All Businesses Deserve a Great Site - The Value of Site Analysis

By Guest Author Joe Langran, MBA, and Associate Broker with Antonoff & Co. in Denver, Colorado.

A McDonald's V.P once said that choosing the right site is one of the most critical decisions the company makes. That is why McDonald's created their own volume estimating model tied to a process known as Site Location Analysis.

A fact-based site decision is critical to the success of any business, yet, it amazes me how many retailers pick their own site without it. Very few small retail business owners have access to the expertise that will help them properly analyze a site. They entrust the success of their business to their own instincts or the advice of an unqualified or under-qualified commercial real estate broker.

For the most part, commercial real estate brokers barely skim the surface when it comes to site analysis. Sometimes a broker's motivation is to simply fill a vacancy in one of his or her listed shopping centers.

Commercial brokers, by and large, have varying degrees of expertise necessary to help a business owner analyze a trade area. The broker may supply the client with a set of demographics, usually for a one, two, or three mile radius, and possibly a map showing the locations of existing shopping centers and the client's primary competitors. This is NOT site analysis.

The supporting data does very little to help the small business owner assess the strengths and weaknesses of a particular site. Therefore, business owners often make a critical site decision with incomplete data and then they wonder why their business is under performing or failing!

How to Reduce the Site Risk: 

• Identify the Customer and how far they are willing to drive to come to your business.
• Define the Trade Area through "Gap Analysis" - Most professional site locators, especially those in convenience driven businesses, define their trade area in drive times, not radii, and place the business with competitive positioning in mind. 
• Analyze the Key Components that Drive Sales and how each component affects the business. The three key components are demographic, physical, and economics. And each of these can also be further broken down into 30 or more subcomponents. 
• Zoning - Understand how or if local zoning ordinances can adversely affect your business. 

Opening a new business an emotional decision, but finding the best location for that business should be a fact and logic-based decision. Don't let poor site selection ruin your dream of a successful business. Use a broker who offers Site Location Analysis and reduce site choice risk. 

For the last 30 years, Joe Langran has used site location analysis to help the franchisees of successful chains like Arby's and McDonald's find the best possible locations. Joe now offers his national "big boy" site selection experience to businesses across the country in his role as a commercial real estate broker based in Colorado and through Three Peaks Analytics (www.threepeaksanalytics.com), an out source real estate department for early stage franchisors. He can be reached at jlangran@antonoff.com or (303) 589-4839. 

Real Estate Leases Part I: The Hunt

Whether you love real estate or not, the hunt to find the “right” space is critical.  

While most have heard the “Location, Location, Location” refrain, the hunt itself obviously depends on many other factors than mere location.

One of the biggest controlling factors is what the lease itself says.

Commercial leases can range from one page, a likely inadequate document, to over 250 pages, which is usually excessive.  Remember that no outside or spoken deals matter to a court or arbitrator resolving a dispute years later. Get everything in writing.

Until you hear the results of your lease review, a task that usually takes 3-5 hours for a lawyer to complete depending on the length, plus another hour or so to discuss it with a client, you won’t know what potentially disadvantageous terms exist in the lease that would make you not want to sign it. And believe me, there will always be “bad” terms.

Therefore, it is recommended that while a lawyer reviews the lease for your “dream space,” you should keep hunting for another space.

Two Key Reasons to Keep Hunting:

(1)  You have not let a week or more go by without seeing more properties if the landlord refuses to negotiate any changes (or the changes you really want).

(2) Leverage. To be in the best bargaining position, you have “play hard to get.” If the landlord perceives that you are too interested or too desperate, the landlord will not negotiate as much and you will lose out. Continuing to visit other properties increases your leverage by making you able to walk away.

Consider Using a Quality Commercial Broker.

Working with a commercial broker to manage your hunt, is also recommended. Many potential tenants I meet do not realize that the landlord will pay your commercial broker’s fees, making this a free service for you as a business owner. I or any other experienced lawyer can easily connect you to a quality broker whom we know will serve your interests.

A commercial broker also makes it easier to keep looking after you have one lease in for review and of course helps find properties that suit your needs likely better than you could on your own.

While insisting to tour other properties increases the broker’s workload, it will lead to you and your business finding the best property for you and any experienced broker will understand this.

Take Away Points:  Have a lawyer experienced with commercial leases review your potential lease. Frequently, landlords will negotiate many provisions, but in case yours won’t, remember to keep hunting for another space that will suit your needs. If you are unfamiliar with commercial real estate, enlist a commercial real estate broker to represent you – they are free to tenants. But know that a broker cannot legally rewrite your lease –only a lawyer can.

Laura Liss represents general business and franchise clients alike in business, employment, and real estate transactions at her own firm, the Law Office of Laura Liss, P.C. (www.lauraliss.com). When out of the office, she enjoys networking, Mexican food, and hiking in the foothills. She can be reached at laura@lauraliss.com, on Twitter @LauraLissLaw, or on Facebook at facebook.com/attorney-laura-liss.

Real Estate Leases: Can’t Live With (or Without) Them

Over the coming weeks, this blog will explore different parts of standard commercial real estate leases in a series of posts.

We will discuss what many of those clauses drenched in “legalese” really mean, and why as a business owner, you should care.

But for now we ask you: What have your commercial real estate experiences been like? What do you know now that you wish you knew then?

We look forward to hearing your stories and sharing with you over the coming weeks!

Franchising Fridays - Is Your Licensing Agreement Really a Franchise? And What Are the Consequences if It Is?

This post originally appeared on the blog of the Denver Bar Association Young Lawyers Division, of which author Laura Liss is a member and guest author. Check out the DBA-YLD blog for posts on all kinds of legal issues, not just business and franchising matters. Now, on with the show!

A franchise is, at its core, a licensing agreement.

So what morphs a commonplace licensing agreement into a franchise?

A license becomes into a franchise when:

(i)            One grants another the right engage in a business;

(ii)          Using the grantor’s brand identification (e.g. logo, registered or unregistered trade/service mark, or advertising);

(iii)         Subject to the grantor’s significant control or assistance (such as a training program or coaching); and

(iv)         The grantee pays more than $500 to enter into or continue the relationship.

While all the above elements are necessary, the grantor’s significant control or assistance and the use of common branding are what usually push a licensing agreement into being a franchise. When evaluating a licensing program, consider whether the above elements actually create a franchise out of the licensing agreement you are reviewing.

If It Is is a Franchise, Federal and State Franchise Laws Apply.

The Federal Trade Commission’s (“FTC”) Franchise Rule applies in all 50 states and many states have state-specific franchising rules.  The most fundamental rule requires the preparation and delivery of a Franchise Disclosure Document containing hundreds of pages of required disclosures that must be given to the potential buyer within a specified time.  State and FTC enforcement of these rules can be harsh.  Fines, refunds, buybacks, and awards of attorney’s fees are routine if a Franchise Disclosure Document is not prepared or delivered as required.

When Do State Franchising Laws Apply?

These state laws may be triggered if any the following occurs in a state:

(1) The offer originates, is received, or is accepted in the state;

(2) Meetings between the franchisor and prospect occur in the state;

(3) The franchise business location will be operated in the state or any part of the territory will be in the state; or

(4) The prospect is a state resident.

Consider this example: North Dakota resident meets Colorado franchisor (your client) at a trade show in California. The North Dakota resident later accepts the offer to buy a your client’s franchise, the territory of which will be located in Washington.

This example could require your client’s compliance with four sets of franchising laws: North Dakota, California, and Washington state-franchise law, in addition to federal franchise law that applies everywhere. Note that Colorado does not have its own state-specific franchise laws.

Take Away Points: Discuss licensing agreements carefully with your client (or your lawyer if you're the client) to discover if the business model may implicate a franchise based on the above elements. Frequently, there are strong business reasons to expand the business through franchising, namely the influx of someone else’s capital into the business. If you are unfamiliar with the franchising laws, consult with a franchise attorney when evaluating or structuring a potential licensing or franchising program to make sure the program and documents are done correctly. 

Franchising Fridays – Why Potential Buyers Cannot Call Too Many Existing Franchisees

Delayed Shipments Ruining Sales. Inability to Reach Customers. Can't Take a Vacation. Impossible to Use Software. No Way to Make Money.

These are not the words I want any new business owner to utter, especially one of my clients. And they are why I tell my clients to do their homework before buying a franchise or becoming a licensee or distributor. 

If you're considering becoming new franchisee or opening your own business, that’s great! I’m happy for you.

You’ve probably worked to figure out what type of business fits your personality (hopefully) and experience to help you choose your franchise or has narrowed you down to a few choices to consider.

And through this process, you’ve probably heard most of the good, some of the bad, and likely little of the ugly involved with these franchises. As your lawyer, I can tell you the legal-side details in your franchise disclosure document or franchise agreement.

But how much do you know about the day-to-day operation of your potential franchise or other business?

About the nitty-gritty, pain-in-the-butt details that all business owners deal with, and that in your case will be rigidly controlled by the franchisor. Those that do not make it into writing, how do you learn about those?
Questions like:
-How fast do you usually receive delivery of supplies that you may only buy from the franchisor?
-How do you connect with customers in a social media driven society when your franchisor doesn’t allow you to have your own business Facebook/Twitter page?
-What kind of profits can you actually expect to see for a territory like yours (besides the franchisor’s rosy picture)?
-How do you take a vacation when you cannot close your business for more than 2 days?
-How does the franchisor treat small versus large franchisees in the system?
-How does the franchisor react if your business is struggling?

These questions that can best be answered by calling the other existing franchisees. Use the list provided in the Franchise Disclosure Document to see their names, phone numbers and territories.

Cold-calling business owners you do not know without an introduction might sound awkward to you. And that is understandable. But the existing franchisees expect your call. Call as many as you can! 

The existing franchisees likely made these same calls when they were considering the purchase – and went into the deal better educated than otherwise. Call them, ask the hard (or even strange) questions you have. You cannot call too many. More information allows you to make a better investment decision.

This advice transfers to any business owner considering becoming a distributor or licensee of another business’s  products or services. You may not be entitled to automatically learn as much information about other distributors (names, phone numbers, etc.) as you would for a franchise, but a simple Google search should yield a decent list of other distributors or licensees for you to contact.

When you consider a franchise, distributorship, or licensing agreement - call as many other existing businesses as you can to find out about these details. As I tell my clients, you cannot call too many! 

Posted March 22, 2013, 3:30 pm.