The #1 Lease Negotiation & Site Selection Mistake

The #1 Lease Negotiation & Site Selection Mistake

Every franchisee has one primary goal:  to operate a successful business.  They can’t actually do that until their location opens.

Leases are complicated and create tremendous financial exposure.  Finding the best properties and negotiating the best terms are two of the most important tasks that any business owner undertakes because of the far-reaching and long-lasting ramifications.

While there are a number of key things to do right when negotiating leases, far and away one thing stands out as the #1 lease negotiation and site selection mistake that business owners make:  NOT ALLOWING ENOUGH TIME!

It takes TIME to research the market and qualify all the possible sites or facility choices, then tour the properties which seem most interesting, and then compare them carefully. While timeframes vary by market, the normal time to do just this step is about a month, especially if you intend to allow time to hear back from Brokers and Owners on “unlisted” properties: those properties where a Tenant is in place, but could move out (or be moved out) if a replacement occupant is found.  Consider, too, the supply and demand factors that play a role with restaurant and retail locations.  Even then, these tasks are only the tip of the “time drain” iceberg.  Other tasks need to be factored into the site selection time-line.

Negotiations

Typically done with Letters Of Intent (LOIs) or Requests For Proposal (RFPs), negotiations with the Landlord can span weeks or even months if the landlord is a big company with a real estate committee that meets once a week.  Terms are battered back and forth like a tennis ball.  Perhaps bids need to be obtained for various items before either the Landlord or the Tenant will agree to certain work.  It is not unusual for things to seem to drag on forever.

Preparation of the Lease

Once the financial terms are agreed upon, a new round of negotiations commences: the principals, brokers and attorneys need to battle back and forth over the wording of the lease, and the “devilish-details” can easily bring up new issues of disagreement that need resolution.  This can easily take weeks.

Renovations

Once the lease is signed the premises often needs finishing or renovating, which can add additional months.  Rooms are never the right size, and even when they are, you may want a different style of floor plan.  If it’s an open floor plan, YOU want private offices, or vice versa.  Happens all the time!  I have seen offices installed exactly the way they used to be – before the most recent tenant ripped everything out to make an open floor plan.

Permits

Before renovations can begin, building permits must be obtained. This will take additional weeks – perhaps much longer if the municipality is “backed up”, and don’t forget it is common for plans to be rejected for one reason or another and require revisions, and then resubmission.

Architectural Plans

Need building permits? Then you need architectural plans! How busy is the architect and how detailed are the drawings?  This can easily take one to two months.  If the architect is busy it may be a month before he/she can START the work.

Bottom Line

Unless existing facilities can be found with the right floor plan and features, the process can easily take 9 months to a year – horror stories abound in the industry of it taking even longer.  Depending on the size and complexity of the transaction, six months to a year is a reasonable time frame to use when looking for new locations – and longer is necessary (perhaps another six months) if you will be building from the ground up.

The timeframe above assumes that experienced planners have been retained to guide the process.  Their expertise plays a significant role in proactively averting problems that might otherwise lead to unforeseen delays.

This article was contributed to the National Franchise Institute by Craig Melby with LeaseSmart    (561) 886-8645


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

 


Franchise Times’® Visit to the National Franchise Institute’s Essential Competencies Program

Franchise Times (March, 2016 Cover)Franchise Times’ Visit to the National Franchise Institute’s Essential Competencies Program

In late 2015, the National Franchise Institute spoke with Nancy Weingartner, editor at Franchise Times magazine.  As the premier publication dedicated to franchise-related content and resources, we were only too excited to share details about our Essential Competencies program and how it helps franchisees to successfully open new brick and mortar locations.  Imagine our surprise and excitement when Nancy asked if she could fly to Denver to attend our January Essential Competencies program!

                                                                                                         View the Franchise Times Article Here


Sounding the Alarm on Development Timelines for Franchised Locations

Sounding The Alarm on Development                                            Timelines for Franchised Locations

AAEAAQAAAAAAAAZ1AAAAJGM2MDYzODhiLTQxZTItNDc1ZS1iZDEzLTA4ZTQ5MTI2YWZiOAIf you are contemplating becoming a franchisee or you recently signed a Franchise Agreement, the question that is probably top of mind for you is ‘How long until I will be open for business’.

Depending on who you ask (and how you ask the question), the answer you receive will be different – sometimes very, very different.

It’s important for franchisees to be aware that the answer to this question is usually prefaced on a specific event such as ‘From the day a lease is executed, you should be open for business in X number of days’.

Is this an accurate answer? Yes – based on the way the question was asked and answered. The potential problem is that most prospective franchisees believe they are asking ‘How long from today (or from the date that I officially become a franchisee) until I am open for business?’ Without realizing the difference in how the question was asked and its impact on the overall development timeline, franchisees can find themselves in an ‘Oh, I thought….’ situation that can have huge financial ramifications.

When calculating the cost of going into business (i.e., the franchise fee, FF&E, site build-out costs, professional services and other expenses), franchisees ideally need to know how long from today it will be before their POS starts ringing in sales because only then will they be able to figure out if they have enough cash on hand to keep their wallet above the surface of the water until money actually starts coming in.

The Other Side of the Coin

So what is the potentially very, very different answer? Well, assuming you will be signing a Franchise Agreement in the next week, it will likely be 9-12 months until you are open for business. WHAT?!? How is that possible and why is no one telling me that? It’s because the 9-12 month timeframe, although accurate, feels like an eternity to new franchisees who quickly realize that they could easily run out of money (or have to borrow more) to bridge the gap from where they are today until they open for business. Not surprisingly, this extended timeframe causes many prospective franchisees to pause or even reconsider the decision to move forward.

What the ‘X number of days from lease execution’ doesn’t take into account is the amount of time it takes to get from the date they sign their Franchise Agreement until a lease is actually executed – and that’s the missing piece of the puzzle that can trip up new franchisees if they fail to ask the right question.

According to Vik Bangia with Minneapolis-based Verum Consulting, “I caution franchisee clients to be realistic when listening to claims regarding development timelines that cite 90 to 120 days as a good rule of thumb. This industry isn’t known to give prospective franchisees the appropriate disclaimers of ‘your mileage may vary’ or ‘results not typical’, thus many franchisees believe the most ideal, most aggressive timeline should apply to their business. When things don’t go as planned, they are often disappointed, not to mention financially over-extended. Everyone is much happier when the project comes in ahead of an expected, but realistic, deadline of 9-12 months.”

As I often say, “The franchise model is brilliant! Its success across countless industries leaves many people in awe of just what is possible when a proven business model is proved yet again.” With more than 7,500 franchise concepts in existence today, franchising is the fastest-growing method of conducting business in the world. It’s much easier for everyone to arrive at the same destination when they are using the same map and can easily acclimate themselves to the ‘You Are Here’ marker.


Soft Skills That Help Newer Entrepreneurs Succeed – Part 3

Soft Skills That Help Newer Entrepreneurs Succeed – Part 3

NFI 12.28.15 ImageAre You Running Your Company or Is Your Company Running You?

As anyone who has ever tried it knows, there is more to becoming a business owner than simply making the decision to do so.  Knowledge is important.  Without knowledge, critical mistakes can be made.  Even with a good dose of knowledge, there are critical soft skills that newer entrepreneurs need to develop which can have a profound effect on the success of their careers – both in the short-term as well as in the long run.

A while back I was talking with a newer entrepreneur.  Having just signed a Franchise Agreement, she realized her development clock was officially ticking.  With an overabundance of excitement, energy and determination, it was time to get started on building her first brick and mortar location.  I was not surprised that as a new business owner she had a number of questions about how to get her location built.  What did surprise me were the non-technical questions she asked – about the soft skills that seasoned entrepreneurs have honed which she realized she now needed.

Our conversation got me thinking about other newer entrepreneurs who are likely facing some of the same questions as they get started.  In Part 3 of this series, we will talk about another soft skill that newer business owners need to develop in order to give their businesses the best chance of success.

SKILL #3 – THE ART OF DELEGATION

With only 24 hours in a day – and the need to get a reasonable amount of sleep so your candle isn’t being burned at both ends – it is no small feat to take care of all of the important tasks that keep your company running.  Most entrepreneurs find that they run out of ‘day’ before they run out of tasks that fill those 24 hours.  That’s where delegation comes into play.

Now, before you say, “No one is going to do it as good as me (or the way I do it),” let me start by agreeing with you and telling you that you are absolutely right!  Having said that, it still doesn’t mean that doing everything yourself is the right approach for your company.  Let’s face it:  you can easily be busy without being productive.  Here is another thought to consider:  You can be ‘right’ but you can also be ‘broke’!  When I say ‘broke’ I’m referring to the financial health of your company, not a physical, emotional or technical inability to run your company.

Here is a play on words that I love to use:  DELUDED and DILUTED

Business owners who can’t or won’t delegate tasks tend to be deluded about just how much of the load they can take on themselves.  This leads to their efforts being diluted to the point where they are doing five things only so-so but nothing especially well.  Your company deserves the very best of you by having your efforts focused on the tasks that you do best!  You should be doing the tasks that ONLY you can do and enlisting the help of others to bridge the gap.

What tasks can only be done by YOU?

  • Who is best suited to hire new employees for your company?  YOU!
  • Who is best suited to train the employees you hire?  YOU!
  • Who is best suited to scour the town to find available real estate locations?  NOT YOU!

Looking at things from a purely financial standpoint, 50% of one dollar is a lot more money than 100% of NO dollars!  If important tasks that would otherwise move your business forward are not getting done……….then you make NO money!  What is the breakeven on that?!?  There is only so much of you to go around.  If you can’t get to ‘everything’ and you are unwilling (or unable) to delegate certain tasks, they won’t get done.  How much ‘undone’ can your company afford?

While we are now able to clone sheep (Hello, Dolly!), we are not cloning ourselves yet.  The beauty in delegating to other people is that you benefit from the unique talents and gifts they have which produce results that you likely would not have been able to achieve on your own.

Trust me when I tell you that I am still a work in progress when it comes to the art of delegation.  Necessity being the mother of invention, I’m forced to acknowledge the areas where my skill set and past experience reveal gaps that I’m simply not equipped to fill.  I’m lucky that my network (or my network’s network) has a line on incredible resources.   If you need help in specific areas but you don’t have Go-To resources as part of your network, call me.  I’m happy to rally the troops to help you get connected to the right people who can help you succeed – but remember, they can’t help you if you don’t delegate!

To your success…