So you dream of owning your own business, thousands of Canadians open new businesses each and every year and their motivations will vary from person to person. Perhaps you have always wanted to be your own boss. After a period in time in their career, some employees plan to leverage work experience into their own business. Numerous employees have been outplaced at some stage of their work life and are seeking more control of their future. Entrepreneurs enjoy in the financial rewards and the social status that owning their own business brings. For others, owning a business allows family members the opportunity to work together.
One of the questions that you may be faced with is whether buying a franchise is right for you and what are the pros and cons of owning a franchise. The purpose of this book is to shed some light on franchising and to assist you in making one of the most important decisions of your life.
The reality is that fewer and fewer new independent establishments are opening in the marketplace. Opening a new business is a complicated process. Very few first time entrepreneurs having the experience or skills necessary to open a business and succeed in their venture. Moreover, it is very challenging for an independent business owner to compete against the major chains, which are traditionally dominated by franchises.
It is evident that franchising dominates the small business sector. While there is no concrete statistical information available and while there are exceptions, it is widely known that opening a franchise business has a greater likelihood of success and will generally outperform a non-franchised business.
I believe that the journey of finding the right franchise opportunity for you begins by looking in the mirror. By conducting a self evaluation, you are in a better position to determine what you are really good at and what transferable skills you can apply to your own business.
My advice would be to seek out a franchise business that compliments your skill sets; in an industry that you are excited about being in; and with a brand that matches your personality. Becoming a franchisee is an important decision, so you want to make sure that it is the right “marriage” or “business partnership”.
So now that you have narrowed down your search criteria that match your abilities and interests, your journey begins. There are many different avenues that you can take to find the perfect franchise for you. A good place to start would be to attend a Franchise Show; attend franchise seminars; read industry publications and directories; pick up a business magazine; or search on-line. Perhaps best of all, is an interest in a business based on an outstanding customer
experience with a particular franchise brand.
For Franchise Show Schedules and Free Tickets Visit: http://www.BusinessExchange.ca/franchise-shows/
For Franchise & Business Opportunities Visit: http://www.BusinessExchange.ca
Running your own business can be an intimidating process, requiring a lot of sacrifice; financially, physically, emotionally and physiologically. Because of all of this, one must ask themselves if they have the right ingredients in place to be successful. For instance, do you have the equity available that is necessary to fund the business? Are you prepared for the hard work, long days and physical demands especially in the start up phase? Do you have the entrepreneurial spirit and drive to succeed? Is your family supportive of this decision?
A franchise model is based around systems and operational compliance to ensure consistent execution from franchise to franchise. This is one of the reasons why consumers are comfortable in dealing with franchise brands. With this in mind, are you prepared to follow the franchisors systems and methods of doing business explicitly and not deviate from a proven formula? If you are not prepared to follow the franchise protocol and you want to run the business your own way, I would suggest that a franchise may not be the right fit for you.
Once you have gone through the process of researching franchise categories; narrowed down franchise concepts; completed your application form; reviewed all of the franchise documentation; met with the franchisor; spoken to franchisees; and concluded your research and your due diligence, then you are in a position to make an informed decision on whether to invest in a particular franchise opportunity.
When choosing a franchise business, you must also consider your budget. It has been said that one of the leading causes of a business failure is under capitalization. While there may be many factors to this, franchisees must be mindful of the total investment and what is affordable to them.
In this regard, it is prudent to determine very early in the process:
In order to obtain bank financing, the franchisee will have to demonstrate that they meet all of the financing criteria to both the Franchisor as well as the financial institution.
Once you have established an investment range, bear in mind the following:
Once you narrowed down your search and you have found some franchise concepts of interest, it is important that you investigate before you invest by conducting thorough due diligence.
Upon submission of your franchise application form, at some point in time, you will receive a copy of the franchisor’s Franchise Disclosure Document (FDD). This document contains some valuable information regarding the franchisor and the franchise system and provides a prospective franchisee information necessary to make an informed decision.
When reviewing the Franchise Disclosure Document, there are number of Positive Key Indicators to look out for.
Has the franchise system experienced stable unit growth? Are same store sales positive, flat, or more concerning, negative? Are there multi-unit operators, as this is an indication of happy and successful franchisees? Does the franchisor have strong experience and a talented management team? Is the franchisor financially solid?
At the same time, when reviewing the Franchise Disclosure Document, there are number of Negative Key Indicators to look out for.
Has there been excessive store closures/system shrinkage and what are the reasons? Are there high number of units for sale in the market? Are there lots of litigation and what are the claims? Is the franchisor management team inexperienced as a franchisor? Is the franchisor financially weak?
Becoming a franchisee is like becoming a business partner, so you want to ensure that the franchisor is strong on all levels.
An excellent source of information is speaking to existing franchisees of the concept that you are interested in. My experience is that franchisees are either brand ambassadors or brand assassins. Clearly, you want to make sure that you are getting involved in a franchise organization where the franchisees are positive about the business and their relationship with the franchisor.
Another way to test the waters is to request an “on the job evaluation.” Some franchisors will arrange for you to work a few days or shifts to get a real life perspective of a day in the life of a franchisee.
During your due diligence, you will want to meet with the franchisor as an opportunity for them to get to know you and for you to get to know them better. This is your opportunity to meet with the executive team and other team members to make sure that you have aligned core values and a shared business philosophy.
As part of the process, you should seek professional help from experts who specialize in the franchise industry. This may include business advisors, accountants and a lawyer. I highly recommend a franchise lawyer who understands the intricacies of franchise law to review the Franchise Disclosure Document and related franchise documents. Franchise lawyers are not retained to recommend changes to the documents, but rather provide legal explanations and opinions on its content.
Investing in a franchise is one of the biggest decisions you can make.
Don’t Make A Move Until You’ve Researched The Franchise
Most franchises will require bank financing to fund the business. The Canadian Small Business Financing Program is an ideal financing facility designed for small businesses. Some of the parameters of the loan include:
When making a loan application with a bank, be prepared to supply the following information:
When available, the lender will require additional information such as:
Once you have obtained bank financing approval and you have satisfied yourself from all of your due diligence, you are finally in a position to make an informed decision on whether buying a franchise is right for you.
Jeff Young is an accomplished Franchise Expert and Developer that has helped some of Canada’s top Franchise Brands in the fast service restaurants and retail sectors. Jeff has an extensive experience in franchise development; real estate; franchise documentation; bank financing; and franchise relations.