How to Purchase a Franchise
by C. John Woodburn
Never have so few owed so much to so many!
Sure this is a variation on an old cliché but you can use it as your theme song as you investigate buying a franchise business. To do so successfully you’ll need a team of investigators and advisors. Here are just a few areas.
- Franchise experienced advisor
Who plays which role and which is most important?
Let’s look at these step by step in order of sequence.
Your first requirement is to narrow down your shopping list. With questions such as:
-What’s the growth curve/potential of this business or industry?
For example, with food:
- Is it a new product?
- How long has it been in existence?
- What can negatively affect its future?
- Does it fit the health driven mode of today’s consumers?
- Is it regulated in any way?
- What are its customer demographics? (e.g. age, income, gender, cultural.)
Especially if you’re unsure of what you are looking for, this will be invaluable.
Here are some questions you should ask:
- What is your franchise experience?
- What is a growing concept?
- What is the frachisor’s reputation?
- What does the system deliver and what does it demand of you?
- What should you do to evaluate different concepts?
Take a look at:
- How long has the franchisor been in business?
- How many outlets does the system have?
- Where are the outlets located? (Visit some.)
- Do they have a Disclosure Document?
- When can you receive this Document?
- What is the personality of the franchisor?
- What staff infrastructure does the franchisor have?
- What training will you get and where?
- What are the sales and profit potential?
- What is your personal cash and total investment?
The franchisor’s Disclosure Document in Alberta & Ontario will list all current franchisees and also recent past franchisees. Contact them. Arrange to meet with a number of them at a convenient time. Ask them basic questions such as:
- How long have you been in the system?
- Are you happy?
- Are you making money?
- What support do you get?
- What is the franchisor's personality?
- Would you do it again?
A franchise agreement and its associated agreements are serious legal documents. Source out experienced franchise lawyers and call them. Get an overview of their experience.
- Do they do franchisor and franchisee work?
- How long have they been doing it?
- Do they like franchising?
- What would your cost be for their review of the Disclosure Document you receive?
Get experienced advice on your potential investment. Look at your cost in light of:
- How much cash must you invest?
- Where will you draw this investment from?
- What is the cost or sacrifice in doing so? (Are you giving up income you’re now earning?)
- What percentage of your total assets are you investing/risking?
- When might you expect to get a return on your investment above and beyond your own wages?
- Should you do this alone?
You may well be able to borrow some of the investment from a bank. Keep in mind a bank will want to see you investing first as a note of your confidence in the business. This might be on a ratio of one dollar from you - one from a bank loan. The Canadian Small Business Loan program may be helpful but you’ll pay a small premium for its backing. The government backing and the openness of this style of loan can make it worthwhile.
After all the preceding questions and steps, one of the prime factors should be you, your business background and your gut feel.Will you enjoy doing this day after day, year after year? Will you be proud of this business? What are its rewards?
- family involvement
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