Franchise Entrepreneurship

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Franchise Entrepreneurship

Many people dream of owning their own business but have no idea what business they want to be in.  If you are an entrepreneur at heart but lack an idea for a business, you should consider a franchise business.  

Like any business, franchises come with risks and rewards.  In some ways, they are viewed as less risky given that the concept has been proven and tested many times over, however you generally pay for this in the form of upfront and recurring franchise fees.

You should make a well-informed decision and you should not get carried away with the romantic aspects of being an entrepreneur when selecting a franchise.  As you explore the idea of opening or acquiring a franchise business.  Here are some critical considerations to make:

Partnership

It is important to realize up front that when you open or acquire a franchise business, you are entering into a partnership.  While you should be able to put your own touch on the business you should realize that certain decisions will be made for you by you franchisor.  Interview franchisors and understand their long-term objectives.  You should ask very direct questions about their growth plans and how they make decisions on new store allocations.  Many franchises offer some form of geographical protection or will promise to provide franchisees with the first option on a new location within a certain radius of your location.  The importance of this will vary depending on the nature of the business, however, you want to make sure that you do not end up in a position where you are competing fiercely with a fellow franchisee.  

Lifestyle

Many people underestimate the personal commitment of a franchise.  As long as the business is open for business there is a chance that you will be needed.  It is naive to think that you can simply hire people to run the business for you and never have to worry about it.  Things can (and will) go sideways as your business grows and it is important for you to be available when problems arise.  People will get sick and you will need to work the front-lines, dealing directly with customers. In fact, I believe that it is critically important as a franchise owner that you spend time on the front-lines.  This will allow you to better understand your customers and how to make operational improvements.  

Passion

Though a franchise business may be an established concept, it is important that you identify and connect with the business and the brand.  Further to the previous point, you will spend a lot of time working in your business and you need to make sure that the product or service is something that you identify well with.  

Financial Commitment

Most new business owners underestimate the amount of cash that they will need to get their business off the ground.  Once you have invested in a franchise business and your turn on the lights you should not expect that it will make money immediately.  Though franchise businesses may take off quicker than new businesses as the products and services may already be known by customers, you can expect that it will take a while for consumers to find you and to make your business part of their purchasing routine.  You should get insight on this from your franchisor.  A better approach, however, may be to speak to existing franchise owners about this if you get the chance.  

Personal Cash Flow Needs

If you are leaving a steady job you may be surprised to learn that venturing into the world of entrepreneurship sometimes comes with significant personal costs.  When the bills pile up you might find yourself unable to pay yourself the salary that you are used to.  Make sure to understand your baseline needs and factor this into your budget.

Personal Liability

Owning a franchise business will often require leasing commercial real estate.  Commercial real estate often requires a long-term lease with terms of five to ten years being the norm for a high quality commercial space.  Many landlords will ask you to sign a personal guarantee committing you to cover the monthly lease costs if the business (which is probably incorporated) fails or is unable to cover the rent. In the event that the business fails this could have a very negative impact on your personal financial situation and would further your investment loss in the business.  

Location, Location, Location

The old adage rings true.  There will never be a substitute for a good location.  That being said, the right location depends on your business.  Consider other tenants around you.  Are they drawing the right clientele for your franchise business?  Also, do not get carried away thinking that you need a large location.  This is an important lesson that a client of mine learned recently.  After downsizing from 4,000 square feet to 1,900 square feet he has actually seen his sales increase because of a short move to higher visibility location in the same shopping centre.  A big store generally does not translate into higher sales, but a better location will.

Growth

You may dream of owning multiple locations.  Many new business owners dream of this and they quickly realize that this can be very hard to do. Early on into your search for a franchise you should learn as much about the operational challenges that other franchisees face. Understand the systems and resources that your franchisee has available to deal with these challenges. For instance, learn about the technology that your franchise will run on and figure out what the day-to-day Backoffice needs will be.

Brand Longevity

This is a matter of judgement but something that should be considered nonetheless. Ask yourself whether you can see a franchise business being around in ten years time. Consider whether the franchise is riding a trend or if it is offering a product or service that will withstand the test of time.

Exit

Consider whether there are any restrictions on the sale process of your franchise. Also consider whether there is any obligation to sell back to the franchisor. Often such a restriction will exist at least temporarily in a franchise agreement. Generally, the fewer restrictions you are subject to, the greater the sale price you will be able to command.

Take your time and do your homework if you think that a franchise business might be for you. Though no business is easy, the right franchise business can allow you to realize your lifelong entrepreneurial goals.

Looking for bookkeeping services for your franchise?

We can help! Specializing in bookkeeping services for businesses in Vancouver, Calgary, Edmonton and Toronto, our team at Enkel is always happy to discuss our services in more detail. Feel free to contact us for more information!

Omar Visram
About Omar Visram
Omar Visram is the Co-founder and CEO of Enkel Backoffice Solutions Inc. Headquartered in Vancouver, Enkel provides bookkeeping, payroll, accounts payable and accounts receivable services to over 200 organizations Canada-wide.