It would be unnatural for anyone thinking about the world of franchising to not have questions before deciding whether that’s a business direction they want to move in. Like starting any business, investing in a franchise comes with its own set of rules and unique concerns that every prospective owner should consider. The Internet and many franchise organizations online are full of pages with frequently asked questions about buying a franchise, so in our article today we want to focus on the very key questions you should consider. These can help you decide if franchising is a business for you, and whether owning a franchise can help you enter the industry you’re interested in. So without further ado, here are the top five questions to ask about starting a franchise in Canada:
- What’s the demand for the product or service you’re interested in?
In a previous blog, we talked about how the number one rule for starting a franchise is that you should be passionate about what it is you’re going to be selling or doing. Although there are over 75 000 franchise units in Canada, not all businesses and services are in demand. Before you even begin thinking about what company you may want to consider associating with, you will need to decide which industry appeals to you and is worth going into. Even if the general industry you are interested in is in decline, there may still be a lot of demand for the type of service or product. What’s important is that your expectations match the reality of the market and you’re not entering a dying or unprofitable industry. Find out how does the franchisor company fit into the market? Is their product or service unique or of better quality compared to the competition? You want to make sure that you’re not only entering a healthy market but the company you’re getting into a relationship with has a strong competitive position in that market.
- How did the company you’re interested in starting, and what is its background?
A big reason a lot of franchisors have a strong presence in the market and are able to attract prospective franchisees is because of the marketing strength and presence of their name. And a big contributing factor to the strength of the brand is the time the company has been around on the market. Companies that are more mature are usually better established on the market, but newer businesses often have the edge with innovative products or services. How many years has the company you’re considering been in business? How many units are currently operating in Canada? It’s important that you understand why the company started what they do, why they are interested in franchising as a means of expansion, and what the interests of the owners and executives are. Find out is the franchisor known for being fair and honest among its franchisees? Because you are looking to enter in a long-term working “marriage” with the company it is important that you understand exactly who you’re dealing with, and most importantly feel comfortable in the fact that you can trust and work with the people who pull the strings.
- What is it really like to work in the industry?
Many franchisors will be quick to tell you that owning their franchise is nothing more than shoveling in dollar bills with a golden shovel. But even the most naive will know that’s not true. Ideally, if you’re considering entering the franchising world, you’re not just looking for a passive income, but also have an interest in actively running a successful business. The franchisor should paint a realistic picture of what your duties as an owner will be during the set-up and after your franchise begins operating. Finding out what the everyday operations of a franchise are like can be the deciding factor for many prospective owners as to whether they want to be involved in that industry at all. Either way, as a future owner you should expect to work a lot and work hard before your franchise begins turning over a profit. Which brings us to the next question you should ask before considering buying a franchise.
- Is the franchise profitable?
No matter how passionate you are about one industry or another, everyone gets into franchising to make money. That’s why you want to make sure you pick one that is not only in an in-demand industry but also has a structure and processes implemented by the franchisor to turn the franchise profitable. Of course, all franchises require an initial investment, and some time between setting up, commencing operations, and generating a steady revenue. The company you’re considering should lay out scenarios or examples of how a franchise is expected to perform in your area, or areas similar to the one you’re entering. Make sure to find out what the anticipated time between startup and profitability is. This will help you manage your financial responsibilities realistically, and figure out whether the investment is worth it and is sustainable for the period until you become solvent as a business. Which should bring you to the last top question to consider:
- What are the franchise fee and royalty fees like?
All franchises require an initial investment. In return, you’re supposed to get assistance with franchise set up and training on how to run the business, generate clients, and become profitable. That’s why it is crucial to understand how much the initial investment in a franchise is, and what will the ongoing fees be once you are up and running as a business. Consider the fees as an exchange not just for the brand name, but for a package of services that the franchisor guarantees to provide you in exchange for you buying into their system and business model. Understanding how much is required from you upfront and on a monthly basis after you’ve set up can help figure out how long it will really take until the franchise becomes profitable, and what your initial goals for performance should be like.
As you can see, all of the questions we discussed above lead to more specific questions and down different lines of discussion about owning a franchise. They are just a starting point that can help you decide whether you’re interested in the type of business or a specific company. Either way, once you’ve narrowed a list of companies, it’s great if not a crucial idea to also ask the existing franchisees some questions to better understand whether you want to be a part of that industry or that company. As an added bonus to today’s article, check out these top five questions to ask existing franchisees:
- What’s the daily routine REALLY like?
This is the same question you should be asking the franchisor, as you can see from the list above. But as we mentioned, most company owners will up-sell their company and generally try to make it sound a lot more exciting than it actually is. Talking to the actual franchise owners will give you a better idea about what the company as a whole does well on the daily basis, where it can improve, and what they like or don’t like about owning the franchise. It’s also important that you cross-reference what the franchisors say versus what the franchisees have to say about the company. If it seems like the owners are trying to omit something that franchisees are including in their experience, that may raise some concerns or red flags.
- What is the communication between the franchisor and franchisees like?
This should be one of the most important questions to pay attention to when you’re talking to existing franchise owners. Entering into a contract between the company and a franchise owner implies a relationship of support and communication. Before committing to buying a franchise you want to make sure that the owners and executives have it in their best interest to ensure that all the units are running smoothly and at a consistently high level. If there isn’t a lot of communication or support from the head office, there is a good chance the company is treating franchisees as a cash cow and isn’t serious about growth and brand expansion. In a good system, franchisees will say that the owner is honest and transparent.
- How does the franchisor assist with marketing?
In the worst franchises, the individual units are often left to operate alone on the periphery with little but a brand name and a supply contract attaching them to the parent company. Just like communication with the head office is important, so is a top-down marketing strategy whether it is a blanket one across multiple areas or one that is targeted to specific areas of operation. How exactly the parent company assists with marketing, how often, and to what extent can help determine how hard of a time you will have at the outset of your operation. It’s good to ask other franchisees whether the company assisted them in ensuring the new operation has a marketing advantage or a customer base to start with.
- What kind of input and power do the franchisees have?
A downside of owning a franchise is often in not being able to change the rules and having to adapt to someone else’s system and way of running things. After all, buying a franchise is about buying into a successful, functional system that’s been set up and tested. But in best franchise systems, the head company will listen to the demands and needs of the franchisees and work to implement positive changes together. After all, it’s the franchisees that work in the field and see firsthand the needs and shortcomings of running the business in that area. Be wary of head companies that aren’t willing to accept feedback or conversation from their franchises, this may mean they’re not fully invested in the benefit of everyone under the wing.
- Would you do it all again if you had the chance?
The best way to figure out whether a franchise is worth investing in is to ask an owner whether they would do it all again. Franchise agreements are time sensitive and you may meet an owner that can’t wait for their agreement to end, or you may meet one that can’t wait to renew their rights. Either way, this question is a good lead on identifying whether the franchise in this particular case is worth investing in, and makes people happy.
Hopefully, these questions to ask both franchisors and franchisees have given you some food for thought when it comes to figuring out how to recognize good franchises, what to look for in owners, and what to consider as you embark on your journey as a franchise owner.
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