A franchise is business you purchase from a franchisor to sell a product or provide a service. When franchising a small business, the brand is already established for you, so you don’t have to create a new concept for your business to be successful. The franchisor has already taken the time to create a well-recognized name and connect with customers, which is beneficial and profitable for you from the start of your business. One drawback to a franchise is that you have limited flexibility to run the business the way you want. With ongoing costs for advertising or royalties, investing in a franchise can become expensive without including normal expenses to run the business. For some types of franchises, you may find it hard to select your preferred location and even more difficult to receive support or training for your employees.
Types of Franchises
A single unit franchise is the most common type of franchise. Like the name suggests, single unit franchises allow you to become the owner of a single location. With lower startup costs and affordable reoccurring costs, single unit franchises give you a higher chance for success. Other types of franchises include existing franchises, multi-unit franchises, area developers, and master franchises. As a beginner, you should consider investing in either an existing franchise or a single unit franchise. Existing franchises are well-established locations that have gained success in a specific region. This type of franchise presents minimal obstacles to newcomers and gives you a clear idea of what to expect from the business through a detailed track record.
Cost of Franchises
Depending on the industry and type of franchise, the cost to invest in a franchise can be as low as $10,000 or as high as $1 million. For restaurants, upfront fees and startup costs rise higher due to inventory and the equipment needed to run the business. Home-based franchises or franchises without a physical retail location have far fewer expenses due to cheaper taxes, franchise fees, and leasing expenses. The cost of your franchise and your initial investment can vary based on fees for insurance, training, permits, legal counsel, accounting services, and initial advertising.
Choosing the right franchise for you means narrowing down your options based on your personal interests, your financial situation, and your professional goals. You need to understand what type of role you want to play in the franchise. Do you want to be an absentee owner who hires a staff to run the day-to-day operations, or do you want to be an owner/operator directly involved with the franchise on a daily basis? The number of employees required to operate the business, the type of inventory, and the amount of necessary equipment are important aspects to consider when selecting the right franchise for you. Before selecting a franchise, realize the size of the franchise affects the overall costs needed to start and run the business. Your current financial situation should help you determine how much money you can actually invest, helping you form an idea of the type of franchise for you.
To select the right franchise, identify what you want out of the business. Once you have a few preferred options, speak with existing franchisees to get an idea of the advantages and disadvantages to make a more informed decision. Asking the franchisor for preliminary information can also help you see if the business aligns with your personal interests. After researching potential franchises, select a franchise with an excellent training and support system. Studying every federal disclosure document ensures you understand the potential.
When making a decision to invest in a franchise, helpful resources include the Canada Business Network, Canadian Franchise Association, and Franchise Direct – Canada. With the right research, it’s possible to achieve business success, even if you don’t consider yourself an innovator or creator.