Building your Franchised Outlet -What You Need to Know.
By Lori Karpman

Although there are a multitude of franchised business offerings on the market, the majority are still traditional brick and mortar storefront outlets. In such cases, the franchisee will be required to construct and equip the premises in accordance with specifications given by the Franchisor. This can be very daunting to someone who has never been involved in a construction project. This however is also the beauty of franchising where the Franchisor provides all the plans and will assist the franchisee in building out their location.

To learn more about how the process really works I sat down with Frank Deluca, President of DCL Construction a full service General Contracting firm based in Toronto, Ontario, whose clients include Baskin Robbins, Marble Slab Creamery, Little Caesars, and Subway, to name a few.

Lori: How is construction difft in franchising than one-off’s?

Frank: In franchising a Franchisor has invested in its own unique visual brand, image, and decor. This “look and feel’ must be translated to fit every location so that there is consistency amongst all outlets. Duplication and consistency are paramount; therefore, franchisees do not have the liberty or right to modify the look, quality or layout of the franchised unit. While the Franchisor may allow for changes to reflect the community in which the franchise is located, they will not allow changes based on the franchisees personal preferences or desires.

Lori: What assistance does the franchisor generally provide?

Frank: Typically the Franchisor provides the Franchisee with stamped architectural and engineering drawings. The Franchisor will often help in the contractor selection process and in the engagement of other professionals. The franchisor has a vested interest in seeing that the unit is built properly and in accordance with the System’s standards and specifications. The Franchisor will also provide franchisees with a list of approved suppliers for equipment, inventory and in some cases, a list of approved general contractors. Some larger franchised brands have their own construction department and professional team who do the build-out for the franchisee. In all cases, the franchisee pays the contractor, trades and professionals directly. These construction and pre-opening costs should all be set out clearly in the Disclosure Document.

Lori: Who pays for the architectural/design plans?

Frank: These costs are in most cases paid by the franchisee either directly to the professionals or indirectly, in the Initial Franchise Fee or Opening Costs. As mentioned above these costs should be clearly outlined in the Disclosure Document.

Lori: What professionals or tradesman do I have to deal with to build my store?

Frank: Typically once you’ve engaged a good General Contractor, you should not have to deal directly with any trades. It is the role of the General Contractor to hire and supervise all tradesmen and oversee the entire construction project. In companies such as DCL, we have all professionals and trades on staff in house so the franchisee does not have to go anywhere else.

Lori: Who chooses the GC and why do I need one?

Frank: When a Franchisee tries to assemble its own trades it can be a disastrous mistake. Franchisees typically do not have the ability to select quality workers and almost always make their decision based on price. In construction the adage ‘you get what you pay for’ is most definitely true. Franchisees do not have knowledge of the construction process, especially when it comes to building codes and municipal bylaws. They also have no experience dealing with landlords and their requirements and specifications. You really need a knowledgeable professional GC who understands all the parts and how they fit together.

Lori: How and when do I have to pay for the construction?

Frank: Generally, you pay a signing deposit to the General Contractor after you sign the contract with them. After that there are ‘progress payments’, which is payment for work that has been completed. You will be provided with a construction schedule and dates for these payments. There is always a ‘hold-back’ amount that is withheld from the final payment to ensure that any deficiencies in the work are completed. If the GC requests payment before reaching the scheduled payment dates there could be a big issue with either the budget or with the trades the GC has hired. The GC in this case is undercapitalized and may leave you’re project high and dry.

Lori: What does ‘turn-key’ mean?

Frank: The term comes from the words “turn” and “key” which means you turn your key in the lock and are ready for business. This means that your GC’s build out is from start to finish – from drywall to plumbing, electrical and finishing touches, to a final clean up of the store before delivery to you.

Lori: What if there are problems after my store is built?

Frank: At DCL we provide a one year service warranty on our work. Most contracts will specify what kind of guarantee there is on the work and for what period of time. The contract should address this issue and the quality of the workmanship to be delivered, responsibility for material failures, mechanical or otherwise, and any other related concern.

Lori: Do I need special permits or licenses to build?

Frank: You cannot begin the build out until you have obtained a building permit for all facets of the construction from building, plumbing, electrical, heating and air conditioning and general decor – each one of these will require inspections at various stages of construction including at the end of the project. There are inspections from the health department the fire department and various other city agencies.

Lori: Is there anything I should be weary of or should know??

Frank: Be careful to stay away from the brother-in-law who knows plumbing or the weekend warrior or the trades that will do your store on evenings or weekends for less. There are construction timelines
for a reason, and not being open on time can be very costly. Our belief is that if you tender to say three GC, s and one is more than 10% less than the other two… discount them right away. All good GC’s pay the same for materials and skilled dedicated labour so this is something to consider when evaluating different bids.

One very important thing to note is that when the General Contractor quotes on a project they do it on the basis of what they can ‘see’. That is, very often there are irregularities that could not be known at the time of quotation that can drive up the costs of construction substantially. For example, if a wall is taken down only to find that the supporting wall behind it is in disrepair; this cost would not be included in the original quote and will form what is called a ‘change order” to the contract. In this change order the new work to be done is set out as are the costs therefore. There are a variety of unforeseen circumstances that can change the price during the construction phase.

Lori:

What can be garnered from all of the above is that the selection of a good contractor with reliable trades is of great importance. Franchisees do not know about the intricacies of construction and must rely on those engaged for the process to be knowledgeable, dependable and honest. Be sure to get references on the contractor you select and inquire about their timeliness, the quality of the work, what kind of post sale service was rendered, and overall, how was the relationship with the GC. Errors in construction can be very costly and it is of the utmost importance to ensure it is done right the first time!

I have seen many variations of this model over the past few years and have begun to use it myself. I’m a great fan of a model that solves franchising’s most tedious issues. As franchisors continue to find novel ways to structure their systems the franchise industry will grow and open up to a completely new field of opportunities. I can’t wait to see what comes next.