Making the decision to trade being an employee for a chance to run your own franchise is a major step. Not only does it mean changing careers, but it is also a major financial and emotional commitment. Understanding what franchising is all
about and what to expect in a franchise system is critical to your successful transition from employee to franchise owner.
Evaluate Yourself
Skills, Knowledge and Experience
When deciding whether to franchise and which franchise system to choose, your first step is to evaluate your skills, knowledge and experience. Though prior experience is not a necessary requirement to being successful in a franchised business, you should match your skill set with a franchise’s operation to increase the odds of it being a successful business. This does not mean, however, that you must have experience with the specific product or service. You should expect the franchisor to provide training and management assistance, but related skills, knowledge and experience will help.
Interest and Enthusiasm
To be a successful franchisee, you need to be interested in running your own business and enthusiastic about your franchisor’s product or service. Many positive results originate from an enthusiastic outlook including: (i) a positive attitude will motivate you through the ups and downs of life as an entrepreneur; (ii) a positive attitude will contribute to a better business relationship with the franchisor; (iii) a positive attitude will be contagious and will inspire your employees; and (iv) a positive attitude will be noticed by customers who will be more likely to patronise your business when they sense your enthusiasm.
Equity Requirements
Being realistic about your financial position will eliminate those franchisors whose equity requirement is more than you can comfortably invest. The franchise fee and the capital investment requirements are the biggest obstacles for most potential franchisees. Once you determine your net worth, make an appointment with your lender to determine an amount of money that you can borrow. Be prepared for the interview because as part of their decision making process, lenders will assess your character so you should appear as an entrepreneur. Even if the lender is not that cooperative, do not despair as there are other ways to raise capital.
Evaluate the Franchisor
As a prospective franchisee, evaluating a franchisor may seem a daunting proposition. It is recommended that prior to expending resources (both time and money) negotiating with a franchisor, you should learn about the reputation and background of the franchisor and the results of the franchise system to date. There are several sources and methods of evaluating the franchise opportunity, including:
Disclosure Documents
The single best source of information about a franchise or franchisor should be the disclosure document, which is required to be prepared and provided under the Arthur Wishart Act (Franchise Disclosure), 2000. In general, the disclosure document will provide written information about the history of the franchise, financial performance and other information important to a prospective
franchisee’s decision whether to buy the franchise.
Franchisees of the Franchisor
Information about the franchisor’s support, commitment, integrity, business acumen, etc. should be readily available from the existing franchisees in the system and especially from past and terminated franchisees. By speaking to a range of franchisees (from most successful to lease successful), you should obtain a better perspective of the franchisor and the franchise system or opportunity.
Industry Associations and Publications
Associations such as the Canadian Franchise Association (“CFA”) are an excellent source of information about franchisors and franchises. There are a number of franchise magazines that provide ongoing analysis on the franchise industry in general and feature articles on specific franchises in particular. There are also a number of trade publications within a particular industry that you are interested in. The CFA publication regularly prints statistical information about franchises as well as provides various franchise rankings over the course of the year. The writer cautions that rankings should be used only as an aid in your evaluation and should not be relied upon in your decision making.
Business References
Though it is always recommended to request a list of references from the franchisor, you may also want to contact others not listed with whom the franchisor does business.
Competitors
In order to analyze a franchisor’s strengths and weaknesses, it may be very helpful to compare the systems offered by the franchisor’s competitors.
Trade Shows and Expos
Franchise and business opportunity trade shows provide a great opportunity to meet a number of franchisors at the same time and compare competing opportunities.
Franchise Consultants
There are numerous franchise consulting companies and independent consultants who can provide a wealth of information on either the franchise industry or a specific franchisor.
The Internet
There are a great number of franchise specific websites that can assist you in researching the franchise industry.
In conclusion, the secret for success is preparation. There are several sources and methods of evaluating a franchisor’s history as well as the franchise system. The prospective franchisee should review all of the information and have it evaluated by professional legal and business advisors.
© 2005 AYLESWORTH LLP
This article is for information purposes only and should not be taken as legal advice.
FOR INFORMATION ABOUT AYLESWORTH’S FRANCHISE GROUP CONTACT:
DAVID J. GRAY
416-777-4047
dgray@aylaw.com
www.franchiseontario.com
P.O. Box 124, 18th Floor
222 Bay Street
Toronto, Canada
M5K 1H1
www.aylesworth.com
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