The Largest Financial Exposure

A franchisee’s largest exposure is not the franchise fees that he pays to the franchisor, and it may not even be the investment in the business. A franchisee’s largest financial exposure is frequently to the landlord.

— Michael Seid, Franchise Consultant

This can be a major consideration if a prime location is required for a restaurant, or if "A" retail space is necessary for a store.

The landlord will require a 5 year lease, possibly at $4,000 to $6,000 per month, and will want a personal guarantee on that lease. This can be a $300,000 to $400,000 commitment.

We recently met a pizza restaurant owner (non-franchised) who was paying $4,800 per month for rent, and $1,400 per month for common area maintenance. He was concerned that he was not going to be able to meet his expenses. The lease costs and terms must be carefully evaluated when making franchise sales.

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