Becoming a Franchisee
What are the main reasons I should consider buying a franchise?
There are two main reasons for becoming a franchisee.
The first reason is for the name recognition of the franchise. The most well-known franchise is the golden arches of Macdonald’s. That being said, there are a number of successful franchises operating in Ontario, each with its own name recognition. The name gives your business instant credibility as the consumer knows the product he or she is buying. Generally, the cost of purchasing a franchise increases based on consumer familiarity with the franchise name and product. As such, there is little advantage to buying an unknown franchise as far as generating instant traffic for your business. It may take longer to see a return on your investment even with the payment of a smaller franchise fee.
The second reason to become a franchisee is the benefit of Learning trade secrets and/or procedures of a successful franchisor. For example, the secret ingredients to Colonel’s recipe at KFC or an organized method of pick-up and return of dry cleaning through a franchised depot. In this case, someone with Limited business experience can learn an efficient operating System through the training procedures typically offered by the franchisor. Further, the franchisee can learn under the guidance of the franchisor using the operating manual provided to him/her. This would enable the franchisee to operate the business without spending the number of years lt often takes to develop a successful business.
Not for entrepreneurs – I have always wanted to own my own business, is franchising for me?
While there are obvious benefits to becoming a franchisee, this type of business arrangement may not work for all entrepreneurs. With name-recognition comes the need for similarity and typically such things as the decor, menu and uniform must be identical to all other franchise locations. The franchise agreement will generally prohibit any creativity or variance in store appearance and/or procedure. For example, if you are selling a submarine sandwich and develop your own “special” sauce, no matter how successful it might be with the public, it may be a violation of your franchise agreement and you may not be allowed to use it in your store. Hopeful business persons may have trouble adjusting to the fact that even though he or she owns the “business” there is Little, if any, room for ingenuity or creativity.
Statutory protection – Are there any laws that protect me if I buy a franchise?
In Ontario, we have the advantage of the Arthur Wishart Act which is a Law that requires complete disclosure by the Franchisor. Disclosure must include such things as a financial statement, a copy of the franchise agreement that will govern the franchisee/franchisor relationship and any other relevant agreements relating to the running of the franchise. The disclosure document is required to provide a list of all franchises in operation, those that have been terminated by the Franchisor and those that have been sold and/or closed. Finally, and most importantly, the Disclosure Document must disclose any and all material facts you need to know to be able to make a decision as to whether you should proceed or not.
What should I do with the disclosure package?
As a potential franchisee, you will have 14 days to review this material with your own adviser(s). We strongly recommend that you Part of your homework is speaking to Franchisees both still in and those who have left the system.Use this time to meet with other franchisees and previous franchisees to get a sense of the success rate of the business. Also, it is important to look at the relationship between the franchisor and its franchisees. You, must ask yourself whether the franchisor Looks out only for its interests or whether it treats its franchisees as partners, encouraging and supporting the franchisees’ business to maximize profitability for all parties.
We would strongly suggest that you consult a professional adviser before entering into any franchise agreement.