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A business owner’s guide to franchises

A business owner's guide to franchises

For many Canadian business owners, a franchise opportunity can be a viable way to build a business empire.  Franchises offer owners the opportunity to step into a business that has a proven business concept and a framework in place.  With branding, policies, and procedures already established, a franchise allows owners more time to work on the business which helps them to build it faster and more efficiently when compared to an untested business idea or new brand.

Becoming a franchise owner doesn’t guarantee success, but it certainly facilitates building a thriving business.  Just as with every opportunity, business owners need to understand exactly how franchising works and be able to objectively evaluate the franchise before purchasing.  Here is what business owners need to know to be successful with a franchise.

There are specific roles and responsibilities

When purchasing a franchise, the franchisee and the franchisor have a specific set of roles and responsibilities.  Adherence to these roles helps both parties to be successful.

Franchisees should expect to

  • Consistently follow established policies and procedures.
  • Actively manage day to day operations and administrative aspects of the business.
  • Engage in local marketing efforts that are on-brand with established guidelines,
  • Participate in training and continuing education opportunities offered by the franchisor.

Franchisors should

  • Ensure that the systems, policies and procedures provided to franchisees are maximized for efficiency and success.
  • Regularly work to continue to grow the brand and increase overall brand reputation and recognition.
  • Regularly assess to ensure consistency and quality standards are being applied universally across all franchise locations.
  • Provide meaningful ongoing support and training opportunities.

Not all franchises are created equally    

A franchise doesn’t guarantee success and there are many examples of franchises that are superior to others.  Purchasing a franchise requires due diligence and careful investigation.  Below are some questions to consider before investing in a franchise.

  • Is the company a member in good standing of the Canadian Franchise Association?
  • How are individual franchise locations performing? What factors are affecting the outliers who are over and under performing?
  • What are the initial and ongoing franchise fees? What additional costs are franchisees expected to pay?
  • What is the company’s plan for ongoing business development?
  • How does the company support franchisees initially and ongoing?
  • How is the company currently performing in comparison to the competition? What percentage of market share does the company have?
  • What are the projected barriers to growth that may impact individual franchisees?

If the franchise head office is unwilling to answer these questions after you have signed a confidentiality agreement, it may be a red flag that additional due diligence is required to learn more about the business and its potential.  If any of the information you receive indicates that the franchise is struggling or that it lacks growth potential, it may not be a good investment.

Fees are paid in perpetuity

In addition to the initial investment and franchise fees, you will be required to pay fees annually for as long as you own the business.  Franchise fees and ongoing royalty payments provide owners with access to the franchisor’s brand and business systems.  The fee structure and amount can vary and is set by each individual franchise.  It is important to know these numbers and factor them into your anticipated business expenditure calculations.  While this is an expense that non-franchise owners do not have, it does come with benefits for franchisees.  Franchise fees and royalties provide owners with

  • The right to use the trade name, operating and business systems.
  • Customized services to help with business development.
  • Access to qualified vendors for equipment, fixtures, and furnishings.
  • Training and ongoing support.
  • Systems, procedures, and software required to run the business.

Many franchises also collect an advertising fee.  The advertising fee is used to further increase brand awareness as well as to create new ad campaigns and marketing initiatives that all franchisees can use locally.

Growing a franchise takes work

Although franchisees are stepping into a pre-existing business that already has a successful model in place, it is still a great deal of work to grow a franchise successfully.  Many business owners wrongfully assume that a franchise will run on autopilot and they are taken aback by the time and effort required to ensure it is successful.  When investing in a franchise, be prepared to be involved in day to day operations and rest assured you will be called upon to use your business acumen on a daily basis.  There is no magic formula for growing a franchise and it requires the same amount of commitment as building a business from the ground up.

You will need a specialized team of advisors

One of the most important assets for any franchisee is a specialized team of advisors.  Working with professionals who have experience with the franchise system is critical.  When reviewing your Franchise Disclosure Document, you will need a lawyer who is a franchise specialist as well as an accountant and business broker who have previous experience working with franchisees.  Because franchise legislation can vary from province to province, you will need advisors that are familiar with applicable legislation in the province where your franchise will be operating.

Franchises can be a great business investment and owners need to be prepared before they enter into a franchise agreement.  Having a better understanding of how to assess a franchise opportunity can help set business owners up for success!  If you are considering investing in a franchise location, contact us to learn more about franchise opportunities available in Western Canada.