Are You Doing Your Franchisee Homework?

Are You Doing Your Franchisee Homework?

With franchising being such a long-standing business model that has helped many people become successful, it's easy to think you can just pick one that meets your goals. The reality is that there are many franchises out in Canada today, and not all of them are wonderful opportunities. Franchising is still "buyer beware" and despite all the advantages an established business can offer an entrepreneur, you still have to treat it as you would any other business venture.

The Toronto Star points out that it is up to the prospective franchisee to find a solid franchise. Doing your homework is a big part of the search process, so make sure you've got all the bases listed below covered before you make your final decision.

Commit to Due Diligence

Comparison shop and don't be afraid to ask questions. There are laws that give you access to the information you need to make a sound choice. In Toronto, for example, the Arthur Wishart Act requires that you receive a full disclosure at least 14 days before you pay anything or sign any final documents. While a disclosure may be a mountain of paperwork and include some legal terminology, it's absolutely worth reading through and deciphering as necessary. This disclosure should give you an idea of the nuts and bolts of the franchise and how well it's currently doing.

Arrange to meet with other franchisees. If the franchisor doesn't want you to do this, consider it a huge red flag. When you do meet with current franchisees, work the conversation toward the tougher questions, such as how they are treated by the franchisor and what their earnings are.

Note that you're going to generally get what you pay for. An established, successful brand is going to be safer choice from the business prospective, but you're going to end up paying more for that security.

Consider What You Know

While many franchisors do offer full training if you're not familiar with the industry in which they operate, you are generally going to encounter more hurdles if you go with a franchise in an industry you have no knowledge of or experience with. You may end up simply not liking the work, so try to work in an unfamiliar industry you're seriously considering before you actually get a franchise. This way, if it turns out that the industry isn't right for you, you're not stuck with a business you're not fully committed to.

Try a Little Negotiation

As a little fish in the big franchise sea, it's true that you don't really have clout if you're just looking for a single unit. Nevertheless, you can still try to negotiate terms if you feel those terms add too much risk or are too harsh. Find out what the terms are, whether you can renew, and if you'll have any territory. Ask if the franchisor can require you to foot the bill for costly renovations and if you have the right to relocate if your lease ends before your franchise term does. 

You should never rush into a franchise agreement. It's one of the biggest commitments.