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When to Establish Location: Before or After Signing Your Franchise Agreement?

For all those home-based franchisees out there, or those operating their franchise business out of some type of mobile unit, as is the case with Kona Ice or Aussie Pet Mobile for example, establishing a franchise location is not one of the most critical aspects of starting a new business, though different challenges certainly apply to mobile operation.


Despite this, for those working out of a fixed location, deciding where to plant roots and open doors is a process that comes with many important concerns and that each franchise system approaches differently.


At the outset, the simplest procedure for franchisees is this: assess interest in and commitment to the franchise concept, perform all relevant due diligence research, join the franchise team, and work closely with your franchisor to locate a specific site to open the business thereafter.


Of course, this process has its pros and cons for both franchisor and franchisee. Namely, waiting to secure a location until after making agreements can potentially lead to disappointments, either with the selected location after the franchisee has joined the network, or due to stress related to significant delays finding a suitable location, or not finding one at all.


Map with a PinJoining a franchise network without knowing the location in advance could also mean disappointments with unforeseen costs after construction or renovation of a space, as well as less than ideal travel distances for the franchisee that were not previously anticipated.


Alternately, waiting to secure a location until after a franchisee is on board can be less costly for the franchise system as a whole. In some cases, new expansion to distant cities, states or countries requires a great contribution of funds and available, qualified leaders to execute—all of which can be challenging to pull together for younger franchise concepts of even the most promising variety.


So what does the alternative scenario look like? Simply stated, like this: franchisors invest in securing a location, show it to potential franchisees, and eventually a franchisee likes it and is reasonably familiar with it before making an agreement. Thus, in this case, franchisees know what they are agreeing to well in advance because an established location is already part of the deal.


As mentioned previously, this option often requires a greater commitment on the part of the franchisor, including an elevated financial investment, as well as the time and the energy of different leaders working together to secure the best possible real estate option for the next incoming franchisee, whoever that might be.


This option also requires a willingness to take risks, and what is more, a solid belief in the concept’s ability to attract incoming investors ready to operate their own location. Again, this may be more challenging for younger franchises to develop, though not always. Business concepts vary widely and each particular concept, the leaders driving its growth and its history determine to some extent how franchisors carry out expansion plans

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