5 Things To Consider Before Buying A Franchise In Canada
There are many different ways that an interested person can become the owner of a business. Options are available for starting businesses. There are opportunities for buying existing ones. A better option may be purchasing a franchise. No matter the approach, some things need considering. There are some essential things to consider before buying into a franchise.
1.Understanding What a Franchise Is
When a person buys into a franchise, they are purchasing specific rights to the business. They are purchasing the right to utilize the business system of the franchise as well as use its
brand. Every franchise will have clear and concise policies that cover the rights of the buyer.
The Cost of a Franchise
There is a cost for the rights that the buyer is being given. There can be a big range in these costs. Many are under the impression that the majority of their franchises may be out of their financial reach. However, there are some great opportunities now available for Canadians to buy into small business franchises. Some examples of these can be found in the beauty industry in different categories such as aesthetic services, or hair salons.
Renting vs. Ownership
What has to be realized is buying into a franchise is the agreement pertains to renting the applicable rights.. It is not outright ownership. As such, there will be a time limit attached to the contract. This can range from five years to ten years. Most often, these agreements also contain a right to renew. This is for the protection of the person buying into the franchise and the one building the business during the agreement terms. The renewal provision is not something that automatically takes place.
Another consideration with a franchise is being able to assign the rights. This, too, is not something that is automatic and will be part of the negotiations when the terms of the agreement are created. Most often, there are conditions that will apply to the renewal or an assignment. If these conditions are not met, then this portion of the agreement can be voided.
FDD is the Franchise disclosure document. There are laws in some of the Canadian provinces that must be adhered to when it comes to the FDD. This document must be given to the franchisee at least fourteen days before they sign the contract. Although this may vary among the different provinces. It is vital that anyone that is going to enter into a franchise knows what the regulations and laws that pertain to franchises according to their province.
The FDD is the document that really gives all the information as to the workings of the franchise. It will contain the following information:
- Who the franchisor is and if there are any parent companies, previous owners or affiliates
- Business experience
- Initial fees
- Other fees
- Estimated initial investment
- Restrictions on products and services
- Franchisee’s responsibilities
- What help will be given to the franchisee such as advertising, marketing, training
- Copyrights, patents and proprietary information
- Franchisors responsibility for participation
- Renewal or transfer information as well as transfer and dispute resolutions
- Public Figures
- Representation of financial performance
- Franchisee information and outlets
- Financial records
3.The Boiler Plate
The boilerplate is the agreement that the franchisor has developed for the franchise. This is what every franchisee agrees to when they enter into a contract. Sometimes a new franchisee’s lawyer will want to make several changes to this. It can be a waste of money because there will be a lot of terms that are non-negotiable. The franchisee’s lawyer should not this. What it means is choosing a lawyer that is familiar with franchises as they will automatically know what is negotiable and what is not.
That doesn’t mean that nothing can be changed, but changes should be chosen carefully and realistically.
4. Is This The Right Franchise For You?
Part of this decision is also based on whether having your own business is right for you. For example, there are a lot of aestheticians who have worked for others for several years and have created a large clientele for themselves. Yet, if they were to leave that establishment, they could not take those clients with them based on business ethics. Many who are in this situation would rather be in a position where they are working for themselves. A franchise in this industry would allow them to do precisely that.
Then it is a matter of choosing a franchise that is going to meet the wants and needs of the new business owner. Aside from looking at the legalities, there are ways to determine if a proposed franchise is going to be the best choice.
Talking to other franchisees. They are the ones that are going to have the most experience with the business outside of the franchisor themselves. There are some basic questions that could be asked of the franchisee that will provide some important information. Such as:
How long has the franchisee been in their location, and were they the first ones to have this particular location?
This will give an interested party some idea as to how long it took the franchisee to get established.
Are they happy that they made the decision to go with this franchise?
This is an open-end question where the franchisee may freely discuss the pros and cons that pertain to them.
While these are two simple questions and important ones, they are questions that should be asked for a couple of franchisees within the same franchise. This is because there will be variables that affect their answers. For example, their location will have a bearing on their answers. Also, personal feelings, such as whether owning their business, was the right thing for them. This would not necessarily be a reflection on the franchise itself.
5. Being Informed
There is a lot to learn about franchises in general, which should then be carried on to learning more about the specific franchise that has captured their interested.
The good news is that there are some great opportunities now in Canada for small business franchises.