Working with a Franchise

Published: Dec 29, 2010
Last Updated: Jun 7, 2017

Like the idea of self-employment but loath the thought of going it alone? Starting (or buying) a franchised business is a popular approach to self-employment, allowing owners to take advantage of a proven business model - for a fee.

What is Franchising?

"In basic terms, franchising is a form of distribution or marketing. It is a method of doing business by which the franchisee is granted the right to offer, sell or distribute goods or services under a marketing plan or system prescribed in substantial art by the franchisor. It is a strategy for successfully penetrating, developing, dominating and achieving a disproportionately large market share." - betheboss.ca

There are thousands of franchise opportunities available for Canadians to choose from - if a business can be replicated, it can be franchised. Many of the popular 'chain' stores that you can find spread across the country are just that: franchises. A franchisee (the person who pays for the right to use an existing business model) essentially becomes a 'subscriber' to the franchise system - by signing off on a franchise agreement. The franchise agreement is a legal document that sets the rules and restrictions that the franchisee must follow. Unlike traditional entrepreneurs who retain complete control of their business operations, a franchise business is only given limited freedom. Most franchises establish strict guidelines for product consistency, interior and exterior decor, pricing, marketing and much more. Additionally, the franchise agreement will assign a percentage of gross profit from sales that must first be paid to the franchisor (the parent company). Finally, the franchise agreement will include the franchise fee that is paid upfront. The amount of this fee varies greatly from business to business, usually ranging from $10-300K.

So...is a franchise business right for you? That really depends on the reasons you have for going into business for yourself. If you're looking for complete creative, operational and financial freedom - you probably wouldn't be very happy owning a franchise. If, however, you're interested in a gentler form of entrepreneurship, and value organizational direction and support - you might be a perfect fit for a franchise. Passing this first step is important - but even more important is finding the right franchise for you. With so many choices to choose from, how should you find the right fit?

Satisfaction:

"...the majority of franchisees (70%) are very satisfied with their decision to buy, 25% are somewhat satisfied, and 5% are not satisfied." 

Source: Research Strategy Group - What Motivates a Franchisee to Invest? (2008)

This is where basic entrepreneurship and business planning is critical. Buying into an already successful business model does not ensure success, and most franchisers will tell you this upfront. It's up to you to do the right business research (looking at the franchise itself, business location, competition, industry trends, etc.) and to make a decision. You should also consider the financial costs of buying into a franchise. Are you giving up a full-time salaried position? Have you saved enough money for the franchise fee (most banks will finance start-up costs such as building improvements and equipment purchasing, but will expect a borrower to cover a significant amount of their start-up fees from personal savings or other equity - see earlier posts on the Canada Small Business Financing Act and Financing Your Business). And most importantly - how profitable will the business be (keeping in mind that the franchisor will be taking their royalties from gross sales, not net profit)? 

To get you started on your search for franchising information, the first tip is to go to the source directly. If you have a business in mind that you would like to join as a franchise owner, start by searching their website. Most major franchisers offer detailed information right on their public web sites to help you decide whether you want to take the next step.

If you're interested in learning more about franchising in Canada, be sure to check out the following websites for extensive coverage of this topic. Most sites are also helpful if you're searching for potential franchise opportunities in your area. Double Reality Check - Are you cut out to be a franchisee? (Financial Post Online Article)
BeTheBoss.ca - Start by reading their Introduction to Financing content.
Canadian Franchise Association - Offers free webinars to interested viewers.
Canadian Franchise Directory
Franchise Direct
Franchise-Guide.org - Content is mostly directed towards American franchises, but still a lot of relevant information.

PHOTO CREDIT: Photo Franchised Landscape #3 created by michaelgoodin on Nov 18, 2009, available under a Creative Commons Attribution license. Last viewed on Dec 29, 2010.
Franchising