Franchisee Mistakes
Entrepreneur Mag has an article on the top franchisee mistakes.
- Lease terms.
- Construction and fixture costs.
- Business equipment
- Inventory and supplies.
- Marketing costs.
- Labor costs.
I vote for construction costs and labor costs as the biggest mistakes - that’s is where most of the surprises and mishaps occur.
Similar Posts:
I vote for the marketing budget mistake - but in my view the mistake is believing that the franchisor has a well worked out opening day without demanding evidence.
[[ Quote ]]
I vote for the Lease Terms mistake - the contingent liability of the lease can far outweigh the initial investment. If the location is marginal, the lease terms may prove to be the most costly mistake.
[[ Quote ]]
Followup to Jim Coen’s comment:
I agree, and the article does not even discuss the Personal Guaranty and how to limit liability (good-guy clauses etc). I have seen cases where the Guaranty remained personally liable even for extensions and renewals; in theory you could be liable forever, even after you sell the business.
Also, insist on a mutual Estoppel Letter clause. When you sell your business, the buyer will want written assurance that they don’t end up with a bill for “back rent” which the landlord just “discovered.” (I’ve seen it happen)
An oddity which sometimes appears in my area is the Landlord asserting a UCC interest as additional security for performance under the lease. These are bad, bad clauses–for several reasons. However if you can’t get the clause removed, at least insist that a provision be inserted into the lease subordinating it to any purchase-money and business revolving credit loans of yourself or a subsequent purchaser. Otherwise, the Landlord may refuse to subordinate when you try and sell– usually this is just a tactic to get greased, but it can be expensive.
Best thing is to use a good real estate broker familiar with retail leasing in your area, and an attorney who knows something about retail and small businesses.
[[ Quote ]]
Upon reflection, I agree with Jim and Paul. A poor lease can cripple a franchisee’s early exit plans.
[[ Quote ]]
I vote Lease and Labor.
[[ Quote ]]