If you don’t want to start a business from the ground up or buy an existing one, owning a franchise might be a good option. Franchises employ over 1 million people in Canada and bring in around $68 billion in revenue each year. While franchising can lower some of the risks that come with starting a new business, it may also come with limits, especially when it comes to making decisions on your own.
How Does Starting a Franchise Work?
The franchisor (the company that owns the brand and business model) and the franchisee (you, the buyer) sign a franchise agreement. This agreement allows you to use the company’s name and system in exchange for a franchise fee. These fees usually range from $5,000 to $75,000. You’ll also pay ongoing royalties based on your sales.
The franchise agreement outlines the terms of your relationship with the franchisor. However, it’s important to know that this is not a partnership. Both you and the franchisor operate as separate businesses aiming to make a profit.
Benefits of Owning a Franchise
- You get help with start-up costs and tasks like equipment, suppliers, and training.
- You may face less risk than starting your own business from scratch.
- You can begin with a ready-to-run business model.
- You have access to the franchisor’s systems and processes.
- You might find it easier to get a loan.
- You can work with a business that already has a proven track record.
- You can save money through bulk buying as part of a larger group.
- You benefit from a well-known brand name.
- You start with an established network of suppliers and customers.
Drawbacks of Owning a Franchise
- You may need a lot of money upfront.
- You won’t have full control over how the business is run.
- Ongoing costs, like advertising and royalties, may be fixed by the franchisor.
- Buying a well-known franchise may cost more.
- Franchise agreements often favor the franchisor.
- You may have limited legal protection as a franchisee.
What Are My Responsibilities as a Franchise Owner?
Your upfront investment can range from $10,000 to over $100,000. These costs can include leasing or buying a location, paying for start-up or advisor fees, marketing costs, the franchise fee itself, and royalties based on your sales.
You’ll also be expected to follow the franchisor’s rules for daily operations and reporting.
In exchange, the franchisor may offer:
- Start-up support
- Training programs
- Help finding financing
- Financial and management systems
- Exclusive rights in a certain area
- Building and equipment upkeep
- Marketing and advertising help
What Are the Steps to Owning a Franchise?
If you think franchising is the right path for you, begin by learning about the different types of franchises available. Most franchisors will provide basic details about their business. Once you’ve found a franchise that fits your goals, follow these steps:
Step 1: Fill Out an Application
The franchisor will review your background to see if you’re a good match. If you qualify, you’ll get a copy of the Franchise Disclosure Document (FDD), which explains how the company works.
Step 2: Attend a Discovery Day
This event gives you a chance to visit the company’s locations, meet the team, and ask questions.
Step 3: Talk to Current Franchisees
Ask them if they’re happy with the support they receive and whether the business met their expectations. The FDD includes a list of other franchisees you can contact.
Step 4: Look Over the Business Plan and Market Info
Treat this like any other major investment. Study the business model and the local market carefully.
Step 5: Get the Money You Need
The franchisor might help connect you with lenders. Make sure you have enough money to cover all start-up costs.
Step 6: Sign the Franchise Agreement
Have a lawyer review the agreement before you sign. Some franchisors may be open to making changes.
Step 7: Get Required Permits and Insurance
You’ll need to meet any local or regional legal requirements for your business.
Owning a franchise can be a great way to get into business, but like any venture, it’s important to research carefully. Make sure the franchise you choose fits your business goals, both now and in the future.
