You’ve put in the hard work to ensure your franchise is right for you—now you’ve decided to buy. The next step, if you’re purchasing a new business, is the buildout. You’ll probably have a lot of questions about this process especially if you’ve never been involved with a construction project before. After all, every franchise system and franchised location are a little different, and some franchisors absorb more of a franchisee’s construction costs than others.
Get the answers you need.
By the time the first spade hits the soil, you should have answers to these five questions about the construction of your franchised business:
Q:1. Can I help build my own store?
A: Some franchisors do insist franchisees build their own locations to the specifications provided by the franchisor. This type of project should be approached with extreme caution. As a new franchisee, you may not be experienced in dealing with contractors, sourcing suppliers of building materials, etc. Building your own store may sound like a way to save money and keep control, but required negotiations, project management and costings are far better dealt with by experienced professionals.
However, what if you have construction experience and/or connections within the industry and want to use them to help reduce the costs of building your location? This can sound like a great idea at the time, and if you as franchisee can really make the process smoother and more economical, the franchisor should be willing to listen. However, you cannot be better connected or experienced in the building of the franchisor’s locations than the franchisor will be.
Most franchisors will ask a franchisee to be involved in construction on a very small level, e.g. paying visits to the site, making deposits to suppliers or paying general contractors. However, most of the work should be left to the experts. Resist the urge to offer advice regarding contractor selection, materials, etc.—again, you may not have all the information. Furthermore, you may make the mistake many franchisees do: searching for the lowest-priced contractor or materials supplier around. This is a fruitless exercise most of the time, since the cheapest contractor is rarely the best and the franchisor’s agreements with current contractors may include substantial discounts anyway.
It goes without saying that you can’t request alterations to the building’s design. Franchisors that allow for variation between locations risk their brand’s integrity and the consistency of the customer’s experience. For example, if you were allowed to replace the franchisor’s standard blue carpeting with green, you would be distinguishing your business from the rest, but you would also be creating inconsistency within the chain. This might imply other elements of the franchised chain are inconsistent, too.
In short, if your franchisor responds to this question with a “No”, it probably has your best interests at heart.
Q:2. Will the choice of contractor be subject to my review?
A:Good franchisors usually have extensive contractor-contacts—some even keep a contractor on staff. These contractors should be well experienced in delivering locations to franchisees on time, on budget and without issue. When a franchisor assigns you a contractor, it should also inform you how many locations the contractor has built for other franchisees. You can supplement this information by consulting current franchisees and asking their opinions on the contractor you’re to rely upon.
Q:3. Do you evaluate your contractors annually?
A:Hopefully, your franchisor’s answer to this question will be “Yes”. Annual evaluations are a good sign that your franchisor is interested in keeping contractors honest and protecting the best interests of franchisees. However, if the period between evaluations of established contractors is greater than two years, you may want to ask more questions. The franchisor may have grown comfortable with a supplier relationship that could be costing you more money than you need to spend.
Q:4. Can you provide an itemized list of construction costs?
A:The total cost of constructing your location should be clear if you have a disclosure document; that is, the document you receive prior to signing your franchise agreement. However, not all provinces require a franchisor to provide you with a disclosure document. Further, few franchisors provide an itemized list in the disclosure document, so you’ll need something more detailed as you get closer to the beginning of the construction process. The figure in the disclosure document is merely a projection, based on past construction projects for similar locations with the same contractor.
Regardless of what numbers you receive from the franchisor, be sure to verify them with trusted, current franchisees. If the numbers do not reflect these franchisees’ actual construction expenditures, it’s time to ask more questions.
Q:5. Will the construction costs be subject to my review?
A:It’s always possible there will be variations in the overall purchase price you were originally quoted. In some cases, the franchisor itself increases your costs. For example, new fixtures, equipment and other design features may become standard during the process of your franchise purchase and the construction of your location. Your location must match the others, so yours must have the same features as the rest do even if it increases the projected cost of your buildout.
Design changes like these are not something you can turn down. However, the franchisor should make it clear that you have the right to question expenses above and beyond what you were quoted. This does not mean the franchisor will reimburse you, but it should explain why expenses went up.
Other types of delay are beyond even the franchisor’s control. Permits may be slow to obtain, workers may go on strike—unfortunately, not all events can be foreseen. Regardless of the situation, you and your franchisor should continue to treat one another with respect and professionalism. After all, you’re both on the same side.
Shawn Saraga
President
Mr. Franchise