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Buying a franchise: the best way to start a new business?

11 March 2015 by National Bank
buying a franchise

With so many moving parts, launching a business is enough to make your head spin. The launch itself can be complicated, and the results are never certain. But for many entrepreneurs, franchising can offer the best of all worlds. Here are some essentials to consider if you’re thinking about taking the plunge.

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The pros and cons of being a franchisee

It’s well documented that there are many advantages to owning a franchise. Whether in the restaurant, retail or service sector, the franchisee instantly benefits from an established network with solid expertise, high brand recognition, a proven business model and powerful marketing tools.

On the other hand, a franchise owner has to comply with certain obligations and respect various rules and protocols. For any entrepreneur who dreams of total freedom, such constraints can be a hard pill to swallow; for others, the franchisor–franchisee relationship can be a source of motivation. The franchisor is actually a bit like a GPS: very handy for reaching your destination quickly and easily. Of course, nothing happens by magic. Every franchisee has financial obligations toward the owners of the banner, and those obligations must be honoured.

How to launch a franchise

If you’re an aspiring entrepreneur, you need to look for trends and see what the competition is doing. The next step is to identify a business sector and ask yourself the right questions: Will the service or product still be relevant in 5, 10 or even 15 years? How many years of my life am I prepared to devote to it? Are the brand and its clientele in line with my own goals and values? That last question is extremely important, since many hours and lots of energy will be required to make the business a success.

Doing your homework

Experts recommend making several visits to the establishments in the network you’re thinking of joining, getting a real customer experience, asking questions, using and/or consuming the products, and also checking to see whether the franchisor has ever faced litigation, and if so why.

Before making a decision, it’s wise to consult with specialists (lawyers, accountants, account managers, tax experts), meet with competing franchisors to compare contracts, and then analyze the conditions, agreements, approach and relevance of the franchise network. In other words, before entering into this type of business relationship, the prospective franchisee has to be fully aware of what the commitment entails.

What franchises are the most profitable?

The question seems simple enough, but the answer is complex. The many variables in any business make it impossible to establish precise facts and forecasts, which means it’s essential to take the time to analyze the market, the particular circumstances and the opportunities available.

Is it easy to find financing?

Here’s the good news. Jules Lapierre, Associate Vice-President, Franchise and Pharmacy Group at National Bank, says that financial institutions consider acquiring a franchise a less risky endeavour than launching an independent business. “The franchisee doesn’t have to shoulder the risk all alone,” he explains, adding, however, that the lending institution generally will not finance the initial franchise costs. “Banks are also more inclined to finance a new franchise of one of the well-established banners, since they offer a greater chance of success,” he says.

Still, the borrower must make certain guarantees, be entirely credible and have an impeccable credit record. Once these criteria are met and the financing is in place, the borrower will find that the break-even point for their franchise will be much easier to reach than with an independent company, which in turn means that it will be easier to get through the first few months, which are often crucial to success over the long term. A financial advisor can develop short-term financing strategies to help you as a prospective franchisee get your project off the ground.

Solutions for both franchisors and franchisees

In collaboration with the franchisor, the National Bank offers franchisees customized solutions to facilitate and accelerate the growth of their network, plus a wide array of financial services. Franchisees have the comfort of knowing they can count on expert advice from a team of specialists.

Does it pay to branch out?

That’s a very good question. Growing the company by adding franchises doesn’t necessarily mean more profit. That’s because adding new locations means adding personnel and building a larger management team – and the franchisee needs to be able to delegate with absolute confidence. The biggest challenge lies in trying to consistently offer the same level of service and quality throughout the network of franchises.

And although growing the company might offer economies of scale, a new acquisition isn’t always profitable. “It’s a very big decision, because owning multiple businesses requires a lot of planning,” says Lapierre.

Legal obligations

It’s also worth noting that the legal framework surrounding franchisors and franchisees is not the same in all provinces. Lawyer Frédéric Gilbert, who has published a book on Quebec franchise law, said in 2015 that “despite its importance, a Quebec franchise contract is an innonimate contract, meaning that it is not subject to any specific law, whereas many other Canadian jurisdictions have implemented franchising regulations governing, for instance, the franchisor’s disclosure obligations.”

Another expert on the legal implications of franchising in Quebec, lawyer Jean H. Gagnon, has shared his observations on the matter on the Conseil québécois de la franchise website.

Your franchise starter’s kit

In Quebec alone, the franchise sector accounts for over 200,000 jobs. Nationwide, franchising brings in combined revenues of over $95 billion annually.

Want to take the next step? Certain online solutions, such as FlagFranchise, help you identify business opportunities by generating automated links based on quantitative criteria, such as your budget, and qualitative ones, such as your professional expectations, experience, personal likes and dislikes, business profile, region and even lifestyle. The site is full of advice and issues to consider before embarking on this new adventure.

Franchise trade shows, held every year in major Canadian cities, feature a variety of useful resources. The Conseil québécois de la franchise, Québec Franchise and the Canadian Franchise Association contribute to optimizing the knowledge base and skills of franchisees by offering numerous resources and training opportunities. Choosing to do business with a franchisor that is a member of the Conseil or the Canadian Franchise Association will also ensure that you are dealing with a reputable company.

Training programs offered by the Académie québécoise de la franchise, as well as the wealth of English-language content available in FranchiseCanada magazine, are two other resources to explore before setting out to acquire a franchise.

Becoming a franchise owner is a project that demands preparation, consultation and plenty of thought, but the many advantages of this business model are attractive to a lot of entrepreneurs. Getting into business as a franchisee is definitely an option to consider to maximize your chances of success.

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