Franchising: Love it or stay out of it, expert says
Sick of working for the man? Wanna be the man for a change, but are perhaps a little leery of assuming the risk that goes along with financing and managing a startup business? Becoming a franchise owner might be the solution — “might” being the operative word.
Ontario FranNet owner Gary Prenevost specializes in preparing and mentoring prospective franchise owners, and finding them suitable opportunities in the vast universe of franchise concepts and companies.
“The difference between starting a business from scratch and owning a franchise, is that with a franchise there’s a proven formula. Someone else has invented the mousetrap, and all the franchisee has to do is apply that mousetrap to a local market. The risk is lessened considerably.”Moreover, large, well-established franchisors — the Tim Hortons and Boston Pizzas of the world — can make financing easier: They have longstanding relationships with banks that understand their business model. “If the franchisor has done the due diligence necessary to accept a new owner into the program, and he has a decent credit rating, the banks are usually satisfied,” says Prenevost.
That said, franchising isn’t for everyone. For starters, while lenders might be receptive to franchisees, they still expect prospective business owners to put a substantial portion of their own capital at risk — as much as half the purchase price of the franchise — to make sure franchisees don’t simply walk away if the going gets tough.
With a sticker price in the neighbourhood of $750,000, Tim Hortons outlets out of reach of most Canadians; the vast majority of franchisees pay $50,000 to $100,000 to become part of smaller, less exalted retail or service chains.
Beyond a grubstake, successful franchise owners should possess a number of personal qualities, none more important than confidence. “They have to have confidence not only in themselves, but in the product or service they’re selling, as well as the franchisor’s business model,” says Prenevost. “The No. 1 reason people buy franchises is to be part of a system; the No. 1 reason franchises fail is owners who didn’t follow the system.”
In addition to confidence, franchisees should be self-reliant, accountable and tenacious. “If you’re not prepared to be personally responsible for every facet of the business, you’re not cut out to be a franchisee,” says Prenevost. “And if you ask yourself what happens if the business fails, your answer had better be ‘failure isn’t an option.’ ”
As to which industries, concepts and businesses to pursue, there are literally thousands of opportunities from which to choose, some of the hottest concepts being coffee houses, staffing and human resources services, niche gyms, education and tutoring, and home care.
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