Building a Franchise: A Clear Process for Approving Locations

Running a successful business of your own does not prove that your concept will work at every address. If you want to turn it into a franchise network, you therefore need a clear, documented process for approving locations. This should screen out unsuitable premises early, support better investment decisions and clarify what head office checks — and what remains the prospective franchisee’s responsibility.

1. Develop a location profile based on your existing business

Start not with available properties, but with the conditions that make your existing business work. Which customers visit, and why? How do they get there? What physical features do you actually need to deliver your product or service?

Distinguish between the requirements of your concept and features that happen to be part of your current premises. Generous ancillary space may be convenient without being essential to the business model. Conversely, an unremarkable delivery access point may be crucial to smooth operations.

Create a location profile with three categories:

• Exclusion criteria: Requirements without which the business cannot operate effectively, such as sufficient space for an essential workflow.
• Assessment criteria: Features whose advantages and disadvantages can be weighed against one another, such as visibility, accessibility or the uses of neighbouring premises.
• Unverified assumptions: Relationships you suspect but cannot yet adequately substantiate, such as the importance of particular nearby businesses or amenities that attract footfall.

For each criterion, record its basis: operational experience, documented observations of customers or an assessment that has not yet been tested. A successful pilot business provides a starting point, but does not automatically demonstrate that other locations will be suitable.

Make requirements measurable wherever your evidence allows. “Easy to reach” is too vague. A more useful question is whether your target customers can actually reach and spot the entrance along their usual routes.

2. Create a standard location file

Use the same basic structure for every proposed address. This makes decisions comparable and reduces their dependence on how persuasively an estate agent or prospective franchisee presents a property.

The location file should contain at least:

• the address, floor plan, photographs and a description of its previous use;
• information about target customers, the surrounding area and direct competitors;
• observations of footfall at relevant times of day;
• rental terms, including service charges and key lease provisions;
• identifiable alterations required and any unresolved technical questions;
• a reasoned assessment against the location profile.

Record the source and date of each piece of information. A landlord’s statement is not the same as your own site inspection. Equally, a busy street tells you little about whether the people passing by are likely customers for your offering.

Also consider how the location supports day-to-day operations. For an appointment-based service, reliable access and suitable rooms may matter more than passing trade. For a business involving frequent, short visits, ease of entry can carry considerable weight. What matters is your specific concept, not a general idea of a “good location”.

Use a scoring table to support decisions, not to make them automatically. A particularly low rent must not earn enough extra points to override a mandatory exclusion criterion.

3. Clarify responsibilities and legal implications

Before the first property search begins, establish who will obtain documents, who will inspect the premises and who will make the decision. The franchisee might, for example, suggest properties and obtain rental offers, while head office assesses their suitability for the concept. Technical or legal specialist questions should be reviewed by appropriately qualified professionals.

Germany has no dedicated franchise law and no specific state registration or approval requirement for franchise networks. The general provisions of the German Civil Code (BGB), the German Commercial Code (HGB), where applicable, and competition law are particularly relevant. Sections 305–310 of the BGB apply to standard-form contract terms. The European Code of Ethics for Franchising is not legislation; it may become binding, in particular, through membership of a relevant association.

Pre-contractual duties of care and disclosure under the BGB also matter when approving locations. Anyone making statements about a location must not conceal known, significant disadvantages or present mere expectations as established facts. Forecasts need a substantiated basis, with their assumptions clearly identified.

Set out in the franchise agreement what checks head office is obliged to carry out and what its approval means. Approval to use the concept does not automatically amount to a promise of particular sales or profits. However, a blanket exclusion of liability is no substitute for a careful assessment or accurate information. Have these provisions reviewed by a qualified legal adviser.

Internal location approval is also no substitute for any required official permits or a review of the lease.

4. Make the decision before entering into binding commitments

Organise the process so that, wherever possible, significant outstanding questions are resolved before signing a lease, commissioning alterations or entering into other commitments that are difficult to reverse. Obtain legal advice on any necessary reservations or conditions rather than relying on being able to withdraw later.

A workable process has three possible outcomes: approval, rejection with reasons, or approval subject to clearly specified conditions. For every decision, document the materials reviewed, remaining uncertainties and people responsible. Conditions must have verifiable evidence of fulfilment; “technical questions still to be clarified” is not enough.

Provide for a fresh assessment if key factors subsequently change, such as floor area, access or rental terms. After opening, compare the original assumptions about the location with actual experience and use what you learn to refine your network’s location profile.

Practical next step: Before your next property search, create three templates: a location profile, a location file and an approval record. This turns a gut-feel decision into a transparent process without promising to eliminate business risk.