Do you have a project to open a franchise business, but you don’t know where to start? Before opening your franchise business and getting started, there are several steps to take, including finding the brand that interests you and learning about its network.
What Should I Know About Starting A Franchise?
If you don’t want to start a business from scratch, franchising might be a good option for you. For instance, More than a million Canadians are employed by franchisees, and franchise revenues are approximately $68 billion annually. Franchising can reduce some of the risks involved in starting your own business. You may, however, feel limited due to a lack of freedom in decision making.
Owning a franchise can lead to rewarding success. However, as with any other type of business, do the appropriate research.
How Does Starting A Franchise Work?
The franchisor (the company that grants you the rights to the company name and system) and the franchisee (you, the buyer) must sign a franchise agreement. In exchange for the right to use the company’s name and system, you must pay franchise fees, which can range from $ 5,000 to $ 75,000 in addition to royalties varying according to your requirements.
The franchise agreement sets out the terms of your relationship with the franchisor. Remember, however, that this is not a partnership. You each own an independent business whose goal is to make a profit.
The Stages Of Opening A Franchise
To open a franchise, there are necessary steps, and other mandatory guidelines one should follow. If you want to be sure that building your franchise is successful, consider it important to take everything into account.
Choice of Franchisor
To begin with, you have to determine which franchisor to join. Once this choice is made, the stages of creation can be approached. You will need to provide in particular a personal contribution in the creation of a franchise. Without input, you will not go beyond the project stage.
Finding the area in which to locate your business is the next step, as it will determine the discussion to follow with the franchisor. The latter must in particular validate the geographical area in which the franchisee will operate by using the brand and logo of the franchise. The franchisor will submit to the entrepreneur a first contract called DIP (Pre-contractual Information Document) which serves as a basis for negotiations. Once the franchisor and the franchisee have reached an agreement on the operating conditions of the sign, they sign the contract.
The franchise is now contractually ready. In practice, the point of sale has to be fitted out and work carried out if necessary. When the place is ready, you have to start communicating to ensure that success will be there from the opening. This will depend in particular on the notoriety of the brand and the potential customers who know it. This is the very principle of the franchise.
Just before the store opens, the franchisee must complete the mandatory administrative procedures in order to be in good standing with the authorities. All these steps must be organized from the start, within a business plan that will contain a financial study and a feasibility study. The health of the project depends on it.
Choosing the right business sector
Before venturing into the steps outlined above, you must of course determine the industry in which you want to open the franchise. Depending on affinities or opportunities, it could be a restaurant like a Burger King, or a florist, or even a DIY store. Of course, Burger King is not the only fast food available: several burger brands are competing for the favors of franchisees, so do not hesitate to compare the terms of each. It may also be a more traditional restaurant.
It is advisable to go to meet franchisors at trade shows that are devoted to franchises. A franchisor is not simply a structure to which one country an entry fee, and which brings its notoriety or its network to the franchisee. He also brings him his experience and allows the good development of the company. Choosing the right network to join is as important as the franchise industry.
Provide the adequate budget for financing the business
As in any business creation, you need a budget for the creation and operation of the activity. But since it is a franchise, provision must also be made for the amount of the entry fee to be paid to the franchisor. For a franchise of reasonable size, it takes 10,000 Euros to 30,000 Euros. This sum can be gathered in the form of personal contributions, but also through loans or grants.
What Steps Do I Need To Take To Fully Start A Franchise?
If you believe that starting a franchise is the best option for you, start by researching various types of franchises. Most franchisors will be able to send you information about their business. Once you’ve made your decision, here’s what to do:
Step 1: Complete an application. The franchisor reviews your application and determines if your application is suitable for the business. If so, you will receive the franchise information documents, which will give you a better idea of how the business works.
Step 2: Attend a discovery day. This is a presentation, by the franchisor, of one or more franchisees, during which you will have the chance to visit the facilities and ask questions.
Step 3: Chat with other franchisees. Are they satisfied with the support offered? Does the reality of franchisee correspond to their expectations? A list of current owners can be found in the franchise information documents.
Step 4: Examine the business plan, operational functioning and market analysis of the company. A franchise requires the same level of due diligence as any other type of business.
Step 5: Get Funding. The franchisor could help you find lenders. Make sure you have enough funds to cover all the costs of getting started.
Step 6: Sign the franchise agreement. Always ask a lawyer to review the terms of the contract. Some franchisors are more flexible than others when it comes to terms.
Step 7: Obtain the necessary permits and purchase insurance. You are responsible for meeting all municipal and provincial requirements related to your business.
Owning a franchise can lead to rewarding success. On the other hand, as is the case with any other type of business, do the proper research to ensure that this project is suitable for your short and long term goals as a business owner.
What Are My Obligations As A Franchisee?
You have to pay the upfront fees, which can range from $ 10,000 to over $ 100,000 and include things like facility costs, commissioning or consulting fees, marketing fees, franchise fees as well as royalties on sales. You will also be required to follow the franchisor’s procedures for day-to-day operations and reporting.
In return, you will enjoy the following benefits:
- Help with commissioning and training.
- Assistance in obtaining financing
- Management and financial management systems
- Exclusive rights in a specific sales territory
- Maintenance of buildings and equipment
- Advertising and promotions.
The Advantages of A Franchise
- You get help with costs and commissioning activities (equipment, suppliers, and training).
- It is possible to reduce your risk to yourself.
- You are running a turnkey business from the start.
- You get access to the franchisor’s operating system.
- It may be easier to get funding.
- You get the security of an already successful business.
- You can achieve economies of scale (collective purchasing power).
- You benefit from an already established reputation.
- Right from the start, you have a supply chain already in place and an established customer base.
The disadvantages of a franchise
- You may have to pay significant up-front costs.
- You have less flexibility in making decisions.
- You may not be in control of your ongoing costs, such as those related to advertising, royalties, and business maintenance.
- Franchising can be expensive to buy, especially if the business is already well established.
- Franchising contracts are generally more advantageous for the franchisor than for the franchisee.
- As a franchisee, your legal protection may be less important.