Set Criteria for Franchise Locations in Malaysia

A location that works well for the original business will not necessarily suit every franchise outlet. When franchising a business in Malaysia, owners need to turn their experience of choosing premises into criteria that others can apply. A clear location approval process helps franchisors and franchisees make evidence-based decisions, rather than responding to pressure from estate agents or assuming that a busy area will inevitably generate sales.

1. Identify the location characteristics that support your business model

Start with your existing premises. List the features that genuinely help customers buy: proximity to residential areas, office workers’ lunch breaks, convenient order collection or a clearly visible entrance. Distinguish these factors from advantages unique to the founder, such as longstanding customers willing to travel a considerable distance.

Do not simply record that the premises are in a commercial area. Explain how that area generates demand. A lunch outlet, for example, may depend on customers within walking distance, while an appointment-based service may have a greater need for convenient parking.

Organise the criteria into three groups:

• Essential requirements: conditions without which the business cannot operate, such as suitable electricity supply, workspace or delivery access.
• Assessment factors: features that can be compared, including visibility, suitability for target customers and ease of access.
• Grounds for rejection: problems that low rent should not be allowed to offset, such as a layout that prevents safe working practices.

Also specify the evidence required for each criterion. Floor measurements, photographs of access points and observations of customer behaviour are more useful than general notes such as “strategic location”.

2. Require an assessment file before making a decision

Prepare a standard location proposal form for all prospective franchisees. The aim is not to add administrative work, but to ensure that every proposal is assessed using comparable information.

The file could include a floor plan, photographs of the frontage, competitors’ locations, the types of businesses nearby, transport access and an estimate of the refurbishment work required. Record information sources and observation dates too, so the team can distinguish verified facts from the premises owner’s claims.

Carry out observations at times relevant to the business model. A weekend afternoon visit is not enough to assess a shop targeting office workers at breakfast. Record not just how many people pass by, but whether they match the target customer profile and can easily enter the premises.

Check licensing and premises-use requirements with the local authority and other relevant bodies. Location approval from the franchisor does not replace a business licence, permission for alterations or any other applicable approvals. Requirements depend on the specific activity and location.

If something has not yet been verified, mark it as an outstanding condition. Do not treat an assumption as a pass simply to speed up the opening.

3. Define approval authority and each party’s responsibilities

PERNAS guidance explains that franchisees find their own premises, while franchisors help them select suitable locations and premises. For your system, translate that division of responsibilities into a written procedure: who proposes the location, who visits it and who makes the final decision.

As a management practice, avoid leaving the decision solely to the franchise recruitment team. Involve operations staff who understand space, equipment and customer flow requirements. Someone seeking to close a franchise sale may have different priorities from someone who will need to support the outlet after it opens.

Malaysia regulates franchising through the Franchise Act 1998. Section 18 requires franchise agreements to be in writing. Ask a lawyer to set out the location approval process and each party’s responsibilities clearly in the agreement; do not rely on verbal promises that head office will “take care of everything”.

Section 6 also requires franchisors to register their franchise before offering it for sale. The search for premises should not be used as a way to offer a franchise before meeting that obligation.

Distinguish approval of operational suitability from a performance guarantee. The approval letter should state the basis for the decision and any matters still to be resolved, rather than promising sales or profits.

4. Record decisions and keep exceptions under control

Use clear decision categories: approved, conditionally approved or rejected. Each decision should include reasons, supporting evidence, the name of the person granting approval and follow-up actions. For conditional approval, specify what must be verified before the next step can be taken.

If an applicant requests an exception, such as accepting smaller premises than usual, require an assessment of the operational impact. Is there enough storage space? Will customers and deliveries share a narrow access route? Who will confirm that the proposed solution is practical?

Once the outlet has opened, compare the initial observations with actual conditions. Use that experience to improve the location criteria, rather than blaming the franchisee when shared assumptions prove wrong. Keep a record of the reasons for changes so that new team members understand the thinking behind them.

Practical action: Before assessing your first franchisee’s premises, prepare a proposal form, a list of essential requirements and a written decision template. Make sure everyone understands that a location is approved only after the key evidence has been reviewed.