With the Chartered Professional Accountants of Canada...
Dale Willerton collaborated with his colleague Jeff Grandfield on this article.
When it comes to conducting business, you can do it independently, with a partner or as a franchisee. What is the difference between these options and which is the best route to take? There is no set answer for this question as much depends on your own situation and comfort level. As The Lease Coach and co-authors of our new book, Negotiating Commercial Leases & Renewals For Dummies, we are strong supporters of the franchising concept and frequently work with new and existing franchisees to help them negotiate the best commercial lease terms possible. We also know that there are many excellent franchise systems to choose from throughout North America so it comes as little surprise that franchising continues to be a popular choice for so many entrepreneurs.
While the terms “franchisee” and “franchisor” are quite common, we feel the need to first offer a couple of definitions to ensure complete understanding. A franchisee will buy a franchise and operate the business under the direction and regulations of the franchisor. A franchisor is a corporation which sells their original business model, including the right to use the name, to other individuals, who must follow the franchise system for conducting business.
The Lease Coach knows that franchisees looking to lease commercial space are very appealing to commercial landlords. Why so? These landlords recognize that franchise systems are proven, well thought out, and often stay in business much longer and achieve much higher rates of sales volumes than many independent concepts. In our experience, we routinely see a commercial landlord (given the choice between leasing to an independent or a franchisee tenant) favour the latter for tenancy. If you have an established business record of accomplishment, multiple locations, a franchise brand behind you, or you belong to an industry that’s generally doing well, you need to make sure that the landlord sees and recognizes this. Colour brochures, websites and marketing materials can all help to whet the appetite of a landlord for a particular tenancy. And if you play your cards well, this can translate into a superior lease deal all around.
Having a proven concept behind you can indeed be very advantageous. All the groundwork has already been done. This doesn’t mean, however, that franchisees shouldn’t do their own groundwork before selecting a franchise system to join. An important factor which franchisees can easily research is the growth potential of their desired franchisor. You can find out this information by asking their company headquarters. Often franchisors know where they’re planning to expand years in advance. General expansion plans typically become public knowledge, which you can find out by reading through the franchisor’s website or placing a simple phone call to ask.
While franchisors can provide name brand recognition, a successful business plan and franchisee training programs, be aware, however, that franchisors do not always help their franchisees with all their business matters. Frequently, franchisors will not have the resources or in-house staff to help franchisees with real estate issues – including site selection or lease negotiating. This leaves the unknowing (and often inexperienced) franchisee to muddle through independently. The commercial lease is far too important to ignore. It is a contractual agreement which states the terms of your tenancy (including the length of your lease term and the agreed-upon rent you will pay). It is important – in fact, vital - to pay attention to this document. Don’t just agree to the terms presented without professional help. Much of what is written can – and should – be negotiated to better serve you – the franchise tenant. With effective negotiation, you can benefit with agreeing to a more appropriate lease term, receiving valuable tenant inducements paid by the landlord and paying less monthly rent to the landlord. We have helped many first-time franchisees by negotiating their initial lease as well as existing franchisees renegotiate their lease renewals.
When it comes to conducting site selection for your franchise and negotiating your commercial lease or lease renewal, remember the franchise advantage and use it. It can work for you!