Owning a franchise gives you the opportunity to buy into an existing business model that has an established infrastructure, supply chain, support and reputation. You can enjoy the personal fulfillment that comes with running your business, with the backing of a bigger brand behind you.
But owning a franchise isn’t a recipe for guaranteed success, and there is a lot to consider as you venture down this path. In a recent conversation, Paul daSilva, National VP, Franchise Financing and Joanne Mason, Director, Franchise / Retail Markets shared insights any prospective franchise owner should take into account.
Here are seven things to consider as you evaluate whether owning a franchise is right for you:
How your personality, lifestyle and goals fit with the brand
There is a wide range of franchise opportunities available – from retail businesses to quick serve restaurants to full-service dining and more. As you consider whether owning a franchise is the right move for you, it’s important to think about the type of business you’re interested in, and how that business model aligns with you and your interests and lifestyle. For example, if you’re a morning person, buying into a late-night poutinerie may not be the best match. If you like to get away on the weekends, a retail business that operates only weekdays might be a good fit. If you’re a car person, maybe an auto parts franchise is the way to go.
It’s also important to consider that some brands are very prescriptive in terms of operations, marketing, sales and menu. As such, these brands are well-suited to individuals who have strong execution skills and aren’t looking for a creative outlet.
“The personality fit between yourself and the franchisor is another consideration,” says Mason, advising that in many ways, the relationship between a franchisee and franchisor is like a marriage – so it’s important there’s a healthy compatibility.
How your skills can transfer to franchise ownership
Some prospective franchise owners are hesitant to strike out on this path because they lack experience in the particular business they are thinking of running. But as daSilva explains, it’s most important to understand how your current skills can be applied to this new role.
“If you manage a group of people in your current job, then your ability to manage a team of people is a skill you can transfer over to a large-scale restaurant like a Tim Hortons or McDonald’s.”
Other transferable skills can serve you well as you make the transition to franchise ownership. For instance, successful franchise owners often possess the following:
- Management Skills. Having a general knowledge and ability in areas such as accounting, employee relations, time management and customer service is important when running a business of any size
- Marketing. The ability to sell your services and products is important. At the same time, the willingness to learn and execute sales systems as laid out by the franchisor is critical as some franchisors have strict operating guidelines.
- People skills. An aptitude to communicate – whether to customers, employees, suppliers and the franchise support team – is one of the most critical soft skills to have
Where your skills gaps are
On the flip side, it’s equally important to recognize where you have a skills gap and address those areas accordingly. “If you don’t understand the nuances of your accounting statements,” daSilva provides by way of example, “hire an accountant who is familiar with the franchise model.” Similarly, if you don’t have experience in sales or marketing, hiring a team member to help in these areas can better prepare you for success.
In addition, there are certain areas that are best addressed by a professional. For instance, having a franchise lawyer to review your paperwork – in particular Franchise Disclosure Documents that can run hundreds of pages long – will help ensure you have clarity on the agreement you’re entering into and what you’re responsible for. A Franchise Banking Specialist can also help you with goal setting, long-term planning, financing and growth strategies.
Your level of financial comfort
There are a lot of financial obligations when it comes to owning a franchise, and both the level of financial commitment and the structure of fees vary greatly by franchisor. Mason and daSilva have a few pieces of important advice for potential franchisees:
- Be aware of what the fees are and who is responsible for them. “Everything should be laid out in the Franchise Disclosure Document,” says Mason. “You should review it closely – and have a franchise lawyer review it – so there are no surprises.” It’s critical to be fully aware of the entire cost to you.
- Don’t over-extend yourself. “It’s really important that you’re not biting off more than you can chew from a financing perspective,” advises daSilva. “If you’re over-leveraged, you’ll have to start making sacrifices at the slightest hiccup to ensure your payments are made. That might be cutting staff, sacrificing the quality of the product or changing the way you operate your business.” He emphasizes that you should have the financial bandwidth to always focus on the consistent client experience customers expect when they come through the doors of a franchise location.
- Consider the ‘what-ifs’. If COVID-19 has taught us anything, it’s that the unexpected can happen at any time. Considering the impact of different scenarios on your franchise can help you get comfortable with your finances and have a plan should something go wrong. What if there is extended construction in your neighbourhood? What if there is a COVID outbreak in your building? What if you get sick and can’t work for a time? “Once you have gone through the exercise of what would you do, you’re able to react to that situation calmly rather than from a position of panic,” advises daSilva, adding that having a plan and strategy in place can help you come through downturns.
The experiences of other franchise owners
Mason and daSilva both highly recommend talking to other franchise owners of the brand you’re considering, as they are the best source of information and can speak to their own first-hand experiences.
“You have access to somebody who spends 90 hours a week operating a franchise,” reminds daSilva of this invaluable resource. “Ask them: Do they love it? Do they like it? If they could go back in time, would they do it again? Why or why not? And if they say nothing, ask why they hesitated on that answer.”
Plan your medium to long-term strategy
While your short-term goal might be to open one franchise, is your goal to stop there, or to grow to more locations? Mason shares that many franchisees begin with one location and quickly shift their goals to include multiple stores. While you don’t need to have your entire franchise future planned out now, it’s worth thinking about your medium and long-term strategy so that you can start effectively planning for growth. “Having a strong relationship with a Franchise Banking Specialist can help make future growth much easier,” adds Mason.
Consider your exit strategy
How long do you want to run the business? How do you want to retire? Do you plan to sell the franchise, or will your family take over? “Because your decision to buy a franchise affects your financial future – including your retirement – having a plan for exiting the business is just as important as your plan for starting it,” says daSilva.
There is a lot to consider when thinking about owning a franchise. After all, it’s a big decision that affects your lifestyle, your family and your financial future. In addition to the above considerations, the Franchise Assessment Tool available on RBC.com can help you identify your goals, evaluate your readiness and assess your fit for the life of a franchise owner.
Once you’re ready to take the next step in your franchise journey, the following guidebook provides an overview of what franchising has to offer you as an owner-operator and what is involved should you decide to acquire a franchise operation: Guide to Buying a Franchise.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.