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Every day in America, people open good businesses in the wrong locations. It’s astounding, but it happens time and again. To think how much money they spent organizing the business, buying inventory, hiring staff, only to open in the wrong location. How can that be? Well, in a country where most independent, non-franchised businesses fail, it’s bound to happen. But it doesn’t have to happen to you, especially if you buy a franchise.
One keyword to remember: System
System is a keyword to remember in franchising. System is why franchising succeeds. Every successful franchisor develops a system for operating their business successfully. They don’t necessarily start out that way – in fact, before they become franchisors, some entrepreneurs open their businesses in the wrong locations. And that’s how they learn and it’s part of the process for building their system. Unfortunately, it costs huge amounts of money to open and close a business in a wrong location, but every location-dependent franchisor has some war stories to tell.
With some experience opening units in different locations, franchisors learn over time how to identify a winning location, and how to avoid one that’s going to result in a failure, or sluggish sales. The type of neighborhood, the size of the unit, foot traffic, vehicle traffic, access and egress, the location of the nearest intersection, etc., all play into the location formula. Miss a step and you could miss tens of thousands of dollars in annual sales, or you could put yourself out of business even before opening.
Forget about your gut-feelings
Fortunately for franchisees, location isn’t a gut-feeling scenario. “I like this side of the street better than that side of the street,” isn’t a consideration. Serious franchisors rely on sophisticated mapping programs to show them, and franchisees, precisely where to open a unit. These programs are not inexpensive, but the cost of using them is generally included in the franchise fee. In other words, there’s no additional cost to franchisees for using these programs.The mapping program takes many factors into consideration including the product or service being sold, local competition, the monthly rent, disposable income of the immediate market, environmental factors, etc., and projects the number of customers, or the amount of annual sales, based on key assumptions. Gut-feeling is suddenly replaced with hard data: “On this side of the street you will attract 1,000 more customers quarterly than you will on that side of the street!” Now which side of the street do you prefer?
Best way to avoid location failure
Franchisors never want to be on the hook for selecting a franchisee’s location, so the location decision is usually up to the franchisee, but with the franchisor’s approval. If a franchisor knows that a location doesn’t make sense, the franchisor will not grant approval. Franchisors don’t want failures any more than do franchisees.Realtors® are often part of the system. When franchisors decide to expand in a market, they inform the local realty community about the types of locations their franchisees will need. When it’s time to select your location, chances are good that numerous Realtors® will be waiting to show you locations that meet the criteria of your franchisor’s system.
Remember that when you buy a franchise, you buy a system, and that’s why you’re likely to open your new business in a good location!