Franchise FYI Blog

Defining Franchising: What is the franchise business model?

By David Gray and Lauren Kenley

First and foremost, the franchising model of business investment and ownership is a way to transfer knowledge, experience and brand recognition from one successful enterprise to another, along with the distribution and sale of goods and/or services.

A franchisor grants a licence to a franchisee, giving the latter the right to use the former’s trademarks and business operating system for a fixed period. For this right, the franchisee pays an initial fee and ongoing royalties. In other words, the owner of a business concept leases the right to use that concept, including the name of the business, its products/services and its operating methods.

There are essentially three forms of franchise arrangements:

1. Business format franchises
With this type of franchising, often seen in fast food outlets and hotels, the licence granted to the franchisee takes the form of a turnkey operation, covering almost every aspect of the business, from systems to furnishings to layout. As such, the impact of the franchisor is felt throughout the ‘boilerplate’ enterprise, with each franchise having almost every element in common.

2. Product distribution franchises
This type of franchising is prevalent in the automotive business and soft-drink bottling, among other industries. The franchisor’s control is limited to determining the product mix, which allows the franchisee much greater operational latitude and the opportunity to truly personalize the business.

3. Business opportunities
These are typically lower-investment deals, where the buyer gets minimal—if any—support from the business concept’s owner. The buyer operates under his/her own business name and system. Indeed, it is at best ambiguous whether or not ‘biz opps’ should be considered franchises at all.

Read the full article: Defining Franchising

Freeing Your Toes with Flip Flop Shops

By Peter Saunders

Doug Kingston, Canadian master franchisee for Flip Flop Shops. Photo courtesy Flip Flop Shops.

In today’s specialized retail world, perhaps it was only a matter of time before a franchise system emerged that was entirely dedicated to flip flops, the plastic and rubber sandals that have become wildly popular around the world.

“When I first read about Flip Flop Shops in the business section of the newspaper three years ago, my first thought was, ‘Why didn’t I think of that?’” says Doug Kingston.

At the time, Kingston was managing the Vancouver territory for Lids, a hat retail chain.

“The concept was similar: take one portion of the bigger clothing industry and do it really well,” he says. “By the end of 2010, I decided to leave Lids, as I wanted to own my own business. I spoke to Brian Curin, the president of Flip Flop Shops, who lives in Vancouver. Soon after, I purchased the master franchise for Canada.”

Kingston expanded the business quickly throughout 2011, opening shops in Vancouver, Kelowna, Nanaimo and Coquitlam, B.C., as well as Edmonton. He runs Coquitlam as a corporate-owned training store and next has his sights on Calgary, Saskatchewan and Toronto.

Read the full article: Unusual Franchises: Flip Flop Shops

Ask the Experts: When should I not work with a franchise consultant?

By Jeff Young

If you have already decided on a particular franchise category and are not interested in following the matching process, it is probably best not to engage a franchise consultant’s service. Also, if you meet a franchise consultant, but cannot forge enough of a connection to want to develop a professional relationship with him/her, you should either find another consultant or go it alone.
Be wary of pressure tactics. A franchise consultant is your advisor and coach, not your boss. You should never feel unduly influenced by him/her.

Avoid negative personalities. A good franchise consultant never speaks poorly of franchises outside his/her network, for example.

Read the full article: Ask the Experts: How to Use Franchise Consultants

Ask the Experts: When does it make sense to become a system’s first franchisee?

By Steve Iskierski

When a new franchisor, having achieved success in running one or several corporate-owned units, wants to expand the company via franchising, it can be an attractive time for you to work with the business concept. There may be greater opportunity in terms of flexibility with franchise fees, premium site selection and assistance from the franchisor, for example, compared to more well-established franchise systems.

This scenario can also carry a high degree of risk, however. While the new franchisor has the relevant experience—i.e. running the corporate stores—upon which to build a franchise business, it remains incumbent on you to do independent research and identify the level of expertise and support the franchisor is capable of providing, both at the outset and on an ongoing basis.

Read the full article: Ask the Experts: Becoming the First Franchisee

Fitness, Family and Franchising: Anytime Fitness’s Brian Bazely

By Brian Bazely

Photo courtesy Brian and Lisa Bazely

There comes a point in a person’s life where he or she has to decide what’s truly important to them. When my wife Lisa and I came to that point, we realized that my corporate career, while very successful, would not give us the lifestyle and freedom we truly wanted for ourselves and our family.

Thankfully, we found exactly what we were looking for with Anytime Fitness, a 24-hour gym franchise that not only provides us with a rewarding career, but also gives us the time to enjoy our success with the people we love.

Read the full article: Fitness, Family and Franchising

Insuring Your Franchise: Business interruption insurance

By Lucy Sousa

If, during the course of doing business, you need to make an insurance claim, property insurance will cover your physical assets, but not protect potential loss of income. If you suffer a substantial loss and cannot open your business for months, you could lose customers and employees and your business may not survive.

This is why business interruption insurance is one of the most important types of coverage for your franchise. It will cover not only your lost profits and fixed expenses, but also your increased expenses after an insured loss.

There are many different forms of business interruption insurance. ‘Extra expense’ coverage will reimburse your business for a reasonable sum of money you must spend, over and above your normal operating costs, to avoid having to shut down during the period of restoration after loss. This sum will usually be paid if it can help reduce business interruption costs.

A ‘gross profits’ form is the most popular type of business interruption insurance. Gross profits are defined as net profits before tax, plus all of the expenses that would continue in the event of an insured loss. A profits worksheet is completed to determine the coverage required. This coverage begins the day your loss occurs and continues until the date your gross profit reaches the limit it would have been at had the loss never occurred, subject to the indemnity period you have purchased.

For example, if a franchise carries a 12-month period of indemnity, experiences a loss and is back in business six months later, but has not yet reached previously experienced profit levels, the policy will continue to pay for another six months.

Some insurance policies cover business interruption on an ‘actual loss sustained’ basis. A profits worksheet is not required with some insurers. The advantage of this form of insurance is co-insurance is not an issue.

It is normal for business interruption insurance to carry a 12-month indemnity period, such that coverage begins on the date of the loss and can continue until it even exceeds the expiry date of the policy. Depending on the nature of your franchise, however, 12 months may not be adequate. You may need to look at an 18- or 24-month period of indemnity instead.

If your franchise relies heavily on another business to supply goods, services or customers—or if you rely on one particular customer for a sizable portion of your sales—you may need contingent business interruption exposure insurance. This coverage applies if your supplier or customer suffers an insured loss at its premises that in turn has a negative impact on your income.

Also, when you own and operate a franchise in a shopping mall, plaza or other retail environment where there is a major anchor store, you could experience a contingent business interruption loss it that anchor store suffers a large, insured loss that reduces the flow of customers to your location and, ultimately, results in a loss of revenue to your business. So, it is important to discuss this type of coverage with your broker in relation to your franchise’s location.

Read the full article: Toughest Part of Your Job: Insuring Your Franchise

Understanding Alternative Dispute Resolution

By Peter Snell

In franchising, it is not uncommon to hear such terms as ‘alternative dispute resolution,’ ‘mediation,’ ‘arbitration’ and ‘informal dispute resolution’ bandied about, but what do these terms mean? Should you care what form of dispute resolution is in the franchise agreement? Should you prefer one over another? Is one process less expensive than another? These issues require careful thought when examining a franchise agreement.

‘Alternative dispute resolution’ is a common phrase to describe options for parties in dispute to solve their legal problems without going to court. Thus, the ‘alternative’ route entails methods that avoid commencing a lawsuit or seeking injunctive relief through a court.

Mediation is one such form of alternative dispute resolution. It is informal, voluntary and non-binding. The two parties appoint an independent mediator to work with them to see if a resolution to their dispute can be found.

If the parties can reach an agreement through mediation, their dispute is then resolved by entering a written settlement agreement. If no agreement can be reached with this method, however, the parties generally proceed to settle the matter by either going to court or referring the matter to arbitration.

Arbitration is a more formal procedure than mediation. The parties appoint an arbitrator (or more than one arbitrator) and then the arbitration proceedings are conducted according to an agreed-upon set of rules and procedures.

At the end of the arbitration process, the arbitrator(s) will make an award, which is usually final and binding. If necessary, this award could be entered by one of the parties involved in the dispute into the appropriate court, to achieve the force of a court order.

Beyond mediation and arbitration, there are also other informal dispute resolution processes. A franchise agreement may indicate, for example, that if there is a dispute, the parties must meet in person or via telephone conference.

Read the full article: Understanding Alternative Dispute Resolution

Ask the Experts: What services does a franchise consultant provide?

By Jeff Young

First, the consultant will help assess your franchise worthiness and, most importantly, your financial worthiness. Many people are not aware how much it costs to open a franchise, but a consultant can help match you to businesses that meet your budget and your earnings expectations.

With a good consultant, you will only be introduced to a limited number of pre-screened, credible franchises. This will increase your likelihood of finding the best match and becoming an actual franchisee.

Most franchise consultants will not provide a list of franchises they represent, as it is counterproductive to the way they match candidates to concepts. When analyzing a list of companies, prospective franchisees tend to focus on names, products or services, instead of analyzing business models and the results achieved by existing franchisees. By keeping their list private, franchise consultants can help you avoid this pitfall.

In fact, the greatest service a consultant can provide is introducing you to franchises you would not have thought of on your own. Indeed, the majority of the thousands of franchises available are not well-known to prospective franchisees.

Read the full article: Ask the Experts: How to Use Franchise Consultants

Q & A with Frank Zaid: Rights of rescission

By Frank Zaid

Q: What is the right of rescission for franchisees and how does it work?

A: The right of rescission (i.e. cancellation) in favour of franchisees is not a matter of general common law, but is instead provided by franchise legislation. All five Canadian provinces that have enacted franchise legislation—Alberta, Ontario, Prince Edward Island, New Brunswick and, expected to be in force in early 2012, Manitoba—contain the right of rescission. While the exact wording of the legislation may differ from province to province, this right is essentially the same in all of them.

Unless there is an exemption in a particular province, every franchisor is required to provide a disclosure document, prepared in compliance with the franchisee legislation of that province, to the prospective franchisee. Franchise legislation generally states the disclosure document must contain:

● all material facts, including those prescribed in the legislation;
● financial statements. as prescribed in the legislation;
● copies of all proposed franchise agreements and any other agreements relating to the franchise to be signed by the prospective franchisee;
● statements, as prescribed in the legislation, for the purposes of assisting the prospective franchisee in making informed investment decisions; and
● other information and copies of documents, as prescribed in the legislation.

The disclosure document must be provided to the franchisee at least 14 days before the franchisee signs the franchise agreement—or any other agreement (subject to certain minor provincial exceptions) related to the franchise—or pays any consideration to the franchisor relating to the franchise.

Read the full article: Q&A with Frank Zaid

Chris Audet has What It Takes to be a Wild Bird Centers Franchisee

By Peter Saunders

Chris Audet, franchisee with Wild Bird Centers. Photo courtesy Chris Audet.

You don’t need a business degree to become a franchisee. Franchising has become the world’s most successful business model because it takes people from all walks of life and gives them the tools they need to be their own boss, often in an entirely new field. Considering your natural talent, skills and life experience, you’ve probably already got a lot to be confident about as you prepare for your franchising journey.

Still have any doubts? Maybe the nature of your career so far has been very different from the franchise you hope to buy? Don’t worry. In “You’ve Got What It Takes,” we show you how your work experience—and any other type of experience—can be applied in a franchised setting.

What Chris does:
After a 25-year career with the Royal Canadian Navy, Chris Audet became a franchisee for Wild Bird Centers, a U.S.-based retail system specializing in birdseed blends, feeders, nest boxes, bird baths, field guides, binoculars and other products for the backyard birding enthusiast. His territory is Langford, B.C., where he was already living with his wife and children when his military service ended.

While the two careers may seem starkly different, an affinity for birding came easily to Chris, who grew up in Quebec loving the outdoors.

“After I joined the navy, whenever I was visiting back home, I wanted to see nature,” he says.
Chris considered a range of franchise businesses in the later years of his navy career, but none of the more common concepts—e.g. quick-serve restaurants—captured his interest.

“Meanwhile, I would spend my spare time relaxing on my balcony at home, looking out at our backyard with the forest behind it,” he says. “We had feeders. I began spotting birds and would get excited when there was one I hadn’t seen before.”

So, Chris looked up related franchises online and came across Wild Bird Centers of America, which at that time had no Canadian locations.

“There are other stores of the same type, but this company expressed values that reflected who I was as a person,” he says. “They’ve had people come to them looking for a drastic lifestyle change—and they give you a package that covers everything, even how many pencils to keep on hand, so you can’t go wrong.”

Chris’ navy training proved useful, as it had made him a strong communicator and well-organized.

“I laid down for the franchisors how it would all happen, I met my deadlines and there were no hiccups,” he says. “The only challenge I had not expected was finding a location; the first landlord didn’t want me as a tenant, just because my business wasn’t what he had in mind for the place! That store is still vacant, several years later.”

Fortunately, Chris found a space in a small strip mall along a busy shopping street. He hired two part-time employees to help him run the store. One is a college student who handles a weekday shift, while the other is a professional birder who enjoys working on Sundays as a hobby. That leaves the rest of the week on Chris’ shoulders. He says that while running the store is not easy, he never finds it stressful, which is a major difference from his previous career.

“In the navy, I was responsible for the lives of the people working for me,” he says, “not just in terms of danger, but also counselling them, giving advice and serving in a parental role for the young recruits who were far away from their families.”

With his store, on the other hand, Chris gets to rediscover the joy of birding each time a new customer visits.

“There are no angry customers in a bird store!” he says. “The environment is welcoming, everybody’s happy, it’s an overall great experience.”

Wild Bird Centers expects a second Canadian store to open in Delta, B.C., by mid-2012. Chris cites the province as the perfect market for the concept.

“British Columbia has a higher number of birders than other parts of Canada,” he says. “With our temperate weather, you can see birds in your backyard all year long.”

Read the full article: You’ve Got What it Takes: Chris Audet

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