George Cohon, renowned businessman and founder of...
Once you've done all your homework and found the right Canadian franchise for you, there are still a lot of things to think about. One area in particular that doesn't get enough attention is equipment, specifically the type you'll be using to stock your location.
Your equipment needs will vary by industry. Home-based franchises, for example, tend to have very little in the way of equipment. However, for a franchise in the $3 billion Canadian fitness industry, as valued by research firm IBIS World (www.ibisworld.ca), equipment is naturally a large and important cost. Food franchises, for example, also lean heavily on appliances to serve customers. While your franchisor will guide you on the needed equipment, there are some questions to consider on your own.
What's the price tag?
You should have received a general equipment cost estimate when you were doing your research, but at buy time, you need to think about the specifics. Equipment costs can add up quickly, and you may need a loan to cover it. Get your prices down and accurate so you know how much capital you need to cover this cost.
If you're struggling, check out the Canada Small Business Financing Program (www.ic.gc.ca), which does offer some financing for equipment purchase . You'll need to meet the eligibility criteria, but franchise equipment costs generally qualify for this program.
Should you decide to finance your equipment, then senior banks are a strong option. The most conventional finance mechanism is a lease. The bank buys the equipment and then lease it back to you. The bank owns the equipment and you need to meet a criteria. Another way is a line of credit against the equipment. You own the equipment and is placed in guarantee against the loan. There are other less conventional financing options like the revolving loan for dealers against large identifiable stock for sale, like cars and machinery. This one goes according to a strict criteria.
Is used an option?
Depending on your situation, you may be able to lower your costs if you buy used. Be careful and read the fine print before you buy any used equipment, as lemons are aplenty. Make sure what you are buying will serve your needs without sacrificing quality. Ask around and see if there are any qualified refurbishing companies that work within your industry; this tends to be a safer route than buying online from someone you don't know.
Senior banks are familiar with financing the purchase of used equipment. This type of financing brings a considerable peace of mind for the investor as the banks get involved in the inspection, aging and appraisal of the equipment. Investors should take the bank's appraisal as a second opinion and advice.
How does the inherited equipment look?
If you are receiving used equipment from a previous franchisee, carry out a thorough inspection of each piece. Don't assume it's in full working order and ready to go. Conduct a performance test on all of the equipment you're getting as you may need to repair or replace some of it, and you don't want to discover that on opening day.
Always consider the price, the benefits and drawbacks of buying used, and the state of any equipment you are going to inherit when you're deciding how to equip your new location. A little forethought now may very well save you time, money and aggravation later.