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7 Things You Need to Know Before Becoming a Franchise Owner

Recently, I was sitting, drinking an iced latte macchiato at a well-known chain, when my wife said to me, “We spend so much time in here that maybe we should think of starting one ourselves.”

Which she promptly followed up with, “I’ve always wanted to run my own business, and let’s face it: How hard can making lattes be? Everywhere we go, [this chain is] opening a new franchise. So, it’s got to be an easier option than starting my own business right?”

Well, not exactly.

My wife is not the only one to think the way she does, given that franchise-growth rates in 2016 again exceeded non-franchise business growth rates and continue to increase by 2.6 percent per year. There’s reason for this, specifically the 300 franchise business lines that already cover ten distinct business areas (automotive, business services, commercial and residential services, lodging, personal services, quick service restaurants, real estate, retail food, retail products and services and table/full-service restaurants.

So, not only are there a lot of franchise categories and companies to choose among, but there are advantages to opening a franchise as opposed to starting your own business from scratch.

Still, those choices and advantages don’t mean a franchise is a guaranteed success. To get to that point, you still need to do your due diligence to increase your chances of making it work.

To better grasp the challenges of running a franchise, I met with Tom Portesy, CEO of MVF Expositions, which runs franchise expositions around the world. I asked Portesy his thoughts on what a new entrepreneur should know before taking on this challenge.

Here are the seven things he said to be aware of before you dive into that franchise opportunity.

1. How much will it cost?

The first thing to know is the total investment to get your franchise up and running. This should include the purchase costs, your opening inventory and the amount of working capital you are going to need before you break even. Understanding these costs is crucial, as you don’t want to run out of money when you are on the verge of success.

In addition, you also need to know how you are going to finance the business, as many people can actually afford a bigger franchise opportunity than they think.

2. What are you good at, and what are you passionate about?

You don’t have to love coffee to open your own franchise coffee shop. Nor do you have to do all the work.

When it comes to running that shop, you’re actually the business owner and can hire people to deliver the service or sell the products; you don’t have to do all of that yourself. Success is dependent on how well you work on the business, not just in the business. 

Still, not everyone is cut out to be a franchisee, to thrive within someone else’s system. “Before buying a franchise,” Portesy told me, “one of the most important questions to ask yourself is, “Do I have the right personality to be a franchisee? People are all different, and so are franchises.

“As a result, one of the worst mistakes you can make is buying a franchise when you are not suited to be a franchisee, or compatible with the business.”

3. How much time do you need to invest?

While starting a franchise is different from starting your own business, it is still a business, and you won’t be the first person who’s traded a 10-hour-a-day job he (or she) hated for a 16-hour-a-day job he hates.

So, make sure you understand what’s involved. There are seasonal franchises that require you to work especially hard at certain times of the year; but it’s still your business that you’re going to be running, and you need to be clear about how much time you will need to invest to make it a success.

4. What is the franchisor like?

Not all franchisors are the same, so you need to do your research and get to know everything you can about the franchisor. This includes things such as how long has this company been in business, what is its average success rate and how long do franchisees stay on average.

Just because a franchisor is new doesn’t mean it’s not a great opportunity, but the more you know, the better informed your decision can be.

5. What does it take to run a successful franchise?

When you do your due diligence, make sure that you speak to other franchisees and not just the most successful ones. Ask them:

  • What were the key success factors they found?  
  • What were some of the challenges, and how’d they overcome then?
  • If they were starting today, knowing what they now know, what would they do differently?
  • For those that failed, what were the factors that caused that to happen, e.g. poor location, weak marketing, etc? 
  • How long did it take for them to start to make a profit?

It’s great to learn from your mistakes. It’s even better if you can learn from those of others so that you don’t repeat them.

6. What kind of help does the franchisor provide?

When you take on a franchise, unlike starting your own business, you’re not alone, and that can be a great comfort. Just make sure you know how much support you will get from the franchisor, what other people’s experiences were and how much help the company offered those people when the going got tough. How much support did those other franchisees receive, or were they left to their own devices?

One of the hardest things is asking for help when things are going wrong. But if you know that the support will be there and that the franchisor is willing to help, the process will be a little easier.

7. What’s your end game?

I am a big fan of Stephen Covey’s “second habit” of highly successful people:  Start with the end in mind. 

plies to franchising. Before you take up your franchise, know and understand what your exit strategy is going to be. Are you planning to leave the franchise to your children, are you looking sell it or do you plan to just run it for a couple of years and then get out?

The better you know and understand your end game, the easier time you’ll have selecting the right kind of franchise opportunity, which fits you in the short term, and supports your long-term objectives.

Running a franchise can be a great way to start running your own business, but you need to understand why you are getting into it, what you are getting into, whom you’re getting into it with and of course how you plan to get out of it. The better you understand the answers to these questions, the better your probability of selecting the franchise segment and company with the best potential for you.

By Gordon Tredgold

Original article from Entrepreneur.com, November 22, 2017

Why Becoming a Franchisee Offers the Best of Both Worlds

Partnering with the right franchise can help an entrepreneur reach their dream of financial independence—without the common pitfalls.

According to the U.S. Census Bureau’s Survey of Entrepreneurs, the key drivers for entrepreneurship are earning more income and the desire to be one’s own boss.

No surprise there.

As the chief development officer for Überrito, I see that every day in my efforts to drive franchise sales and development for the company. My daily interactions are with highly motivated individuals looking to grow their income while maintaining their autonomy by working for themselves.

To be sure, the lure of independence and the ability to control one’s destiny has created many a entrepreneur.

However, there can be considerable unforeseen pitfalls along the way:

Lack of guidance: Many entrepreneurs will tell you, it can get lonely at the top. It helps to have someone with experience in all of the aforementioned areas—and many others—that can provide guidance and examples of what has worked and what has not—and why.

Building a customer base: Everyone thinks they are a marketing expert, but it is easier said than done. Marketing is part art and part science, and it’s important to get it right to be successful. When the time comes to develop and execute marketing strategies that will bring foot traffic to your door, and keep those customers coming back again and again in a crowded marketplace, having access to a team that has a strategy that is successful and repeatable is extremely valuable and is a key to success.  

When you consider the advent of Twitter, Facebook, Yelp, and more, there are countless ways to reach customers. Geotargeting and other methods can be much more precise in promoting your brand and measuring results. Social media is constantly evolving and while it can be extremely positive, there are also just as many ways for it to have a negative impact.  

It makes less sense to swim upstream alone in such a noisy, fragmented marketplace. Tapping into the marketing resources of a franchise enables entrepreneurs to focus on day-to-day operations, and, profitability.

Unforeseen start-up costs: A blank slate is difficult to build from. If you are negotiating a lease, or choosing a contractor to build a storefront—the margin for error is thin and will impact your business for years. It doesn’t take much to come out of the gate in a deeper hole than anticipated.

Furthermore, the amount of decisions to be made in terms of location, layout, and finishing touches can be paralyzing. If you are going to operate a storefront, it can be useful to rely on experts regarding items such as traffic flow, point-of-sale considerations and more.

Human Resources quagmires: Most entrepreneurs are driven by success. They like to set goals and then attain them. The endorphin rush from making a sale or achieving purchase goals is hard to beat.

But nothing disrupts such positive momentum more than navigating complex human resources issues. While these are important issues that must be resolved, they can become burdensome, and get in the way of making sales. They are often fraught with legal considerations and are best left to those who are up to date on labor laws and best practices.

Beyond managing current employees, attracting and hiring the right ones presents its own challenges. A national franchise can be a helpful resource on many of these issues.

Distribution and Inventory control: It is a simple concept that you cannot sell what you do not have. Yet one of the most critical mistakes a business owner can make is having an incorrect amount of inventory, whether that is having too much or not enough. This is critically important in the food-services industry where product can often have a very limited shelf life.  Over ordering product often results in spoilage while under ordering results in unhappy customers and a loss of sale.

Even if you do not have product that can spoil, all products have a shelf life to consider. Timing is everything and it is of great benefit to have an idea as to what to expect and what has worked for others.

Finding distributors to supply your raw material needs—especially if those needs include fresh food items—can be difficult and costly if you are operating alone. Having the purchasing power and relationships afforded by a franchise eliminates guesswork in choosing distributors and promotes favorable costs. 

Financing considerations also come into play here. Depending on the carrying cost it may be that alternative financing can be provided through a franchise, often at more competitive rates and terms than what a traditional bank offers.

This is a small sample and many of these misadventures can be mitigated when partnering with a proven franchise.

While these issues can pose a significant challenge to a startup, it is very likely these issues have already been considered and solved on a franchise level.

A franchisor is aware of all the nuances and challenges franchisees may encounter. Much of this knowledge is taken into consideration when removing or alleviating barriers to entry.  This experience also better positions franchisees for success due to the systems that have been tested and put in place.

A franchise only does well if its franchisees are doing well and it is in a franchise’s best interests to help its franchisees succeed.

Partnering with the right franchise provides a stronger likelihood of your reaching your dream of financial independence—without the common pitfalls that plague many entrepreneurs.

By Peter Ortiz, September 2017

Original Article from QSRMagazine.com

Peter Ortiz is the Chief Development Officer for Überrito, a fast-casual concept that is part of Mexican Restaurants Inc., which currently operates 47 Mexican restaurant locations across five brands: Überrito, Casa Ole, Monterey’s Little Mexico, Tortuga Mexican Kitchen, and Crazy Jose’s.

When a restaurant or retail tenant is also a franchisee, there are specific challenges in negotiating the lease. The tenant / franchisee needs to carefully review and negotiate the lease agreement to ensure that its lease meets all of the franchisor’s requirements, and that its lease obligations do not conflict with its franchise obligations. The landlord may need to make certain concessions for a franchisee tenant, while protecting itself from the credit risk inherent in a small-business tenant. The franchisor needs to protect its interests in the physical location of the franchise business, even though it is not a party to the lease.

The Letter of Intent

The Letter of Intent is where the landlord and prospective tenant hash out the basic business terms before investing the time and effort of preparing and negotiating a full lease.

Even if the franchisor has no involvement in the LOI stage, the landlord and the franchisee / prospective tenant should proactively seek to understand the franchisor’s minimum requirements for its lease approval as well as any potential conflicts between the lease and the franchise agreement.

If a franchise agreement contains specific requirements for the franchisee’s lease (whether those are provisions to be included in the lease, a lease rider, or both), it is best to bring these up when the LOI is being finalized.

The Franchisor’s Lease Rider

A Franchise Disclosure Document often includes a form that a franchisee is supposed to have executed by a landlord as a condition to the franchisor’s approval of a lease. The document goes by various titles, such as “Lease Rider,” “Collateral Assignment of Lease and Agreement of Lessor” or “Lease Addendum.”

The Lease Rider will cover various issues important to the franchisor. One of the most common provisions is to require the landlord to send the franchisor copies of any lease default notices, and to give the franchisor a window to cure any default by the tenant.

A second common provision is a right of the franchisor to assume the lease as a “pre-approved” assignee. The franchisor will also want the right to further assign the lease to a new franchisee, or to have the lease assigned directly by one franchisee to another. The landlord may be willing to agree to this, but will often insist that the assignee cure any defaults and that the assignee meet financial and other qualifications.

Important Issues In The Franchisor / Landlord / Franchisee-Tenant Triangle

(1) Length of Term. When does the lease expire, and when does the franchise agreement expire? If they expire on different dates, there is obviously a potential problem. A franchise agreement typically runs for a specific number of years from the date of execution. Sometimes a franchise agreement will run for a term of years from the date the franchisee opens for business.

Unless the tenant insists on getting the same expiration dates, the term of the lease will almost always end on a different date than the franchise agreement. In a retail lease, the expiration date might not even be known when the lease is executed. For example, a 10-year lease term may expire on the “120th full calendar month following the earliest to occur of (i) 120 days after the Tenant obtains all construction permits, (ii) 180 days after the date of this Lease, or (iii) when Tenant opens for business.”

The unwary franchisee / tenant may run into a gap where its franchise term has expired but it’s still obligated on the lease. “Going dark” before the end of the lease term is often a default under the lease, and not a good outcome for the tenant or the landlord.

Conversely, the franchise / tenant may face a gap where its lease has expired but the franchise term is still in effect. In that case, the franchise / tenant may face significant liability under the franchise agreement, and the franchisor will unexpectedly lose a unit.

The franchisee / tenant may avoid this by specifically negotiating for a lease term (or option) that expires on the same date as the franchise agreement. If the landlord refuses to agree, the franchisee / tenant may be able to go back to the franchisor and negotiate a change to the franchise term.

(2) Permitted Use. The “Permitted Use” clause limits the business that the tenant may operate in the retail space. Generally, the tenant wants maximum flexibility, while the landlord wants to specify the trade name as well as limit what sort of business is conducted under that trade name. At a minimum, the landlord will require that the Permitted Use not conflict with any existing “exclusive rights” granted to other tenants in the shopping center; the landlord may also want the ability to bind the tenant to exclusive rights that landlord may in the future grant to other tenants.

The franchisor and landlord will be in agreement on the trade name – they want the tenant to operate only the franchisor’s brand. However, a conflict may arise over any limits on the business conducted. A franchise agreement will typically require the franchisee to offer the franchisor’s entire menu or product offering. If the lease prohibits the franchisee from complying with changes to the menu or product offerings, the franchisee will have to breach one of its agreements.

(3) Construction; Signage and Decor. A franchise agreement will require the franchisee to construct its premises according to the brand’s requirements, including layout, equipment, signage and décor. The franchisor will typically have approval rights over all aspects of franchisee’s construction.

The landlord will usually have approval rights over the tenant’s construction and signage as well. To the extent possible, the franchisee / tenant should seek to have its construction and signage plans pre-approved by the landlord prior to lease execution.

If the shopping center (or the local jurisdiction) has limits on color schemes, construction materials, signage or other aspects of the business, the franchisee will need approval from the franchisor to deviate from its standard brand requirements.

(4) Future Remodeling Obligations. Under a typical franchise agreement, the franchisor can require the franchisee to remodel their business to the franchisor’s then-current “brand image” for new franchisees. There may be some limits on this right (such as remodels not being required more than once every five years). In the lease, the franchisee / tenant should seek to have the right to remodel the premises consistent with the franchise agreement.

(5) Assignment Clauses. As discussed above, one of the franchisor’s primary goals is to ensure the franchised location stays open under the franchisor’s brand, regardless of who is the franchisee. The franchisee / tenant will want the ability to sell their business to a new franchisee. The landlord, however, will, at a minimum, want any future owner to meet the landlord’s financial and other requirements for tenants. The franchisee / tenant will want to be released from all liability upon an assignment of the lease. The landlord, of course, prefers to keep the original tenant liable, while the franchisor is generally indifferent on this point.


Negotiating a lease is often a difficult, contentious process between the landlord and prospective tenant. When the prospective tenant is also a franchisee, the process can be even more complicated. The franchisor, the franchisee / tenant, and the landlord all benefit from understanding the perspectives of the other parties and the issues that arise among the three different parties. By addressing franchise-specific issues early in the process, the tenant and landlord can more easily move the deal to closure.

Article from the Shipe Dosik Law, LLC Franchise Law Blog – July 9, 2015.

Whether you are a business investor considering a franchise opportunity, a franchisor seeking qualified franchisees, or if you partner with franchise brands, it is important to know why franchising is such a great investment.

Top 3 Reasons To Invest In Franchises:

1. Franchises tend to be about two and a half times more likely to succeed when compared to new businesses that have no franchise affiliations. In fact, it has been found that 97% of franchises that opened in the last 5 years are still open today. In comparison, the likelihood of a start-up business still being open in 5 years is only 47%.

2. From business plans to site selection requirements,franchisees are provided with models that are proven to be successful. Not only that, but they get a brand name that already has an established identity. Franchisees are able to save both money and time by not having to start from scratch.

3. Operating costs are oftentimes more favorable for franchised concepts. Products and services necessary to run a business are often heavily discounted for franchises as the franchisor has the ability to provide them to their entire portfolio of franchisees at a bulk discount.