Franchising: how to approve premises for new franchisees

When you turn an existing business into a franchise network, your original premises can become a misleading benchmark: what works on one street will not automatically work elsewhere. You therefore need a procedure for approving prospective franchisees’ premises, distinguishing between commercial appeal, financial viability and technical suitability. The aim is not to find identical premises, but to identify those that can accommodate your business model without compromising it.

1. Turn your current premises into search criteria

Start with the features of your own premises, but ask which are genuinely necessary. A large shop window might be crucial for impulse purchases but relatively unimportant for an appointment-based service. Similarly, a generous floor area may include unused space that there is little sense in requiring franchisees to pay for.

Prepare a premises requirements checklist, separating three categories:

• Essential: conditions without which the business cannot operate, such as accessibility, an adequate electricity supply or the ability to install the necessary building services and equipment.
• Desirable: features that support sales or simplify operations, such as visibility, parking or proximity to complementary businesses.
• Adaptable: features that can be modified through works achievable within the available time and budget.

For each requirement, specify how it should be checked. “Good footfall” is not a usable criterion: define who needs to pass the premises, at what times and how closely they match your typical customer. Do not confuse the number of passers-by with actual demand.

Also define the conditions that would immediately rule a property out. This will avoid site visits and negotiations over premises that would require fundamental changes to your business model.

2. Assess occupancy costs, not just the rent

Premises that appear affordable can become expensive once alterations, service charges, maintenance and utility costs are factored in. The franchisor should therefore use a standard financial assessment template to compare properties, leaving the final business judgement to the franchisee and their own advisers.

Record at least:

• rent, scheduled increases and additional charges;
• the security deposit, required guarantees and funds tied up;
• building works, services and equipment, furniture and professional fees;
• the estimated time until the premises are actually ready for use;
• rent and other outgoings during the period before revenue starts coming in.

Distinguish between costs, investment and cash requirements: a recoverable deposit is not the same as an expense, but it still ties up funds at the outset.

Compare these figures with revenue assumptions supported by local market conditions. Do not simply apply the original location’s turnover to a new town or city. Consider competition, purchasing habits, permitted opening hours and the operating capacity of the premises.

Prepare a cautious scenario too: a delayed opening, more complex building works or initial sales below expectations. There is no need to set a universal rent-to-turnover ratio; what matters is understanding whether those premises remain financially viable under realistic operating conditions.

3. Separate commercial approval from regulatory checks

In Italy, franchising is governed by Law No. 129 of 6 May 2004, on commercial franchising. The franchise agreement must be in writing to be legally valid. At least thirty days before signing, the franchisor must provide the complete agreement and the supporting documents required by law, subject to the specific confidentiality provisions set out in that law.

This legislation does not replace the rules applicable to the individual property and the business conducted there. Approval by the franchisor is therefore neither regulatory authorisation nor technical certification.

Before entering into binding commitments, have suitably qualified professionals check the permitted use, planning and building compliance, building services, accessibility and any applicable health, hygiene or fire safety requirements. Requirements vary according to the activity, size and location. The relevant administrative contact is the local municipality’s SUAP (one-stop office for business activities), where you should check the procedures, any SCIA (certified notification of commencement of activity) or authorisations required.

Do not assume that a small shop is automatically suitable for use, or that checks are unnecessary because a business previously operated there.

You should also coordinate the franchise agreement, lease and works schedule. With legal advice, consider whether to make commitments conditional on clearly identified checks or authorisations. Informal reassurance from the landlord offers no protection against taking on unusable premises.

4. Document the decision and manage exceptions

Organise approval into clear stages: review of the property details, a site visit, financial assessment, technical checks and a written decision. Assign responsibility for each stage and specify which documents are needed before proceeding.

The final approval record should set out:

• the property and documentation reviewed;
• the requirements met and any issues identified;
• the works required, responsibilities and deadlines;
• any conditions still to be verified;
• the limits of the franchisor’s approval.

If you accept an exception, explain why: it should not automatically become a precedent for everyone. Less visible premises, for example, might suit an appointment-based business but not a model that relies on walk-in customers.

After opening, compare your assumptions with actual results and update the search criteria. This shared record of experience helps the franchise network make better choices, without turning approval into a promise of profitability.

In practice: before searching for the next premises, prepare a requirements checklist, a financial assessment and an approval record template. No property commitment should be made before the essential checks are complete.