LOI (LETTER OF INTENT) vs THE LEASE

Photo by Antoni Shkraba

The lease is LEGALLY BINDING (think marriage), and while it is important to make sure that the main terms of the LOI are reflected in the lease, it is equally as important to hire an attorney to protect you from a legal standpoint (think pre-nuptial agreement).

LOI (Letter of Intent) vs. Lease
By David Simmonds – Founder & President, RESOLUT RE

The site selection search is an awful lot like dating. First, you’re looking around, trying to get more of a feel for what’s out there. Then the casual meetups start (think showings). From there comes the sizing-up phase (think LOI aka Letter of Intent)…a phase during which the two parties (landlord and tenant/buyer and seller) start laying out the terms and conditions on which the relationship would be structured. Some are deal breakers, and some can be negotiated. The critical thing to remember is that the LOI process should be NON-LEGALLY binding and needs language within that says as much.

The lease is LEGALLY BINDING (think marriage), and while it is important to make sure that the main terms of the LOI are reflected in the lease, it is equally as important to hire an attorney to protect you from a legal standpoint (think pre-nuptial agreement). And if things go wrong during the relationship, and the issues aren’t getting resolved, both sides will use the lease to justify their side of the story.

Don’t get bogged down with the nitty-gritty during the LOI process. It serves as a basic outline of the economics the owner and prospect agree to, leaving the finer points to your attorney.

And ALWAYS have the LOI signed by both parties. While the agreement is non-binding, the signatures memorialize what was agreed to going into the lease phase. Memories can become inconsistent sometimes.
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About The Author: DAVID SIMMONDS
David Simmonds founded RESOLUT RE in January 2009 and has built a massive, international, 3rd-party brokerage platform. RESOLUTE RE has six offices across Texas (Dallas/Fort Worth, Houston, Austin/San Antonio, McAllen, Midland & El Paso) and serves the great states of Louisiana and New Mexico out of offices in Lafayette, Albuquerque, and Santa Fe.
RESOLUT RE represents 68 tenants nationally/internationally. We can service our clients’ expansion needs anywhere in the United States and up to 130 countries around the globe.
RESOLUTE RE markets over 800 projects and exclusively represents over 250 tenants regionally across Texas, New Mexico, and Louisiana.
David is a member of the International Franchise Association (IFA) and the International Council of Shopping Centers (ICSC) and received a Bachelor of Arts degree in Economics from Columbia College/Columbia University in New York City.

What To Consider When Purchasing A Franchise

Photo by Estée Janssens on Unsplash

Summary: To select the ideal franchise company to join, you should first find a company with a proven track record of success. A good franchisor will have been in business for at least two or three years and be able to demonstrate the growth potential of its products and services. The best way to do this is by looking at how many franchises they currently have in operation and are they profitable. A robust and growing network often indicates a successful brand.

10 Key Points To Consider When Purchasing A Franchise
Originally published in Forbes.

By Gary Occhiogrosso, Managing Partner Franchise Growth Solutions

If your goal is to purchase a franchise, choosing the right franchise brand to invest in is one of the most important decisions you’ll make as a business owner. It’s not just about finding a company with a proven track record but also finding one that fits your personality and lifestyle. Your first step, is knowing what to look for when you’re evaluating potential franchises. Here are some key areas to consider:

Franchise Fees
Franchise fees are one-time payments made when purchasing a franchise. These fees can range from $10,000 to $100,000 and are used to pay for the rights to use the name, the procedures and any systems developed by the franchisor. It is also used to cover costs for training and opening support by the franchisor to assist the franchisee with the opening of their franchise. Franchisors usually charge their franchisees up-front fee when the franchise is granted. In addition, post Covid initial “turnkey” investments may be higher than in the past due to supply chain issues, inflation, and increased cost of equipment and leasehold improvements between brands.

Royalty Fees
Royalty fees are the amount of ongoing money (usually a percentage of gross sales) you pay to the franchisor for using their brand name and ongoing support such as marketing and developing new products or services for the franchisee. As a franchisee, you are required to pay royalties based on a portion of your sales. This percentage may be fixed or fluctuate on a sliding scale based on sales.

Term Length
Franchise term length can be a good indicator of how much the Franchisor invests in their franchisees.
On average, depending on the type of franchise, home based vs a retail location, franchise brands have terms that last ten years or less. This means there’s plenty of time for the franchisee and franchisor to work together and develop a solid relationship. Still, it also means that the franchisee may not be allowed to retain the business if something doesn’t work out. If a franchisee is underperforming, the franchisor may not renew the franchise agreement once it expires, or may seek to terminate the franchise prior to the full term. In such a case, the franchisee must exit the business. In many instances, there will be a contractual obligation that the franchisee cannot open a similar business for a period of time within a certain distance from their original location. This is called a non-compete clause.

Consider Your Lifestyle.
* Consider the lifestyle you will have while running the business.
* Look at the hours of operation. You don’t want to buy an 80 work week.
* Review flexibility of franchisor with respect to new products, relocation and other variables.
* See if the location makes sense for you. You will need to manage the location or develop a team to manage the day-to-day operation for you.
* Check out the type of work needed to run the franchisee. Make sure it fits your skill set and interests, including whether it’s something you’d enjoy doing as a full-time job.
Seeking the advice of a professional franchise consultant can be an extremely useful method when evaluating if a franchise is the right business model for you. Scott Milas, a Certified Franchise Executive (CFC) and Certified Franchise Consultant (CFC) with The International Franchise Professionals Group recommends you consider these questions: “What is your “Know” and “Why?” Understanding “why” you are interested in owning your own business, and “knowing” who you are, are critical steps in choosing the right opportunity. A self evaluation and clear picture of your skill sets and eventual end game- exit strategy, will help ensure that you invest in the right opportunity. Better to “know” now then after you made the wrong decision. “Why” now?
An experienced franchise consultant can assist you in answering those questions and choosing a brand that’s a good lifestyle fit as well as one that offers opportunities to meet your business goals

Look For An Experienced Franchisor
To select the ideal franchise company to join, you should first find a company with a proven track record of success. A good franchisor will have been in business for at least two or three years and be able to demonstrate the growth potential of its products and services. The best way to do this is by looking at how many franchises they currently have in operation and are they profitable. A robust and growing network often indicates a successful brand. In addition, it demonstrates that customers value its products or services enough to pay for them again through multiple businesses.
The second thing you should look for when choosing a franchise is reputation—how well does your chosen brand stand up against its competitors? While there may be other similar businesses out there with similar business models, does you selected band have points of difference to separate itself from the competition. It’s essential that you choose one that utilizes high-quality materials, produces consistent results, and provides excellent customer service while maintaining competitive prices at all times.”

Know Your Competition
One of the steps to building a successful franchise business is to know your competition. What brands already exist in the market, and how do they compare? What is their customer base, and what can you learn from them? How do your offerings differ from theirs, and how do these differences help or hinder you as a company?
Tom Scarda a former franchisee and now a franchise coach and consultant offering advice to franchise buyers regarding evaluating the competition and what it may mean to their success as a franchisee “It’s smart to think about a product or service that is needed in your area and consider bringing that sort of business to the town. However, just because there are no batting cages in your town and you think it would do great because there are kids everywhere, you may be right. However, will it make money? Is there some reason why there is no batting cages in the area? When starting a business, you must, must do a comprehensive business plan before anything else. Learn about competition in the area. Understand the local county laws and regulations around the business you’re considering. Be real about the cost to start and run the operation. These are just a few items to consider in a business plan.”

Once you’ve got a handle on who’s out there, it will be easier for you to see where there are gaps in the market—and then fill those gaps with your unique brand identity.

Carefully Review The Franchise Disclosure Document.
Read the current franchise disclosure document (check the issuance date) and have it reviewed by a competent franchise attorney. Harold Kestenbaum, a noted franchise attorney with Spadea Law advises: “When considering the purchase of a franchise, I highly recommend retaining the services of an experienced franchisee attorney. Never contemplate purchasing a franchise without seeking the advice of an attorney who has reviewed FDD;s before. I also recommend that you do your due diligence. By that I mean that you should review Item 20 of the FDD and call all of the existing franchisees who are in your general area.”

There are additional factors to consider when reviewing the franchisor’s FDD. According to Richard Bayer, a Partner in the law firm Einbinder & Dunn LLP: “Purchasing a franchise for many first-time business owners will often be one of the top three expensive transactions the franchisee will ever go through in his/her lifetime. Given the severity of the investment, a franchisee must commit to doing due diligence. It starts with speaking with existing franchisees as well as those who left the system. Their contact information can be found in the FDD. The goals from these calls include gaining a better understanding of the economics of the franchise – is it profitable, when is break even reached, do costs (labor or otherwise) or revenues fluctuate significantly making it difficult to predict performance. Equally important is getting a sense of the franchisor’s temperament – is the franchisor supportive, does the franchisor go above and beyond legal obligations (imposed in the franchise agreement) to deliver for its franchisees, is the franchisor forward thinking and/or technology driven. The FDD is a great source of information about a system, but it is has gaps that can be filled in quite nicely by franchisees in the system and by those who left. Purchasing a franchise without speaking to as many franchisees as possible is a lost opportunity.”

Investigate The Franchisor’s Tenure And Track Record of Success
In addition to analyzing the franchisors’ financials, it’s also vital to examine their overall track record. While a strong balance sheet is an essential indicator of a business’s health and stability, it doesn’t tell you much about how they’ve fared over time. So, for example, if you’re looking at two franchises with similar books and financials, but one of them has been around for four years while the other has been operating since say, 1899, it would make sense to choose the latter in this case—even if everything else on paper looks the same.
This information can be gleaned from third-party sources such as Dun & Bradstreet or franchise trade magazines or by visiting the website of the International Franchise Association. Always go directly through your Franchisor before getting this data yourself so that they can confirm that everything is correct and up-to-date. In addition, it is vital that you speak with or meet as many existing franchisees as possible before you make your final decision.

What Are The Brand’s Training Programs And Support?
When you buy a franchise, you’re not just buying the rights to use its brand name. You also get access to training programs, mentoring, and support from the Franchisor. These must be proven and effective; otherwise, it can be challenging for your business to grow or stay profitable.
You want to ensure that your franchisor is committed to your success as a franchisee. That means offering in-person training (the better option) and or using phone or video calls if necessary. It also means regular advice on running your business and what strategies might help you reach more customers or increase revenue.

Review The Franchisor’s Marketing Plans.
A good franchisor will have a written marketing plan in place. The marketing plan should include a social media strategy and details about how the franchisor plans to use the funds provided through your advertising fees. If you ask for this document, they should be willing to share it with you.

Choosing The Right Franchise Brand Can Significantly Impact Your Success.
We’ve talked about screening potential franchise brands above. Still, there are some other factors that you should also consider when choosing where to invest your time and resources.
Tom Scarda goes on to say “We always hear the phrase, “If you love what you do you never work a day in your life.” That is true if you’re working a job. But a franchise is not a job. It’s a business that allows you to build a lifestyle. In the end, the service or product the business provides doesn’t matter. Of course, it must make sense for the community where you will operate and the concept must be something that you understand. However, you can be a vegetarian and own a burger joint. As the owner you are acting as the CEO and CFO, you’re not flippin’ burgers…well you shouldn’t be. If you are doing the tasks that the business requires then you bought yourself a job and your business will plateau and not be scalable. Scarda adds “Don’t buy a business because it has to do with your hobby. If you do, you will no longer have a hobby and you will probably resent the hobby if you’re trying to pay your mortgage with it. Instead, invest in a business that will give you the time and money to enjoy your hobby until your heart’s content.

Conclusion
It is important to consider all these factors when looking for a franchise brand. Some of them, like the fees and term length, are more straightforward than others. But, if you want to be successful in your franchise opportunity, it’s worth taking the time to research what makes each Franchisor unique thoroughly. A good franchisor will have invested in training programs and support systems that will help you understand how their business works.

TWO REASONS YOU WILL NOT BE GRANTED A FRANCHISE LICENSE

When I was vetting my smoothie business, my dad said, “who is going to buy frozen drinks in the winter in New York? The funny thing is, consistently, we sold more in the winter than we did in the summer.

TWO REASONS YOU WILL NOT BE GRANTED A FRANCHISE LICENSE

By TOM SCARDA, CFE
🔑Education 🔑 insight 🔑 inspiration – I help people escape the corporate rat race and control their own destiny through business ownership. 516-322-1435

Thinking that talking to a franchise company is like a timeshare presentation.

If you invest in a franchise, you are buying a business, but they are not selling one. Speaking with the franchisor and performing due diligence is like dating. If you hope to be sold something, you’ll be disappointed, or you’ll waste some time, and your right franchise will break up with you because of your awkward or bad behavior.

Top franchise systems view the vetting procedure as a mutual dating exercise. Both parties judge each other before formalizing a long-term relationship. The dating rules are pretty much as they’ve always been:

Care to learn about each other while respecting each other’s boundaries and timelines.
Ask many questions and observe behaviors to learn each other’s values and identify potential opportunities and deal breakers.
At any time, you or the franchisor can decide that another date isn’t the best idea. If one of you says “No”, there are no hard feelings. After all, it takes both to make the relationship great.
As in dating, the courtship could end with a final “No”, or if at the altar one of you says, “I still want to think about it.” If you still have to think about it while one of you is at the altar, then it means something’s wildly amiss.
However, as in dating, the courtship could also result in a wonderful partnership that creates for you a comfortable, prosperous, and peaceful future.
Lastly, one doesn’t marry while planning for divorce.
Consensual validation or third party opinions

Family, friends, lawyers, accountants, financial planners, a friend in the industry, someone you respect because they built a business. Why would a friend and/or someone you know who hasn’t performed any due diligence tell you that the business you’re considering is a good idea? Deep inside, they know there are too many variables to predict whether you’ll be successful or not. For the most part, people will share all the negatives about a business or an industry, and in the back of their minds, they feel that they gave you “safe, solid advice.” Besides, if you change nothing and instead do what you’ve always done, no one loses… right?

When I was vetting my smoothie business, my dad said, “who is going to buy frozen drinks in the winter in New York? The funny thing is, consistently, we sold more in the winter than we did in the summer. That is because in the winter we had less competition in an indoor venue. We had to compete with ice cream, lemonade, beer, and other summer treats during the warm months.

You are doing the research. I suggest forming friendly relationships with the people you talk with at the franchise company. If you buy, they will be the ones helping you be successful. A great franchise company will never try to sell you a franchise. That is against the philosophy of the best franchisors.
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About Tom Scarda:Tom is now a nationally recognized small business and Certified Franchise Expert (CFE), motivator and dynamic speaker. Tom has authored three books: Franchise Savvy, The Road to Franchise Freedom and The Magic of Choosing Uncertainty: How to Manage Change, Embrace Fear and Live a Fulfilled Life.

30 years ago, searching for his inner drive, Tom left college and submerged himself in the motorcycle underworld in lower Manhattan. This made his mother worry. It was the first time Tom chose uncertainty over the status quo.

After four years of life in the outlaw motorcycle subculture in NYC, Tom got a haircut, took a shower and landed a respectable job in the New York Subway system. After more than 13 years in the subway Tom became frustrated with the bureaucracy and politics. So he quit his job and left his pension behind to pursue his dreams of business ownership. This also made his mother worry.

In 2000, he purchased a smoothie franchise, which he built into three units and sold five years later for a considerable profit. He was the #1 franchisee of the year in Maui Wowi Smoothies in 2002. He purchased a second franchise in 2006 called Super Suppers and failed miserably in that franchise concept. The lessons he learned from failure is what makes him such an expert. Tom has owned and operated both franchised and non-franchised businesses and has years of knowledge and wisdom to share with you.