A franchise is, by its very nature, an established business model that can be replicated.

Franchises are governed by rules, systems, and processes for how the business should be operated; which also applies to entering a franchisor’s business and being granted the required rights to operate a business under their umbrella.

The number of people who want to enter a franchise program and share in the system’s success is shocking, but many of them struggle to do so in the threshold since they can not obey the system for the exact execution.

Location is everything when entering a franchise, that is why in this article, we are going to dig into more details about how do franchises select locations of businesses in California and provide a franchise location criteria selection sample.

How do franchises select locations of businesses in California?

Franchisors tend to work with companies to assist them in the pre-selection and pre-determination process of locations suitable for different markets.

They aim to get allocated locations so that when franchisees demonstrate an interest in the company, they have places at hand to display to them.

Most people believe that franchisors are going to invest capital, secure a location, start building everything out, and at the same time try to find a franchisee.

This is a very capital-intensive way to expand a franchise network and carries a big risk to the franchisor. In reality, the goal is to expand a franchise with investment provided by the franchisee.

This means that franchisors are keeping sites on spec with landlords who are looking to rent them over a specific period of time.

This way, if a franchisee is unable to act quickly, the site may be lost to a competitive customer that is ready to act faster.

At the same time, without a location and a contract, the franchisee can not be accepted for funding, and fail to develop a business plan and possible return on investment.

Add to this concept, the new legislation that requires franchisors to include more detail- including location information – before signing a franchise agreement.

Still, locations are planned with a specific intent and use in mind.

Landlords are conscious and prefer to choose tenants when the space is appropriate for both a pizza restaurant and a nail salon.

They realize that the disclosure law is complicated, but they are not willing to tie up the property without some sort of security.

The security can be in the form of a deposit or a signed conditional offer.

This gives the franchisor and franchisee ample flexibility to work through their site evaluation issues without unnecessary financial risk.

Why is location important to the success of a franchise?

Location is vital to your success because it defines the traffic volume of your business and the efficiency of that traffic.

Understanding who your customer is and making sure you are in the right place for those customers makes you more available, and those customers will be more likely to visit you.

The core demographic density around your location will help you assess the probability of attracting that client base.

For instance, you will benefit from good visibility if you are located at the corner of two main streets with a storefront facing both sides of the intersection.

In this case, if 30,000 cars drive by your location daily and 20 percent of the surrounding area is your target customer, then you have regular access to 6,000 potential customers every day.

Now if you have nine rivals within a 1 km diameter of your location, then you are sharing those 6,000 potential clients with nine competitors, and you are going to be the 10th in line.

This could mean you would have regular access to 600 potential clients every day and have to compete with your rivals for the remaining 5,400.

This is a very simple example, and the ones provided by professional demographers and real estate experts are much more substantial, and take market capture rates for different brands, loyalty, and many other factors into consideration to determine the likelihood of success.

When it comes to choosing your location, having such information is crucial.

Franchise Law

Until now, we talked a lot about How Do Franchises Select Locations Of Businesses In California.

Plus we mentioned the franchise law and how it affects both the franchise and the landlords many times. But what is this law all about?

The FTC’s Franchise Law, put into force on October 21, 1979, is an essential safeguard for individuals intending to buy a franchise.

The law requires covered franchisors to include a complete disclosure of the details a prospective franchisee needs to make a reasonable decision on whether or not to invest in the franchise.

This disclosure must take place at the very first personal communication where the topic of buying a franchise is addressed, and at least 10 business days before the franchisee signs any contract or accepts any money.

This is a period of “cooling-off” time designed to discourage franchisees from jumping in without properly examining what they are doing.

This means that a franchisor, franchise broker or anyone else representing franchises for sale must request a disclosure document- the Franchise Disclosure Document (FDD) -which includes detailed information about the franchise.

You must also be issued completed contracts covering all material points at least five days before the actual date of execution of the documents.

Again, this offers another period of cooling-off time and the ability to have an attorney check the contracts before execution.

To learn more about the franchise law, visit the FTC’s Franchise and Business website.

California State Franchise Law

The FTC does not allow business opportunity sellers or franchisors to register with it or any other government entity.

However, many of the states do have registration rules which require the registration of franchise sellers.

Many of these state laws are stricter than others but most of them have followed the FDD criteria for their standards for disclosure.

Under the law of California, a business relation is called a “franchise” only if:

• The business shall be primarily identified with the brand and trademark of the franchisor;
• The franchisee shall pay the franchisor a fee directly or indirectly for the right to participate in the company and use the trademark of the franchisor; and,
• The franchisee shall operate the business according to a marketing plan or system prescribed by the franchisor in a substantial part.

The Department of Corporations (DOC) governs all the franchises in California, and vastly interprets the three components of a franchise.

To begin with, if a business entity uses the ‘trademark’ of another company to distinguish its business, or in its ads, there would be room to claim that the business of the franchisee is ‘substantially associated’ with the trademark of the franchisor.

If the other factors are present, it will not be easy to decide if a franchised corporation is ‘substantially affiliated’ with the trademark of another company, and in this case splitting hairs does not work.

It is better to leave this analysis to an accomplished franchise attorney.

Almost any payment you perform can be interpreted as fulfilling the ‘fee’ element, regardless of whether the parties call it a ‘fee’ or anything else in their agreements.

You do not want to be in court or before the DOC, arguing that a payment you made is not a fee — it is a losing argument.

The third element, which requires the franchisee to execute the business under a marketing strategy or system approved in substantial part by the franchisor, is known as the ‘control’ element.

This element is also vastly interpreted. The following are just a few examples of what the ‘control’ element is satisfied by:

• Providing guidance and training on the sale of the trademarked goods or services;
• Exercising essential control over the business execution of the franchisee;
• Granting exclusive rights to market and sell one’s goods or services in particular territories; or,
• Requesting from the franchisors to buy or sell particular amounts of products or services.

For more information about franchising in California, you can read the pamphlet of Guidelines For Franchise Registration issued by the Department of Business Oversight, State Of California.

Franchise Location Criteria Selection Sample

Now that we have read almost everything there is to know about how do franchises select locations of businesses in California, we can review a franchise location criteria selection sample to know what specifications to keep in mind when selecting a franchise.

• Accessibility: Is the location easy to get to and find? Is convenient parking available?
• Traffic: Is there a steady flow of local pedestrians? Are the streets set for easy access to the site by vehicle? Is Public Transportation Convenient?
• Visibility: Is it easy to see the location, and from how far away?
• Community: Is this an up-and – coming neighborhood, or a regressive one?
• Local Competition: How many other similar neighborhood businesses are there?
• Size and layout: Does the location fulfill the operating requirements of your business? It is where location approval from the franchisor will be of great benefit.
• Condition and Construction: How much remodeling or building is required, and what will the costs be?

The demographics are another important criteria for choosing the right location – not only do you need a concentration of customers, but also a pool of prospective employees.

4 Important Rules To Keep In Mind When Selecting A Franchise Location

With everything that was discussed here in your wheelhouse, you are almost ready to start the process of franchise location selection.

But before doing so, let’s quickly review 4 important rules to keep in mind when selecting a franchise location:

1. Consider what is the nature of your company

For example, a franchise that relies heavily on impulse purchases should be located in an area that is visible from as many places as possible, especially major highways.

On the other hand, a daycare must strike a balance between accessibility and neighbourhood security.

2. Think about locations close to businesses that draw the same customers

If you are running a daycare center, you probably would want it across from a library, hospital, sports arena, field, playground, etc.

You do not want it close to a company that will fill up all the parking spaces.

3. Study local rules and regulations

Be sure to do more research on the standards for municipal licenses and other rules and regulations. Commercially friendly municipalities are usually good for your business!

4. Put yourself in the place of the customer

Think about what kind of experience your client or customer will have when they arrive and enter your establishment.

What are the characteristics of a location that will give your client ‘the most important customer’ experience?