Treat Franchisees Like Mom-and-Pops

One of the biggest mistakes landlords make is assuming a franchise tenant is automatically a strong tenant. If it’s a franchisee opening their first location, they’re essentially a startup—and you should treat them exactly like a mom-and-pop.

That means doing full due diligence before agreeing to any deal.

First, I require a credit check on both spouses (check your state laws, but in many states a guarantee may not hold if both spouses aren’t included). I also request a personal financial statement, bank statements, and a breakdown of startup costs. If someone tells me they have $30,000 in cash but their bank statement shows $6,000, that’s a red flag—and I’m going to ask questions.

Next, I look at cash versus debt. If a tenant has minimal savings and significant credit card debt, that’s a warning sign. Starting a business is expensive, and I want to know they have the financial runway to survive the early months.

If it’s a startup, I also ask for a simple one-page business plan showing projected revenue and expenses—rent, utilities, payroll, insurance, marketing. I want to see that they’ve thought through the economics of their business.

And if they’re asking for tenant improvement money, I become even more cautious. Franchise brands may have hundreds of locations, but remember—the franchisor isn’t signing your lease.

Rockstar Tip: Never approve a deal before reviewing the tenant’s financial package. If a prospect wants better rent or TI, they need to earn it with transparency and strong financials.

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