Where to Start and How to Succeed with a Franchise Business
If you want to start your own business, a franchise can be a great way to increase your chances for success.
As a franchisee in a major network, you can expect to benefit from professional marketing, national advertising, specialized training, and centralized purchasing. As well, you are statistically more likely to succeed with a wellestablished franchise than with a nonfranchised independent business.
To get started, it’s important to have a holistic view of the franchise experience – including what you need to know at the beginning all the way to what is needed to sell.
Where to start
Getting started on the right financial footing will set the tone. A good rule of thumb to follow is to make the initial investment – which includes your franchise fee as well as some of the soft costs like legal and insurance – at a minimum of 30 per cent. This will help reduce the cost of borrowing, especially in a rising interest rate environment.
It’s also important to look to your personal finances and make sure they are in order. It’s possible that you may not be able to rely on the business for income in the first few years. Have a plan in place and anticipate that the business may also become a burden. This can be a good time to work with a business bank that understands the needs of a franchise. Further, it’s a good rule of thumb to have, approximately, three months’ worth of salary tucked away in case you hit a particularly bumpy patch.
How to succeed
When choosing a franchise, it’s common for prospective franchisees to consider growth potential. Fundamental to this choice is an understanding that a franchise will always, at least in part, be dependent on the franchise brand. Look for a franchise that’s a good fit for you and make sure you find a business model that you’re eager to commit to.
You also need to consider the implications of hiring staff; this requires
an understanding of human resources and payroll practices. When you set up your franchise business, you can make use of the payroll services that many banks provide to accommodate small enterprises and start-ups. As your company grows, you can transition to a payroll company – doing so provides the benefit of freeing up time for you and your staff to concentrate on actual business operations.
Consider, too, ways of keeping your staff happy. Talent retention can be a challenge, especially for a new and growing business. Do what you can to keep your team engaged; this leads to staff who are more loyal and invested in the company, which helps keep turnover to a minimum.
A small reminder: lean on the franchisor. Something that is often overlooked is the support provided from the franchise itself. A franchisor wants its franchisees to be successful and build a strong reputation for their brand. Support is typically provided in areas such as hiring, scheduling, and training team members, as well as in marketing and brand awareness. Take advantage of anything the franchisor is willing to provide. As much as a franchise may – at times – feel independent, there is a team behind the business ready to provide support.
Closing the door on your franchise
Finally, you need to consider the end of your ownership. While it’s understandable that selling your franchise is the last thing on your mind when you’re setting it up, seeing the whole journey of ownership – including its end – must be an integral part of your business plan.
“To get started, it’s important to have a holistic view of the franchise experience – including what you need to know at the beginning all the way to what is needed to sell.”
As part of your search for a franchise network, you should ask about succession – get an understanding of what is permissible and how the process works. There may be restrictions on a sale; a franchisor may insist you can sell only to itself at a pre-determined formula, while another may allow you to sell to the open market with its approval and final say. Succession might be another option; if your franchise is meant to be a family business, you need to be aware of how your business decisions affect the value of your asset over a longer time horizon. Speaking to a wealth manager or estate planner will help you get your affairs in order.
Canada’s franchise industry is demonstrating an excellent level of growth. Done right, you can make a success of an exciting opportunity for business ownership.
Joseph Pisani is the Director North American Industry Sectors, Franchise Finance for BMO Bank of Montreal (BMO). Visit bmo.com/franchising for more information.