Franchising For New Canadians

8 Money Questions to Ask about Your Franchising Investment

Thu, 17 Dec 2020 11:00:03 GMT

Owning your own franchise can be exciting and financially rewarding over time. However, it’s essential to know the total costs that are involved to ensure that the franchise is a good financial option for you. So, here are eight important money questions you need to ask to ensure that you make a wise financial decision.

1. What is the Total Investment Cost?

The Total Investment Cost is provided in the Franchise Disclosure Document (FDD), and is typically expressed as a range. It is the total of the Estimated Initial Investment. The range can include fees for a number of items such as:

Franchise Fees
Real Estate or Rent
Insurance
Training
Computer Software
Furniture/Fixture/Equipment costs

These are just some of the costs among many. Be sure to determine precisely what the total investment cost covers by asking the franchisor for a full breakdown of the costs.

2. How much of the Total Investment cost is required in cash?

Some franchisors may require franchisees to invest a percentage of their own cash to the start-up investment to qualify as a potential franchisee. This can be at least 30 - 50% of the total franchise investment cost depending on the franchisor. This is known as unencumbered funds, which means that it is your own money that you can easily and quickly access.

3. How much working capital do I require?

Working capital is the money required to cover the day-to-day operations of your business. The major components of working capital include:

Cash
Debtors (accounts receivable)
Stock (inventory)
Creditors (accounts payable).

Until your revenues grow, you will need enough money to cover these expenses. It’s best to have sufficient money on hand to ensure you have critical financial reserves until you reach a positive cash flow. Consider the stability of the franchise that you are considering to determine what amount of working capital you’ll require.

Tip: To protect your cash flow, it’s a good idea to borrow enough working capital as part of your business loan you get to buy the franchise.

4. How long will it take before the franchise will break-even?

Break-even is the point when the business makes enough operating revenue to cover monthly operating expenses and starts paying back the initial investment. Franchise ownership is a long-term investment however, you want to find out, on average, how fast you can expect to break-even. This is a great question you will want to ask both current and former franchisees to get a sense of a realistic timeframe.

5. How much money can I expect to make?

The amount of money that you can make depends on a number of different factors, so this question will require you to review the Franchise Disclosure Document (FDD) and speak to other franchisees. The due diligence (or research) that you do will help you to assess the financial performance of the franchisor.

When you speak to other franchisees, you could ask them if they are meeting their financial expectations (without directly asking them about their income). While it’s difficult to predict exactly how much money you can expect, make sure you understand what a probable income will be after your third year.

6. How do similar franchises perform?

Knowing how similar franchises have performed is a good starting point to determine if the franchise is financially sound for you. Make sure to speak to a large number of current and former franchisees to understand the low end and high end of financial performance. This will also help to avoid any unexpected financial surprises.

7. What is the financial health of the Franchisor?

You can determine the franchisor’s financial health by reviewing an audited financial statement that is included in the Franchise Disclosure Document. In addition to their financial health, you’ll also want to assess:

Signs of growth
Rate of growth
and, the franchisor’s ability to invest in franchisee training and support.

The strength of the parent corporation is often a major factor in your success as a franchisee.

8. How Can I Finance a Franchise?

No doubt, opening your franchise requires a significant amount of capital. There are a number of different ways to finance a franchise and achieve your dream of franchise ownership. Some financing options that you may want to consider include: commercial bank loans; government programs; friends and family; and the BDC Newcomer Entrepreneur Loan.

With the answers to these important questions, you can decide if investing in a franchise makes financial sense for you. You may just find that achieving your franchise dream is within reach!

Why Understanding Total Investment Cost is Essential

Wed, 16 Dec 2020 22:24:26 GMT

Franchising can be a well paying and exciting career choice.

If you’re thinking about franchising in Canada you need to really understand the costs that you will have to pay. It’s best if you know what the costs are going to be when you start to research a franchise rather than at the end. If you know what the costs are, then you can decide what you can afford and which franchises and brands you can consider.

The total investment cost will vary based on the franchise segment (for example: retail; personal services; fast food; etc) and the brand that you choose within that segment.

So, What is the Total Investment Cost?

The total investment cost is typically shown as a range in the Franchisor’s Franchise Disclosure Document. It is the total of the Estimated Initial Investment. The range can include fees for a wide number of costs such as:

Franchise Fees

Real Estate or Rent

Insurance

Training

Computer Software

Furniture/Fixture/Equipment costs

These are just some of the costs among many. Be sure to find out exactly what the total investment cost covers by asking the franchisor for a full breakdown of the costs. Franchisors will be able to give you an accurate picture of what you can expect to pay.

When to Engage a Franchise Lawyer

Wed, 23 Sep 2020 18:01:19 GMT

When you make the decision to purchase a franchise, you would be deciding to make a major investment of your time, money, and effort. An experienced franchise lawyer can help you to clearly understand what’s involved and how you can protect your legal interests.

If you’re new to franchising, you’ve likely noticed how much information there is to gather, collect, and evaluate. If you have already started conducting your franchise research, you have hopefully:

Assessed your strengths, skills, and previous business experience
Identified certain franchise categories that match your skills and interests
Selected a few franchise systems that you think you’re interested in joining
Received a Franchise Disclosure Document from one or more franchisors.

These are just some of the important due diligence and research activities that all potential franchisees need to conduct and complete to ensure you make a wise purchasing decision.

So, at what point does it make sense to engage a franchise lawyer?

Once you have conducted some of this initial research and you’re confident that you are ready to work with a specific franchisor, it’s time to hire a franchise lawyer.

Engage a Franchise Lawyer Early in the Process

While you are considering the purchase of a franchise, it would be helpful to have at least an initial conversation with a franchise lawyer to:

Obtain some guidance from the franchise lawyer in conducting the necessary due diligence
Avoid making certain mistakes in the early stages of the relationship with the franchisor. For example, many prospective franchisees have paid initial deposits to their franchisors, even before they have met with their franchise lawyers to review and discuss their disclosure documents
Discuss the process of becoming a franchisee, to get a heads-up on what to expect while moving along the process

For obvious reasons, you should consult with a franchise lawyer who is independent from the franchisor and you should retain a franchise lawyer before you:

Sign a franchise agreement
Make any payments to the franchisor or any of its affiliates

Furthermore, you should have an experienced franchise lawyer review the franchisor’s disclosure document, and the franchise agreement and related documents before you sign any agreement or pay the franchisor any money. Signing a franchise agreement or lease, for example, can have critical legal consequences that can prove to be costly to a franchisee. A franchise lawyer can provide important protection and advice to avoid liability and unwanted consequences.

Questions to Ask Before Retaining a Lawyer

Here are some questions that you should ask a franchise lawyer before you retain them:

What experience do you have in advising prospective franchisees, entrepreneurs looking to franchise their businesses and existing franchisors?
Is franchise law your principal area of expertise?
Will you do the work yourself or will the work be handled by someone else within your firm?
Do you communicate clearly when explaining legal issues and legal documentation to your clients?
What are your billing practices? Will you consider flexible billing arrangements and do you bill regularly so as to not surprise your clients?
How connected are you to the franchising industry and can you introduce the appropriate franchise professionals such as franchise consultants, brokers and accountants familiar with the unique issues involved with franchising?
Do you have access to an experienced litigator within your office who could assist you to defend or launch an action should the need arise?
Are you a deal-maker or a deal-breaker?
Do you have interests outside of the law that may make you a better-rounded legal practitioner?

Engaging a franchise lawyer at the right time in your franchise selection process can help you understand and work through important steps to help you make this important decision. This trusted advice and legal review can be critical to a franchisee’s long-term success.

Writing Your Franchise Business Plan

Wed, 15 Jul 2020 19:44:00 GMT

Your ability to finance your franchise is a crucial first step along your franchise journey. A clear business plan will:

Lay out the goals of your business venture in a step by step manner
Show your investors the exact method and process you’ll follow to succeed
Give banks, investors, and lenders confidence to finance and support your venture.

The main purpose of a business plan is to help the business owner, as well as clients, stakeholders, and partners understand the direction that the franchise is headed. A business plan will also reassure the banks, lenders and investors that your franchise is sound. Without a business plan, it will be more difficult to secure funding for your project.

If you have never created a business plan before, it may seem overwhelming. You may want to talk to a financial professional who can help you decide what to include in your plan.

Five Important Steps to Build Your Business Plan

S tep One: Determine Your Audience

A business plan can be written for different audiences. It can be:

Internally focused and directed to people within a company
Externally focused to address concerns of external stakeholders such as investors, customers, clients, lenders and donors.

The time frame for a business plan is often three to five years.

Step Two: Start with a Franchise Summary

Begin with a summary of the franchise you intend to purchase. This introduction should also provide essential background information about the franchisor that includes their:

Track record
Other franchisees
Products and services.

The introduction should also describe the general market that the franchise caters to.

In the body of the business plan, describe your strengths and experience as a manager, as well as any other people in management positions that you intend to hire. This is crucial, as the quality of management can ultimately make or break a franchise.

If you have completed the Franchise Self-Assessment, review your report for strengths that you want to highlight.

Step Three: Prepare a Competitive Analysis

Next, determine the unique selling proposition (USP). The USP is what makes the franchise’s products or services stand out from the competitors. Think about:

What makes the franchise unique?
Does it have a niche or specialized market?
What are the specific features or benefits of the products or services?
What will make it especially marketable or profitable?

Inspire confidence in your audience by explaining how you expect to meet sales and revenue targets, and how you will deliver products and services to the customers.

Step Four: Prepare Market Analysis

The marketing section describes the state of the market sector, including competition and market trends, and information about operations. This section can also include:

Customer demographics and characteristics
Expected market share
Overall marketing strategy

In this section, you can show how you plan to use your strengths and overcome your weakness, as well as potential threats and opportunities the franchise will face. Identify how you will make the most of the opportunities and reduce the threats.

Next comes the operations section. This paints an overall picture of exactly how you will produce the products or services. This will explain business principles and outline logistics such as:

Location
Property
Facilities
Leases
Employees
Insurance
Technology
Equipment
Suppliers

Step Five: Set Financial Goals

The financial section describes how the franchise is expected to perform financially and provides information about your personal financial situation. Ideally, this section should include:

The monthly budget and cash flow projections for the first two years of operation
Personal financial statements that outline your net worth

The cash flow projections are particularly important, since they show the monetary amount that people can expect from your franchise. This will help investors to understand the expected scope of success and allow them to realistically appraise their investment in your business model.

Helpful Hints:

Show your investors there is a market for your franchise’s products and services.
Demonstrate your capability and that of your management team.
Prove that you have adequate financial and physical resources.
Identify how you will face any obstacles and include a contingency plan.
Show the plan and general timeline for your franchise.
Use clear language when you write your business plan. Avoid overly technical language.

Following these steps will give you an idea of what to include in your business plan. Every business is different, as is every business owner, so feel free to add your own personal flair to give your investors a better idea of who you are.

Following the business plan format and using it to promote and explain your business model will reassure your investors, partners, and clients about the strength of your plan and confidence in your franchise.

Benefits of Buying a Franchise Resale: What to Consider

Thu, 02 Jul 2020 11:30:00 GMT

If you’re new to Canada and looking at starting a new business, a franchise resale may meet your needs. As a newcomer adjusting to life in a new country, a franchise resale may be less challenging than opening a brand new franchise.

The franchise industry is fueling economic growth in Canada with approximately 4,300 new franchise units opening each year. However, there is an alternative to opening a brand new franchise location and buying a franchise resale may be worth considering. There are a number of benefits of buying a franchise resale.

What is a Franchise Resale?

A franchise resale is the sale or transfer of a franchise that is already in operation. If buying and launching a brand new franchise seems challenging, a franchise resale may provide you with another option to consider. However, even if you are considering buying a franchise resale, you will still need to:

Conduct extensive due diligence (research), just as you would when buying a new franchise, on the franchisee, as well as the franchisor
Understand why the franchisee is motivated to sell their franchise.

Benefits of Buying a Franchise Resale

With any franchise investment, whether you’re considering a new franchise or a resale, you will need to conduct thorough research to ensure you make an informed decision. This due diligence will help you to avoid any unwanted surprises, before you make a large and long-term investment.

When you buy a franchise resale, you have the opportunity to start off with a number of advantages and key benefits. These are just some of the benefits that would take you more time to achieve if you were to purchase a brand new franchise.

A franchise resale allows prospective franchisees to:

Assess the financial history of the business. This will help you see the actual financial results for the business and allow you to project the financial performance that you can expect.
Start with an existing business plan and marketing strategy that is currently in place.
Start the business immediately and generate cash flow from day one.
Benefit from existing cash flow, customers, staff, brand presence, and network of contacts.
Reduce initial growing pains that can occur when opening a new location.

What You Need to Consider: Why is the Franchise for Sale?

Franchises may be for sale for a number of reasons, and it’s not always because the franchise is in trouble. Franchisors often have a percentage of their franchises available for resale, and it’s common especially if it is a more mature franchise brand.

If you’re interested in buying a resale, it’s important to understand why the seller is motivated to sell their franchise. The existing owner may not always be open about why they are selling, especially if the franchise is underperforming, so speak to others in addition to the owner, for example: speak to other franchisees in the system; and existing employees to gain more information..

Common Reasons Why Franchisees Sell their Franchise

The franchisee is retiring or moving.
The franchisee has run the business for a number of years and would like a change rather than commit to another 5 - 10 year franchise term.
The franchise is stable and performing well and the franchisee would like to realize their investment.
The franchisee would like the capital from the sale for another business opportunity.
The franchisee has realized that they are not a fit for franchising and want to do something else. This self-awareness is critical before you invest in a franchise.
The franchisee and the franchisor don’t agree on the direction of the brand. This may not be an issue for a potential buyer.
The franchisee has experienced a major life change and franchising is no longer suitable. Life changes be related to: a divorce; new addition to the family; or a change in a partner’s work situation.
The franchise is underperforming and a new franchisee is required to turn the situation around.
The franchise is underperforming due to market conditions or industry trends. In this case, you’ll need to understand and predict trends that may negatively impact the business.

When you clearly understand why the franchisee is motivated to sell their franchise, you can better assess the risk you may be facing. Knowing the seller’s motivation, combined with conducting due diligence will help you decide whether or not the franchise resale is a good business decision for you.

When you buy a franchise resale, you have the chance to start your business with a number of advantages and key benefits. As a newcomer adjusting to life in Canada, it can provide you with the advantages of owning a franchise without the growing pains of buying a brand new franchise. As with any major investment, it’s important to research the franchise, and seek legal and financial advice to make a decision that’s best for you.

The Importance of Due Diligence in Franchise Selection

Mon, 29 Jun 2020 13:40:00 GMT

What is Due Diligence?

Proper research takes time, effort, and a willingness to evaluate both the positive and negative information that you find. You want to do more than confirm your interest in the franchise. Your effort will provide you with a fair and balanced view and help you reduce the risk of making a costly mistake.

In our Choosing the Right Franchise video, we talk about a 3-step process to help you choose the franchise that is right for you!

Now we’ll explore the type of information to research and gather for Step 3: Conduct Due Diligence.

What Franchisor Information do you Research?

You can research both qualitative and quantitative information. As a franchisee, you are entering into a long-term relationship with the franchisor, so gathering both types of information is necessary.

G athering Qualitative Information:

While financial analysis is important, qualitative analysis is also important. This information will help you to understand the type of relationship and level of support you can expect from the franchisor. This could include information such as:

E xperience of the franchisor’s leadership team (including officers and directors)
Quality of training programs
Initial and ongoing support
Brand reputation and strength
Dispute resolution procedures
Allowance for second locations and qualifications (for example, some franchisors will require you to be an operator for a minimum of two years)

Y ou can use this information to evaluate what makes one franchisor stand out from the others that you are researching.

Gathering Quantitative Information:

S ome of the obvious quantitative analysis will include:

T otal Investment Cost
Financial performance and projections including gross sales and net profit
Franchise fees and royalty rates

Y ou will also want to consider:

Advertising fees
Franchisee failure rates

How Do You Gather this Research?

Your research can mean the difference between a highly successful franchisee experience and failure, so it’s important to gather as much information as possible.

1. Read the Franchise Disclosure Document (FDD):

The FDD will provide you with information like bankruptcy filings by the franchisor, legal suits involving the company and its executives, the type of training the franchisor offers its franchisees, and any hidden costs that may not seem obvious.

2. Speak to Current and Former Franchisees:

Speak to current franchisees about their experience with the franchisor; what challenges they face; what they enjoy most about the franchise; and how long it took them to become profitable.

Speak to former franchisees about why they left; what challenges they experienced; and what they would have done differently.

The more people you speak to the better, so try to speak to a minimum of 10 franchisees and from different geographic regions. By speaking to current and former franchisees, you will get a balanced view of the franchisor.

3. Visit the Franchisor’s Headquarters:

Meet with key people to see if you would be a fit with the organization and the way they do business.

4. Do Online Research:

There is a great deal of information that you can find online about franchisors. Pay attention to the type of information that you are seeing. Is it consistently positive or negative?

5. Review the Franchisor’s Financial Statements:

The financial statements are included in the franchisor’s Franchise Disclosure Document. Review the financials and seek the opinion of an accountant if you are not familiar with reading financial statements.

Conducting complete due diligence takes time and effort. If done right, you will have better outcomes, feel confident about your franchise selection decision, and pave the way to your success.

How to Narrow Your Franchise Selection Options

Mon, 22 Jun 2020 18:49:00 GMT

There are significant franchise opportunities in Canada! In fact, Canada has:

The 2nd largest franchise industry in the world
More than 40 different franchise categories
Between 1,200 and 1,300 franchise companies
Approximately 80,000 franchise units in Canada

Franchising can be a great opportunity for you to operate your own business with reduced risk and support of a parent company. Selecting an already successful franchise concept with recurring revenue can make sound business sense for your new venture. Recurring revenue is predictable and stable revenue that you can count on with a high degree of certainty.

If you have completed our free Franchise Self-Assessment, you will have a sense of how suited you would be to owning a franchise! This self-awareness is important information to have, but it’s only one piece of your decision-making process.

3-Step Selection Process

Selecting the right option for you can be overwhelming if you don’t know where to begin. There are many franchise categories to explore from retail to business services to personal services. You may have a general idea of the category that interests you, but you still have a variety of franchise businesses and investment levels to consider.

When you think of franchising, you may jump to the large and well-known franchises that operate in Canada, for example, McDonald’s or Subway. However, there are also a number of franchise opportunities that require less significant investment. Some franchises may require initial investments as low as $10,000.

Step 1: Explore Franchise Categories

Use your Franchise Self-Assessment results to determine which franchise categories would be of interest to you and that match your personality traits, interests, skill set and needs. Select one or two categories that you could see yourself achieving success.

Step 2: Explore Franchise Businesses

Now that you have identified a franchise category, you can create a short-list of franchise businesses that best represent the category. Remember to consider the range of investment levels that are required.

The short-list will provide you with the franchise businesses that you can further research and compare. Landing on a short-list will help you to determine which businesses to conduct in-depth research.

Step 3: Conduct Franchisor Due Diligence

This is the most important step to ensure that you are making a sound selection decision. It can take anywhere from three to four months to conduct extensive franchisor due diligence. Read more by reading our blog: The Importance of Due Diligence.

Combined with a sharp business mindset, personality fit for franchising, and a sound franchise selection process, you can be on your way to an exciting and lucrative franchise opportunity.

Why Self-Assessment is Important when Considering Franchising

Mon, 08 Jun 2020 19:04:00 GMT

If you’re considering buying a franchise, it can be an exciting, rewarding, and lucrative way to run your own business. However, to be happy and successful you need to be the right fit for the role. This is true of any career option you consider.

In our Choosing the Right Franchise video, we talk about the three critical items that you want to know about when choosing a franchise: The Franchise Self-Assessment (FSA) can be an important tool to guide your decision making about whether or not you would be well suited to a franchisee role. The FSA is merely one tool that you can use in your decision making process. Our Franchising for New Canadians series will provide you with additional information and resources that you will also want to consider.

What does the Franchise Self-Assessment Measure?

The FSA measures critical traits, characteristics and aspects of your personality and how they compare to other successful franchisees. There are no “right” or “wrong” answers and your results are completely confidential.

This particular assessment was designed specifically for newcomers to franchising. It measures 10 traits that are essential to your success, and ultimately your happiness in a franchisee role.

10 Critical Traits For Franchising Success:

1 - Extraversion

Ideal franchisee candidates will be most happy working with a group, and will thrive in a leadership role

2 -Agreeableness

Ideal franchisee candidates want group harmony among their work team, with everyone working towards shared goals.

3 - Conscientiousness

Ideal franchisee candidates want to do what is right, and do it in the best way.

4 - Stability

Ideal franchisee candidates will be calm under pressure. They will remain logical and objective, even when things go wrong or if business gets exceedingly busy.

5 - Openness

Ideal franchisee candidates will consider implementing new methods of working, if there is a strong business case for trying something differently.

6 - Resolve

Ideal franchisee candidates really care about their jobs, and take personal pride and enjoyment from their work.

7 - Reliability

Ideal franchisee candidates will stand out for consistently following through on their commitments to others.

8 - Control

Ideal franchisee candidates are natural leaders who are focused on achieving success.

9 - Optimism

Ideal franchisee candidates have a positive outlook regarding people and processes, and are usually enthusiastic about innovation and new ways of doing things.

10 - Assurance

Ideal franchisee candidates are not suspicious of others. They will delegate tasks to staff and trust them to deliver results, without needing to constantly watch over them.

Additional Information to Consider:

With the results from the Franchise Self-Assessment, you will have important information to help you decide if you are well suited to franchising and are likely to succeed.

Self awareness is an important part of your research process. However, you will still need to conduct additional due diligence and research to make an informed decision about becoming a franchisee.

By completing our free Franchise Self-Assessment , you will be one step closer to realizing your dream of owning a franchise.