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One of the great truths in the retail and restaurant businesses is that it's all about “the locationlocation, location.” You can fix bad systems, bad management, and bad staff, but fixing a bad site is a challenge most companies should avoid at all costs.
Location is paramount
A bad location may save you money on rent in the short term, but it will cost you more over time. The best form of marketing for every restaurant or retail store is its location. A good site also gives you two chances to earn serious money – while you're running the business and then when you want to sell the business. Remember, a lease is a contract. If, for some reason, your business doesn't succeed, you can't walk away from it RENTAL. You must continue to pay for that closed store or restaurant until you negotiate a way out.
This is one of the benefits of franchising – the franchisee owns and operates the business, but has access to the real estate expertise and discipline of a much larger company, reducing time and risk.
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Solo vs Franchise
Let's imagine you want to open a hamburger restaurant. If you do it yourself, you'll need to know the availability of the site – are there any existing restaurants for rent or sale that fit your criteria? Finding them can bring subscription at expensive prices real estate databases, and those databases won't tell you why a space is available: owner retirement, changing demographics, or a poor operator.
Driving around the market won't even give you the most important information. Shopping center managers keep a close eye on their tenants, know who on the rent list is struggling (late payments, requests for relief) and already have a plan for ending the lease. By the time you see a For Rent sign, it's already been picked up by insiders — and they've passed it on.
location deMoGRAPHiCS are decisive; you need to know where your target customers live or work and how far they are willing to travel for what you sell. Demographic reports also show how much people spend on categories such as Restaurants, beautyAND Pets. If you're launching a pet brand in a new market, you want to know where the highest concentration of your target customers is. Additionally, consider co-tenancies – which neighbors match your offers? Coffee and Healthy food they often do well if they are located near a gym or spa.
MArKet Leases are another factor; the rents claimed in the listings may be real or desired by the owner. You should compare that number to other nearby locations, as factors such as which side of the street the afternoon sun hits can significantly change the rent per square foot. You also need to assess how motivated the landlord is to negotiate. Should they get someone quickly or will they wait for the number they want? zoning is also important. Can the site house the guidance you need to succeed? Are there range restrictions because the site is near a school? Will you need some easements? Finally, competition is a critical consideration. You can find the perfect building in the perfect neighborhood at the perfect price, but that can be hurt if your main competitor is down the road.
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Smart analysis
One of the smartest forms of analysis is supply and demand in a market. A case in point is Times Square NYC, where everyone fails. The area is so dense that restaurants pay five times the rent for that trophy spot, only to see low sales. Why? Because of all the other restaurants in the area. Even weak competitors will still get some customers.
The easy solution is to work with a bar real estate expert. But there are also challenges – how do you find one? You can look for local brokers and contact them, but how many of them do you want to interview? Do you want to meet someone relatively new to the business who will really want to help you, or a veteran broker who has a lot of market knowledge – but maybe a lot of pending deals?
It is important to remember this mediators are paid only when an agreement is made. The industry pays 6% commission for the lease term. For example, an annual rent of $100,000 on a 10-year lease results in $1 million in gross rent payable to the landlord. The landlord pays 6% of that, half to the listing agent and half to the tenant's agent – $30,000 for each party. That's a lot of money, and one reason why most tenant reps don't like to do break-in plans. A truly objective penetration plan tells you where to go. But if there are no vacancies in that area, there is no rent and they are not paid.
And what do you do when it's time to invest in your second, third and 10thth locations? Remember, you are investing your earnings from your first location into more and so on, to build wealth.
The good news is that you don't have to do it yourself. A franchisor has this expertise, and Franchises are paying for site selection and assistance with lease negotiations. The franchisor knows which countries work, has relationships with brokers around the country to help you negotiate, and will help you avoid an oversaturated market. They will not sell you a territory unless there is a need for more units. That's because for franchisors, a lease is an asset. (Actually, franchisors' two main assets are franchise agreements and franchise leases.) They make sure they have the rights to sell a business, including proper assignment and transfer language.
The important thing to remember is that real estate is its business for a reason, requiring specific market knowledge and relationships. Franchisors have that knowledge and relationship and are eager to help.