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5 things to consider before buying a franchise

Tips on reducing risk as you consider buying a franchise.

Buying a franchise is a great way to get into the business management and operations game, becoming your own boss and leveraging an already successful brand.

But before you dive into the franchising world, it’s important to do your homework first. You need to ensure you’re buying into the right company, at the right time, in the right place and with the right terms.

While purchasing and running a franchise can be a very lucrative and rewarding experience, there’s always a risk of things not turning out the way you’d hoped. Here’s how to minimize that risk and find the right fit as you begin your franchising journey.

1. Know what you’re getting into

While franchisees operate individual storefronts or branches of a larger company, they are by no means small business owners. This is an important distinction that many fail to acknowledge.

Franchisees essentially buy into a pre-existing business system and are able to use its trademarks in accordance with the franchise agreement. Franchisees are typically responsible for paying an initial fee as well as ongoing royalties, typically measured as a percentage of gross sales. For brick and mortar franchises, the franchisee is typically responsible for building the physical store location or buying it from the franchisor.

While franchisees do enjoy a degree of autonomy, they are still bound by the rules and standards outlined in the franchise agreement. Rather than buying a business outright, franchisees are essentially buying the right to use the business system, its trademark and its strategies for a pre-determined term (typically 5 or 10 years), after which point the rights return back to the franchisor.

2. This year’s top Canadian franchise brands

Franchising opportunities span a wide variety of industries and business types, ranging from coffee shops and fast food restaurants, to spas and daycares, to vending machines and garbage removal. Prospective Canadian franchisees are fortunate in being able to either buy into a well-established legacy organization or to try their luck at an emerging and fast-growing franchise brand — or anything in between.

The Canadian Franchise Association can be a great resource for researching potential franchise opportunities. Their website includes a full list of the top franchises in the country in 2017, with further information about each franchisor. Some of the top franchises this year include:

  • Buying a franchiseAlair Homes
  • BeaverTails
  • Bin There Dump That
  • Clintar Commercial Outdoor Services
  • CertaPro Painters
  • Famoso Pizzeria
  • Heart To Home Meals
  • Liberty Tax Service
  • Little Kickers Canada Franchising Limited
  • Liquid Capital Canada Corp.
  • Mr. Rooter
  • Postcard Portables Canada Ltd.
  • Sangster’s Health Centres
  • Symposium Cafe Restaurant & Lounge

3. How to decide which franchise is right for you

As you narrow down the search for your future franchise opportunity, it’s important to take a look in the mirror, consider your own capabilities and then explore businesses that might be a good fit for you specifically.

After all, just because you have a friend or relative that’s earned a killing in a certain field doesn’t mean you’ll be able to replicate their results.

Rather than considering which brand will be most successful and buying into that, it’s important to consider which brand your skills will thrive in most, and then invite the brand to buy into you.

4. Do your homework

Start with a list of “must-haves” and “nice-to-haves” before you begin shopping around, and look for companies that check all or most of those wish list boxes. Attend informational sessions and franchise shows, and check out all the information available online and in trade publications before going to speak with current and former franchisees yourself.

As the process continues, it’s important to thoroughly review all paperwork that comes your way. Ensure that American or foreign franchises have been properly adapted for the Canadian market before buying in, and check that their franchise agreements have been adapted to local laws and standards before signing the dotted line.

In addition, thoroughly review the Franchise Disclosure Document (or FDD), which the franchisor is legally required to provide in Alberta, Ontario, Manitoba, New Brunswick and PEI.

5. Maintain realistic expectations

Some franchises are a huge hit, while others struggle and eventually dissolve. Some will see relatively consistent earnings across the board, and others will see franchisees with widely ranging degrees of success.

Before you buy into a franchise, it’s important to understand the potential risks. Don’t let yourself get blinded by the potential rewards. As you think about your franchise investment opportunity, remember to keep the potential upside balanced in your own mind with the risks and hard work that accompanies it.

 

Up Next: Learn how to avoid the cash flow crunch.

10 cash flow tips every entrepreneur should follow

Jared Lindzon

Jared Lindzon is a freelance journalist based in Toronto, covering a variety of topics, including technology, careers, entrepreneurship, politics and music. His work regularly appears in major publications in Canada, the United States and around the world, including the Globe and Mail, Fast Company, Fortune Magazine, Rolling Stone, Politico, the Guardian and more.

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