Should I buy a franchise?
Buying a franchise is a great option for someone who is looking to invest in a proven business model that comes with training and support. However, it’s less suitable if you want to develop the business model yourself and control things like pricing, branding, and product lines.
Make sure that you research the available franchises to see if any are right for you. Get to know more about the franchisor by speaking to existing franchisees, if possible. Make sure you know about all of the costs involved before committing.
I want to buy a franchise, where do I start?
The first thing you will need to do is determine what it is that you are looking for. Going into your search with clear goals in mind will save you time and, possibly, money.
Decide whether you want to be able to work from home, or on location. You will also need to know what your price range is according to your available capital.
Where do I buy a franchise from?
Online marketplaces are the best place to view the widest range of franchises available.
You can use various filters – such as location, investment level, and sector – in order to whittle the options down to franchises that meet your needs.
How much does it cost to buy a franchise?
There are hundreds of options when it comes to franchising and, along with a range of sectors, there is a wide range in investment requirements. Not all franchises will take a large, upfront capital investment.
According to the Canadian Franchise Association (CFA), franchises typically cost between $5,000-$75,000, with a total initial investment of $10,000-$1 million.
The costs involved in buying a franchise will include the initial franchise fee, the set-up costs and, potentially, legal fees. Franchising fees will be made up of an initial fee and ongoing royalty fees.
How can I raise funds to buy a franchise?
There are several options when it comes to financing the purchase of a franchise. You can go the most obvious route of securing a commercial bank term loan. You will need a thorough business plan to give your loan application a chance of succeeding.
If this route proves challenging, consider boosting your chances through the Canada Small Business Financing Program.
Some franchisors will even offer to lend you some of the funds themselves.
Finally, you can approach family and friends for a loan. If you choose this option, make sure you have the terms in writing to prevent any problems down the road.
How do I sell my franchise?
Find out from the franchisor what the transfer fees of the sale will be, what qualities the franchisor is looking for in a franchisee (as they will need to approve the buyer), how you should value your franchise, and any other terms you should be aware of.
You will then need to market your franchise for sale. You can advertise it through an online marketplace such as BusinessesForSale.com, and/or you can go through a broker. Alternatively, your franchisor might market the sale for you.
How long does a franchise agreement last?
This is dependent on the franchise, but they can typically last for a period of anywhere from 3 to 20 years. In Canada, many franchise agreements are fixed for a five-term period. The franchisee will usually have the right to renew at the end of this term.
However, franchisees operating in Canada have the legal right to rescind the franchise agreement up to two years after signing the document if the franchisor fails to meet their obligations.
How much do franchisees earn?
Your income is dependent on your skills, the business model, and the number of hours that you work.
You will need to balance your projected revenues against the capital that you invest plus the ongoing overheads to calculate your return on investment.
Can a franchisor be a franchisee?
No. The franchisor sells the franchise opportunity to the franchisee. The franchisee is offered the right to open and run a franchise using the franchisor's systems, branding, and knowledge.
How are franchise fees calculated?
The initial fee is for the right to operate under the brand name within a specific territory as well as business launch support. Regular royalty fees, which pay for ongoing support and resources, are often calculated as a percentage of revenues – typically 5-6% for retail franchises and 8-10% for service franchises, according to the Canadian Franchise Association (CFA).
In some cases, ongoing support is paid for through mark-ups on products and equipment instead of separate fees.
Can you negotiate franchise fees?
Franchise fees are nearly always non-negotiable. Franchises are offered with the same terms and conditions to all franchisees. This provides consistency between all franchises operating under the same brand.
If you are unhappy with the fees that the franchisor is asking for, you should consider researching other franchises that might better fit your needs.
What happens at the end of a franchise agreement?
When you sign the franchise agreement, you will agree to a specific length of term. At the end of this term you must either renew or terminate your agreement.
If the franchisor is happy with your performance, you should not encounter any problems renewing your contract. You will, however, need to meet with your franchisor in order to discuss any new terms, which may include refurbishment or updates to literature.
If you choose not to renew your franchise agreement, you must give the franchisor sufficient notice in accordance with the agreement and your province’s laws. You will then be required to stop trading under the franchisor’s brand when the agreement expires. Be aware that the franchise agreement may prohibit you from owning or operating a business that competes with your former franchise for a certain period of time.
What are the pitfalls of franchising?
Buying a franchise also means buying into the systems, processes, and business model of the franchisor. If you’re unwilling to follow a rigid (albeit proven) formula, franchising may not be for you.
You will also need to be ready to pay ongoing fees to the franchisor on top of the upfront fee to buy the right to run the franchise.
And you must carefully consider a franchise’s merits before you invest as the brand’s success is your success. Conversely, if the reputation of the brand suffers, so will you.
Can you walk away from a franchise?
Once you have signed the franchise agreement, there is little possibility of breaking the contract - unless the franchisor reneges on their obligations. Most commonly, however, if you need to walk away from the business, you will need to find someone to buy it from you.
In order for this to happen, though, the franchisor must approve of the new franchisee taking over and you must be up to date with all your payments. You will also probably be required to pay a transfer fee.
Can a franchise owner be fired?
As a business owner, a franchisee cannot be fired. However, a franchisor can terminate the franchise agreement. This would only happen in a situation where the franchisee is in breach of contract.
What happens if a franchise goes bust?
If the franchisor goes into liquidation, franchisees are not legally classified as creditors, so have few legal rights.
Unless the brand is rescued by another buyer, the franchisee will have to separate their business from the brand. They could potentially convert the business to a competitor franchise, which is a cost-effective option since the expertise and assets are largely transferable.
If the landlord is subleasing the premises to you via the franchisor, you will have to agree a fresh lease agreement.
How do I find the cheapest franchises to buy?
There are plenty of low-cost franchises to choose from. Using the filters on our site, you can also filter the franchise options down to only franchises in your price range.