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Is buying a franchise the best way to start a new business?

07 April 2016 by National Bank
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Interested in running your own business? Buying a franchise might be a good option. Here’s what you need to know before you take the plunge.

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In 2014, Quebec was home to 390 franchise companies, from big names like McDonald’s and Starbucks to smaller players like Adèle and Parfait Ménage. These franchises represented more than 12,700 businesses and close to 188,000 employees.[1] Is buying a franchise a good way start your own business? The answer might be yes—depending on your personality and whether you can play by the rules!

The benefits

When buying a franchise, you tap into the franchiser’s operational experience. You’ll also benefit from a proven business model, brand recognition, and an established customer base. “Franchisers offer support to new entrepreneurs, which can remove a lot of stress,” says Jules Lapierre, Senior Manager, Franchises with National Bank. “For example, a fast-food restaurant franchiser will provide instruction manuals with hamburger cooking instructions and temperature guidelines, which allows all its outlets to offer identical products. It provides its knowledge, simplifying operations quite a bit,” he says. The franchiser also takes care of marketing and ad campaigns, freeing the franchisee from this responsibility.

“It’s a lot faster to start a business as a franchisee,” says Claude Ananou, a professor in the Department of Management at HEC Montréal. “The franchiser provides support and supplies tools, guides, and instruction manuals. Your business can turn a profit more quickly,” he says.

If you’ve never run your own business, buying a franchise can help reduce your risks. And when it comes to financing, lenders are more likely to respond positively to franchisees.

Not for everyone

All these advantages come with a cost, however. In addition to the initial franchise fee, franchisees also have to pay royalties to franchisers, which cuts into profits. And this business model isn’t for everyone: independently minded entrepreneurs probably won’t be happy operating a franchise. “You have to bend to the rules, you can’t implement your own ideas, and you don’t have total control—like you would if you operated as an independent business,” explains Lapierre. “Franchisees execute pre-approved recipes. They’re basically operators,” he says.

Ananou agrees. “You have to follow the rules laid out by the franchiser. You can’t add anything to the mix to set yourself apart,” he says. “Franchise contracts are often 150-page documents with reams of strict requirements governing branding, design, the business model, prices, etc.”

Making the decision

It’s important to make the right choice and find the best franchise brand for your particular needs. Entrepreneurs might find their match by attending franchise exhibitions. With dozens of sectors to consider, the possibilities are almost endless. Do you want to be in the restaurant business, work in retail, or provide a specific service? “You have to know yourself,” says Lapierre. “It’s important to find a business that suits your personality and interests. The franchise concept has to be a good fit for the franchisee.”

Once you’ve made your decision, you’ll want to conduct research on the brand, its reputation, its successes and failures (and the reasons behind them), the franchise’s exclusive territories, and so on. “You also should determine if the franchiser is accessible and whether they’ll provide support when you need it,” adds Lapierre.

Ananou suggests checking out the franchisee’s judicial record to see if they’ve ever been involved in a lawsuit. If so, find out why. “I also recommend spending several hours frequenting franchises that interest you, to get a feel for the customer experience and hear what employees have to say,” he says. If the franchise is a member of Quebec’s franchise council (Conseil québécois de la franchise), you can be sure it’s an established brand.

Microfranchises: Great idea, smaller price tag

Even if you don’t have tens of thousands of dollars to invest, a franchise may still be within your reach. Microfranchising is becoming more and more popular and can offer a viable alternative to the bigger brand names. Some microfranchises require owners to provide only a few thousand dollars to access a profitable business model. “A good example is Adèle, a cleaning franchise,” says Lapierre. Development is carried out locally and the franchiser provides an accounting plan and training products. Franchisees are well-equipped.” This model also allows entrepreneurs to start a business they can sell down the road. It’s an idea worth exploring!

To find out more:

  • Conseil québécois de la franchise
  • Québec Franchise
  • Académie québécoise de la franchise
  • Canadian Franchise Association
  • [1] Étude sur le poids relatif de la franchise dans l’économie québécoise, Quebec Franchise Council, January 2014

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