Choosing a franchise location and territory

For storefront franchises, the site drives traffic, visibility and rent — three of the biggest numbers in your profit-and-loss statement. For home-based and mobile franchises, the territory defines how many potential customers you can serve and how far you drive to reach them. Either way, you are buying a piece of geography.

Understand the territory you are buying

Item 12 of the FDD explains territory rights. Look for:

• Exclusive vs protected vs none. An exclusive territory means no other franchisee or company unit can operate there; a protected territory may only limit new physical locations.
• How it is defined: ZIP or postal codes, a radius, population counts or number of qualifying households.
• Reserved rights: online sales, delivery apps, catalogue sales, non-traditional sites like airports or campuses, and acquisitions of competing chains.
• Performance conditions: minimum sales or development targets you must hit to keep protection.

Data to check before you commit

• Population and household counts in the territory, and growth over the last five years.
• Income, age and household composition compared with the brand's best-performing units.
• Daytime population (offices, schools, hospitals) for lunch and service businesses.
• Competitors and close substitutes within the trade area.
• Traffic counts, visibility, access and parking for storefront sites.
• Commercial rents and vacancy rates in comparable centres.

Public sources such as national census data and local economic development offices are free. Ask the franchisor which variables predict success in its best units and how it scored your proposed territory.

Negotiating the lease

• Seek a lease term and renewal options that match your franchise term.
• Negotiate tenant-improvement allowances and rent-free periods to cover the build-out.
• Limit personal guarantees in amount or duration where possible.
• Secure an exclusive-use clause preventing the landlord from leasing to direct competitors.
• Make sure the franchisor's required lease rider (often in Item 22) is acceptable to the landlord.
• Have a commercial real estate lawyer review the lease before signing.

Questions to ask the franchisor

• How did you define my territory, and what is its population?
• Which of your existing units are most similar to this market, and how do they perform?
• What rights do you keep inside my territory?
• Have any franchisees had their territories reduced or shared?
• Do you help with site selection and lease negotiation, and who pays for that help?