

Click the link below to view the article.

 

 

National Franchise Institute – Franchise Times BOOK of BRANDS – It’s What You Don’t Know That’s Key