When contemplating the purchase of a franchise, first you need to review your personal and business goals. How will a franchise benefit you in attaining your goals compared with starting a business from scratch? Are you motivated by the challenge of doing it all yourself? Or does that concept cause you more than a little worry and apprehension? Perhaps you have specialized skills which you would like to turn into a business operation, but all the peripheral aspects of starting a business are somewhat overwhelming and intimidating. If this is the case, then buying a franchise may be well suited to your personal and business needs. Some entrepreneurs prefer to have the security and support provided by a large and experienced company.
Statistically the survival rate of franchises is very high, especially home-based franchises. The reason tends to be because of the formalized and tested business plan and support systems offered by the franchisor including training, advertising and promotion, computer and/or other management and administrative systems, and ongoing monitoring of performance. At least 25% of franchises and distributorships are targeted to people who want to work from their homes.
Licensing is another option. It means having the right to distribute or manufacture a product within agreed-upon stipulations. The owner of the licence retains ownership of all product or service rights, then receives a royalty or fixed fee from the licensee.
Where to get further information
There are good and bad franchises and licenses, and any potential investor should be cautious. Check the reputation of the franchisor through the Canadian Franchise Association (CFA) (Toronto) and the Better Business Bureau. To obtain information about home-based franchises and licences, you should consult various publications, such as Canadian Business Franchise, Franchise Annual, The Franchise Yearbook, and other publications. Also check on line by doing a Google search.
The CFA has a kit of information available for prospective franchisees, including a booklet entitled Investigate before Investing.
Pros and cons of franchising
If you are a potential purchaser of a franchise, you have to evaluate a prospective franchise relationship by looking at both sides of the issue clearly.
Here are some of the advantages and disadvantages to the franchisee (the person buying the franchise from the franchisor).
The key benefits are:
being associated with an established company
having a proven and successful business system
having a reduced risk of failure
having an increased chance of profitability within the first few years
easier to access financing (banks, suppliers, franchisor)
having reduced costs of supplies and materials
having access to extensive advertising (national, regional, local)
having continuing managerial assistance
Here are some of the drawbacks:
