2021-02-26 15:39:25 Growing a Business English Learn how franchising works and what franchise business opportunities are waiting for you. Discover the advantages of owning your own... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2021/02/what-is-a-franchise-photo-qbo-ca-desktop.jpeg https://quickbooks.intuit.com/ca/resources/growing-business/what-is-a-franchise/ What is a Franchise?

What is a Franchise?

6 min read

According to the 2019 Franchise Forecast, as researched by the Canadian Franchise Association, the total franchise-related GDP contribution grew to a staggering $100 billion. In fact, franchise-related employment in Canada was estimated to grow to over 1.9 million jobs that year. With those numbers, it is easy to see just how vital the franchise industry is to the country.

But what exactly is a franchise? And why are so many businesses choosing to expand into this market?

These topics will help you understand more about the franchise industry: 

 

What is Franchising?

A franchise happens when a person, or franchiser, establishes a trademark brand and company and then charges royalties and fees to others, known as franchisees, to conduct business under their trademark.

A franchiser will license their brand to these franchisees, who will open new business locations and operate them as the owner or manager. Franchisees must operate their branches as an extension of the trademarked company, so all products and services, and processes and training are standardized across the board.

The business format franchise happens throughout all types of businesses, from the service and food-industry to accounting businesses and legal firms. Business franchising significantly impacts the economy, and there are many organizations and publications surrounding this market, including the Canadian franchise magazine.

Licensing vs. franchising

Licensing only extends to the legal relationship between two parties, limited in scope and only covering the trademark brand. On the other hand, franchising extends past the legal relationship to all aspects of the trademarked business, dictating how it should be run from the ground up.

Overall a franchise is a license agreement that is legally binding.

How Do Franchises Work?

For a franchisee to legally operate a trademarked business, they must purchase the rights from the business’s franchisor.  Franchising start-up costs include a flat fee known as a franchise fee, as well as other investments and restrictions. A franchisee pays the franchisor a percentage of their gross sales, known as a royalty fee.

It is up to the brand owner, or franchisor, to determine if an individual fits their business model and whether or not the prospective franchisee has the capital to establish a strong location. Large franchises like McDonald’s fast food franchise can be highly selective about who they choose to extend the use of their brand to.

Before a franchise business deal is brokered, the brand holder and prospective franchisee will meet to discuss future operations and determine if everyone is a good fit for the brand’s culture. At this time, both the franchisor and potential small business owner can interview one another. It’s important for franchisees to ask franchisors questions about the business, as the agreement must favour both parties and forge a strong working relationship.

Once all parties agree that a partnership is mutually beneficial, the future franchisee will need to sign a franchise agreement and franchise disclosure document. These documents will legally bind the new franchisee to the brand standards, including all franchising fees, royalty percentages, marketing requirements, and access to the brand’s intellectual property such as trademarks and secret recipes.

Franchises for Sale

There are many viable franchise opportunities in Canada currently. Directories like the Canadian Franchise Opportunities can help you find the top franchise opportunities throughout the country, illustrating each brand’s financial requirements, including the personal contribution and total investment needed to open a location.

According to Franchise Direct Canada, some of the most popular franchises in the country for 2021 include:

  • Hickory Dickory Decks (Construction industry)
  • Sylvan Learning (Education industry)
  • Fitness 1440 (Health and fitness industry)
  • Global Pet Foods (Pet industry)
  • PropertyGuys.com (Real estate industry)
  • TireChangers.ca (Automobile industry)
  • Experimax (Technology industry)

For Canadian-established and run franchises, consider this list of the top franchises in Canada.

Advantages of Franchising

There are many reasons why people choose to buy and operate a franchised business. These well-established brands provide stable opportunities for business-oriented individuals to own and operate a successful business. Other benefits of franchising include:

1. Growth opportunity

If a brand is franchising, that means there is room for growth in their industry. If the trademarked company is growing and looking for franchising opportunities, they are doing something right as there is a market demand for their products or services.

Many of the largest brand holders will franchise their trademarked company to the franchisee only if they have the funds and drive to open multiple locations at a time.

2. Low risk

Risk assessment has already happened on multiple levels by the time a new franchise location is opened. Both the franchisor and business owner have assessed the apparent risks to ensure that the brand’s expansion is sound and stable from the outset. Franchising also means extensive risk management is available, as the large brand will have the processes and resources to help mitigate employee and company issues.

3. Provided capital

Even though franchisees must have the funds to cover the required personal contribution and investments, the franchisor will still pick up some of the costs of opening a new location and starting the business. However, when entering into franchise systems, it is important to note the franchise agreement’s stipulations on personal finance reviews and whether there are available financing options with the brand owner.

Paying the start-up fees and royalties can still be less expensive than the cost of opening your own small business and building it from scratch. As the franchisor has skin in the game, so to speak, they will work with their new business partners to ensure the location is up and running.

4. It’s about the big picture, not the day-to-day responsibilities

As the franchisor and now the owner of the specific location, you can hire a team of employees to manage the business’s day to day operations while focusing on the bigger picture. The infrastructure is already in place, and internal processes and employee training are all standardized, so franchisees won’t need to develop such things themselves.

Using the franchise model, new business owners can easily implement quality control, operating methods, and workflow processes to ensure customer satisfaction from the start.

5. Higher brand awareness

Small businesses that are just starting will need to spend much of their time, energy, and finances building their brand awareness and customer base. Franchises do not have this problem, as much of the time, the business is a well-recognized brand and already has a large audience.

Therefore, franchisees can capitalize on this established and popular brand to gain greater customers from the outset of the location’s opening. This is especially true when it comes to operating well known fast food restaurants like Harvey’s or Tim Hortons.

6. Easier penetration into markets

One of the most significant advantages of franchising is the trademarked brands’ established popularity. Opening a new location in any area or market will be easier. The communities will already be familiar with the business’s brand and could even be eager to have one near their homes.

7. Increased profitability

Higher brand awareness and easy market penetration mean greater profits to be had when operating a franchised business location. Newly established businesses take years to turn a profit. However, trademarked brands already have a strong customer base and an extensive brand reach. Hence, revenue generation is comparatively higher from the outset than it would be with a new business.

Franchisors Can’t Do it Alone

When you choose to buy into a business franchise, many hands are working towards the same goal. Franchisees can’t do it alone. If you’re looking to invest in a franchise business, then QuickBooks can help. QuickBooks offers users franchising software for those business-oriented individuals looking to take on a franchise location of their own.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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