By David Gray and Matthew Rosenberg
The franchising model has become entrenched in recent years as an excellent way of doing business across Canada, especially for individuals who want to be part of a uniform and controlled system. The statistics for franchising growth are already impressive and projections show no sign of this trend slowing down. There are currently more than 78,000 franchise units across Canada. Franchised businesses account for 40 per cent of all retail sales and 10 per cent of Canada’s entire gross domestic product (GDP). Indeed, franchising reportedly accounts for one out of every five consumer dollars spent in Canada on goods and services.
Buying a franchise can be a complicated affair. Before you sign a contract to become a franchisee, you need to consider the interplay between all of the people who may in some manner be connected to your franchised business.
As a prospective franchisee, your first step before joining a franchise system is to evaluate the franchisor behind it.
Some potential franchisees actively look for a certain type of business. Others have already come across a franchise of interest to them. Still others form their first opinion of a franchise based on their own use of its products or services. Regardless of the motivations behind inquiring about a franchise, they will always have to contact the franchisor.
With a startup franchise system, the franchisor may be an individual, i.e. the owner of the concept. In other cases, the franchisor will be a team, comprising numerous levels of individuals within a hierarchy.
As in any relationship, it is important for your and your franchisor to have the right chemistry. Therefore, even if a franchised business seems very appealing, you must first consider how compatible you are with the company, its system, its guiding philosophy and its products or services before you begin the process of purchasing a franchise.
A franchisee should be interested in, even fascinated by, the products and services offered by the franchise. If the work is not intriguing or inspirational, you will struggle to succeed, irrespective of the strength of the franchise system itself.
That said, simply running a business is inspiration enough for some prospective franchisees, while the product or service is secondary. These individuals need to ensure the franchisor’s business model provides enough freedom for them to run their location as they desire. Not all franchisees want a highly structured business relationship with their franchisor or stringent franchise rules.
The more experience you have operating a business similar to your prospective franchise, the better the understanding you will have of the products and services being sold—but experience is not a requirement for opening a franchise and should not deter anyone from pursuing the opportunity to do so. There are many tools available for learning about a franchise system. In addition to training, the franchisor may organize visits to current franchisees, for example, allowing you to gauge their opinions about running the business and their perspectives on the franchise system.
Indeed, initial training is only one aspect of a franchisor’s support for its franchisees. You should also expect your franchisor to provide ongoing support as needed, including refresher courses, training for upgraded products or services and periodic on-site inspections. And you should ask the franchisor’s representatives if they host seminars and other gatherings for franchisees.
During the initial research phase, you will be able to gauge the franchisor’s level of involvement with its individual franchisees and you will get a sense of the system’s minimum standards (e.g. for store design, inventory and equipment) and any performance benchmarks you will be required to meet as a franchisee.
Finally, make sure you have someone to turn to in case of a franchise-related emergency. Some franchisors will assign you a business coach or mentor. Others provide a help line you can call at any time. Be wary of any franchisor that does not offer any of these support services.