Toll Free: 1-800-567-5091 (905) 634-5228 ◉ MEMBER LOGIN

The Basics of Buying a Franchise

January 12, 2021 8:10 pm

Investing in a franchise is an exciting business opportunity. According to Investopedia, a franchise is a type of license that grants franchisee access to a franchisor’s proprietary business knowledge, processes and trademarks, allowing the franchisee to sell a product or service under the franchisor’s business name.

Compared to other ventures, they can be the perfect middle ground between buying an existing business and starting from nothing. The blueprint is already laid out. You only need to execute and follow the plans.

The process and criteria used for selecting potential franchisees vary significantly between companies. However, there are some general basics you can learn. Many companies have similarities between them for franchising. When buying a franchise, we recommend spending time researching numerous options to find one right for you.

We’ve created this article to teach you the basics of buying a franchise with any company. After reading, you’ll have a more robust understanding of franchises. You’ll also have some steps to follow for continued research. As a result, you’ll be able to make a more informed decision.

To start, we will list some pros and cons of owning a franchise.

 

The Pros

Reduced Risk

Franchises are a more secure investment than new businesses because they support and backing a more extensive, established corporation. Their business models have often been tested and proven in different markets across North America. 

As a result of historical success, obtaining a franchise business loan is far easier. The banks know that investing in an established franchise is a safer bet than a brand new business.

 

Instant Brand Recognition

One of the hardest parts of starting any new business is finding your first customers. This is one of the main reasons people turn to franchising. A new franchisee bypasses a lot of the work that would go into marketing a new unknown business.

Furthermore, investing in a franchise allows you access to an established, loyal customer base and potential employee pool. Buying an established and recognized brand can give you an accelerated path to profitability by bringing in customers and prospective employees from day one.

 

Collective Buying Power

When you become part of the franchise system, you’ll benefit from the franchisor’s established relationships with suppliers. This means that materials and supplies will be far less expensive because of the franchisor’s collective buying power.

 

Training and Advice

General guidance and assistance with training can provide a big head start. Processes already have a track record of operational success, saving you a lot of trial and error.

Many franchisors offer advice, training programs and support. Aside from becoming a profitable franchise, franchisors want your help upholding the company’s reputation. Your success is their success. 

 

Help with Marketing and Advertising

There’s no need to reinvent anything when marketing a franchise. Most companies already have effective strategies in place. In most cases, this is one aspect you don’t need to invest much time in.

If the company’s marketing efforts continue to be effective, your location will continue to gain new customers.

 

The Cons

Far Less Control

A loss of full business control isn’t ideal for some. Once the business is up and running, you may have ideas for improving operations. Implementing them may be restricted by company policy and rules. The company’s decisions are also your decisions.

 

Contractual Agreements

Agreements outline all the legal requirements and expectations between a franchisor and a franchisee. If you don’t comply with the contract, you could lose the right to the franchise you’ve invested bought. They typically last between 10 and 30 years.

Depending on the company, they can be very demanding and strict for the franchisee. Once your contract has reached its end, franchisors have the power not to renew it.

 

High Startup Costs

Depending on the franchise you select, the initial investment can be high. The popularity and track record of the franchisor play a significant role in determining cost.

Some associated standard costs you’ll need to consider are:

  • Facility/Location
  • Equipment
  • Signage
  • Opening Inventory
  • Working Capital
  • Advertising Fees
  • Franchisor royalties
  • Business Insurance

 

Is a Franchise Right for You?

There are several questions we recommend asking yourself before proceeding with the research. Answering these will help you determine if a franchise could be an excellent fit for you.

 

Your Investment/Contribution

  • How much money do you have to invest confidently?
  • How much time do you have to invest in the franchise weekly? Think about the short and long term.
  • Do you need financing? If yes, what is your credit score, and where will you go?
  • What special skills and experience can you contribute to the franchise’s success?

 

Your Goals

  • Do you need a specific minimum annual income?
  • Do you plan on operating the business yourself or hiring a manager?
  • Are you interested in the franchise for the long term?
  • Are you willing to let the franchisor be your boss?

 

Answering these questions and being sure of your reasoning is the first step toward buying a franchise.

 

Selecting a Franchise – Doing the Research

The second step is in-depth research, which you shouldn’t take lightly. Expect to dedicate several weeks to this process.

We recommend looking closely at the following criteria:

A consistent track record of excellent sales. It’s advisable to choose a franchise that has long term proof of being profitable with its franchises.

A growing market. The franchise you choose should be in a market that has growing demand over time. This aspect is crucial over the long term.

Social responsibility. Social responsibility is becoming increasingly more important over time for consumers. You can find out what franchises have been doing to be socially responsible.

Local competition. A little competition nearby can be useful, but too much can stunt a franchise’s growth.

Opportunity for repeat customers. What is the likelihood that the franchise could bring you repeat business? The frequency of your customer’s purchases can make a massive impact on their lifetime value.

Opportunities to upsell products and services. This also impacts the lifetime value of one customer. A great example of a company that excels at upselling products is McDonald’s or Tim Hortons. They regularly offer beverages or additional food items when customers order.

Franchise fees. How much are the costs, and what do you gain from them? For example, you should hope to hear that you will receive excellent marketing, training and grand opening support.

What it’s like to work as a Franchisee in the company. You may be able to interview or shadow an existing franchisee. You will get a far better sense of the business and how you could fit into it.

 

Conclusion

There is a lot to learn about franchising as a business opportunity. We hope this article has helped you learn some basics to get started.

For more specific details, we recommend directly contacting companies you may be interested in. Processes, criteria and costs for franchisees will vary between most companies.

For more blog content from JDI Cleaning Systems, you can visit our blog page.

For the most updated Franchise Legislation, we recommend visiting the Canadian Franchise Association’s website.

 

This post was written by JDI Cleaning Systems