Jonathan Keyser is the founder of Keyser, the largest commercial real estate brokerage company in Arizona.
The franchise industry is expected to create more than 800,000 U.S. jobs by the end of 2021, representing 8.3 million jobs nationwide. According to data provided by the International Franchise Association (IFA) to webinar attendees, this will be the biggest annual franchise growth ever. That growth equates to 26,000 new franchises in 2021, bringing the total number of US franchises to 780,188.
Keyser is a commercial real estate agent serving tenants and occupants of space, and our retail division, which works with retailers, franchisors and franchisees, has seen so much activity related to franchising. Why? Because franchises are proven concepts that enable expansion that is supported by training and support from the company. You will be accompanied by one nearly guaranteed success model. If you were in the market for a new business venture, franchising could be in your future.
If you are seriously considering venturing into the franchise world, there are three considerations you must make before you decide on this engagement, no matter what brand you are interested in.
1. Is the fit right?
Franchisees and franchisors have a mutually beneficial relationship. If one is successful, the other is usually successful. However, franchisors want to make sure that their franchisees are a good fit for their business. Depending on the franchisor’s business model, they may require a degree of personal commitment from the franchisee that goes beyond the typical and expected obligations of a company. These “fitness requirements” can include a lifestyle commitment, previous work experience with that brand, or even participation in cultural or religious practices. It is in your best interest to carefully review a brand’s standards to ensure that 1) you meet their expectations, and 2) there are no surprises in doing business.
After you’ve selected your brand of interest, do your research to make sure you qualify. Inquire with the franchisor about the possibility and you will then receive a Franchise Disclosure Document (FDD). The FDD shows a complete picture of what to expect from a brand, their customer experience, the requirements / guidelines that apply, and the financial commitment that you should expect.
2. Do the financial requirements allow participation?
If you research franchise brands, you will find that there are personal wealth or cash requirements. This is the foundation for a franchisor to determine whether or not you are a viable candidate for a franchise. For some brands this can be tens of thousands of dollars, for others it can be as high as $ 1 million or more.
Just because a brand requires a certain amount of cash doesn’t necessarily mean that this is the total price of entry. There are additional fees and costs associated with opening a franchise, such as:
• Franchise Fee: The initial license fee for using the company’s logo, business model, and trade secrets.
• Royalties: A fixed amount or percentage of sales.
• Promotion / Marketing Fees: The national brand awareness marketing fees.
• Local Marketing Fees: The money a franchisor expects from franchisees to market their business park or location.
• Furnishing, equipment and construction costs: The costs of converting a generic location into a branded, fully exploited space.
• Ongoing costs: such as groceries, labor, and product distribution.
The FDD provides franchisees and potential franchisees with all of these basic details to give them an overview of the capital they need.
3. Can you meet commercial property expectations?
Choosing the right location for your franchise is critical to the success of your business. After brand selection, location selection is probably the second most exciting step in the process, but in many cases its value and the process itself are overlooked. Your franchisor has guidelines on what is and what is not brand acceptable and in some cases can provide you with a master broker to assist you with the process.
Some brands allow franchisees to choose their own commercial real estate advisor. In these cases, franchisees must select a commercial real estate agent who:
• is a pure tenant advisor; This ensures that the advisor’s goals are aligned with the franchisee and franchisor and not the landlord.
• Has a deep understanding of the retail industry and can provide location selection insights based on artificial intelligence, analytics, demographics, psychography and market data.
• can tailor their recommendations to the requirements of the franchisor; These guidelines exist because they have proven successful. Choosing a commercial property that has not been approved by the franchisor is not advisable.
Becoming a franchisee requires dedication and dedication that goes well beyond finance. If you’re ready to take on the challenge and stick to a franchise company’s business plan for at least five years (on average), franchising could be the best next business venture for you.
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