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The perks and snags of franchising

By Samantha Garner | June 11, 2011

Franchising is a great pathway to entrepreneurship. Did you know that there are about 75,000 businesses in Canada available for franchising? That’s one franchise opportunity for every 500 of us! And approximately $1 out of every $5 spent by consumers in this country is done so at a franchise.

Great!, you might be thinking, Give me the papers to sign and let’s get started! Not so fast. Franchising sees higher success rates than those of buying an already-existing business or starting from scratch, but there are some downsides, too. Let’s review the perks and snags of franchising:

Perks of Franchising

  • Ongoing support. Most franchisors help out with things like bookkeeping, national advertising, updated training, purchasing equipment and acquiring supplies.
  • You have the use of a well-known trademark or trade name behind you. You won’t need to work hard on brand recognition and marketing strategies.
  • Franchises often spend a great deal of resources on proper education and training. Franchisees are usually trained to help you establish, run and expand your business, covering a wide range of topics from hiring to financial issues. Employees at your location are also often required to participate in comprehensive training.
  • The franchisor’s experience and knowledge helps you reduce risk. Buying into an established, tried-and-tested concept reduces your chances of failure as a small business owner. Statistics show franchisees have an 80-95% chance of success. Wrinkles have already been ironed out, so you have less to worry about.
  • Most franchises spend lots of time and money on research and development in order to find new ideas, new products and new variations to existing products and services. You get to enjoy the benefits without having to spend any of your own resources on research.
  • Often, franchisors will offer financing options to their franchisees. This saves a lot of stress and time in looking for money from banks, angel investors, venture capitalists or friends and family. Banks are also often more willing to lend to someone who has a large, well-known franchise backing them. That’s pretty convenient!

Snags of Franchising

  • It can sometimes be very difficult to keep track of all of the additional fees and costs associated with franchising, even after the initial franchise fee has been paid. Royalties are a percentage of sales to be paid to the franchisor on a regular basis. Not to mention the advertising fees, debt service fees, equipment and merchandise costs, rental rates and other costs that show up along the way. Your ability to expand is in the control of the franchisor.
  • Requirements for franchisee consideration can be very specific and demanding. The franchise application process and research can be long and tedious. You may spend a great deal of time researching a particular company only to find out that you won’t be considered as a potential franchisee.
  • Any difficulties or issues that come up for the franchisor will also get passed down to you, no matter where in the franchise the issues happened. You are not only tied to the franchisor by contract, but also by the brand – its concept, name, services and products. Any unfortunate incidents inevitably affect business not only for the franchisor, but franchisees as well.
  • You’re not totally independent. The hard work that you put in doesn’t really reflect on you personally. Instead, it’s the franchise name that gets the reputation. You also can’t make all of your own decisions with this form of entrepreneurship. You have policies, procedures, rules, guidelines and responsibilities that must be followed for consistency’s sake.
  • Although you run your own business, you may not get to experience the benefits of flexibility and setting your own hours. You’ll have to stick to strict hours of operation and deal with reporting and administrative work required by the franchisor.

Do you have further questions about opening and operating a franchise in Canada? Our GoForth Experts may have already given the answer at our website – read more questions and answers about franchising here.

 

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Topics: Small Business Tips and Advice | 1 Comment »

One Response to “The perks and snags of franchising”

  1. Ron Says:
    July 20th, 2011 at 3:40 pm

    Great article Samantha, I would advise people to read the “snags” to see if you can live with them.

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