Brick & Mortar Franchise Success: Know The Costs or Pay The Price

N E W   B O O K !

Amazon #1 Bestseller

Brick & Mortar Franchise Success:  Know The Costs or Pay The Price

Failure is not an option — until it happens!  Then what?  The purpose of the book is to take the guesswork out of the entire development process so franchisees know exactly what it takes to get their new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Miller dedicated her book to all the brave entrepreneurs who join the franchise ranks with dreams of opening a successful location.

Her new book hit best-seller lists on Amazon.com within 24 hours of release in both the “Franchises” category as well as the “Entrepreneurship & Small Business” category.

With a Foreword by Rick Grossmann and Michael J. Katz, Esq., authors of Entrepreneur Magazine’s Franchise Bible, “Brick & Mortar Franchise Success” provides roadmaps through the build-out process from calculating a realistic timeline for the project, hiring of the right general contractor, architect and attorney, through the physical reality of the construction process and getting the doors open for business.

Carolyn Miller’s no-nonsense approach to site intelligence and construction management reveals specific strategies that have saved hundreds of franchisees millions of dollars. Many new franchise buyers learn the hard (and expensive) way that setting up a new brick and mortar business is challenging and confusing. The average franchise buyer is in unfamiliar territory and historically many make costly mistakes, which can be the downfall of their business.

Franchising is the fastest-growing method of conducting business in the world. Why? Because it works! But don’t be fooled – success isn’t guaranteed and the stakes are a lot higher when leasing space and building physical locations.  “Over the course of a few decades in development with brands such as McDonald’s, Chipotle, and Red Robin just to name a few, I’ve seen millions of dollars wasted on fixing problems that, in many instances, could have been avoided altogether.”

Like most business owners, your primary goal is to operate a successful business.  You can’t actually do that until your location opens.  While you may know a little bit about a lot of things, the devil is in the details.  When you don’t know what you don’t know, especially when it comes to leasing space and building new locations, you could be in for a long, rough ride.  The reality of how much you don’t know (and what can happen next!) can be all-consuming. Enthusiasm, persistence, and dogged determination won’t be enough to save you.

Do not, Do Not, DO NOT sign a lease without reading this book!

Once a lease is executed, you are ‘officially’ a business owner – even if your new location never actually opens!  A lot of professionals with years of business experience assure themselves that there isn’t any part of the building process that they either don’t know or can’t figure out.  What they don’t take into account is the additional time that ticks away while they learn the ropes – and make costly mistakes in the process. No matter how much business experience and success you have had in past roles, if you are not well versed in all that is involved in getting your new location open, failure will find you!

Building new locations hasn’t changed much over the years. Because it happens thousands of times a day across the country, it’s easy to adopt the mindset of, “I can figure this out.” The truth is that you CAN figure it out – but how much will you spend or forego in the process?

Ignorance isn’t bliss — it’s EXPENSIVE!

Failure is not an option – until it happens! Then what? The purpose of this book is to take the guesswork out of the entire development process so you know exactly what it takes to get your new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Whether you are an independent business owner or a franchisee, if you have plans to lease space to build your first (or your next) location, the book you’re holding in your hands will become one of the most valuable investments you can make!

To your success…

Purchase Your Copy Thru Amazon Here

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Sometimes, Life’s a Beach: A Cautionary Tale of Franchisees & Their Leases

Sometimes, Life’s a Beach: A Cautionary Tale of Franchisees & Their Leases

The call came just whshell-1031290en Kevin was about to drain the last of his scotch. The muffled ring startled him a little as he gazed across the soft white sands to the ocean waters gently caressing the beach.  As a former franchisee, he hardly ever received phone calls anymore, not since buying a condo in an exclusive St. Lucia’s resort – aptly named Sugar Beach – almost five years ago. Unless, of course, it was the concierge informing him about a dinner reservation at one of the resort’s five-star restaurants, or his masseuse confirming his weekly appointment.

His mind briefly flashed back to former times – another place in another time, when he had managed his own franchise retail stores in Virginia and Maryland, working relentlessly to make his dream come true – to be his own boss and to prove his business acumen with the time-honored metric of substantial wealth accumulation. And a very substantial sum it had turned out to be after eight years running his “Pause for Paws” franchise units. Who knew that pet pedicures and beauty treatments would be so popular? That one could so quickly turn Fido into “my dough”? Well, anyway, he was very well off, and he had developed a warm spot in his heart – and his wallet – and for those canines, felines, and other pampered pets.

The rude, persistent ring refused to allow Kevin to reminisce. “All right, already,” he bellowed as he rummaged through his beach bag in search of his phone. He could see his accountant’s name on the screen as he picked it up. Continue reading


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

 


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