THE DECISION TO INVEST IN A FRANCHISE is a major one and cannot be taken without engaging in an array of due diligence investigations. Legal and financial considerations are, of course, essential factors when considering a franchise opportunity and the wide assortment of franchised businesses. Franchising crosses all industry sectors and includes a wide variety of goods and services businesses ranging from large brick-andmortar locations to home-based businesses. While all franchised businesses offer you the opportunity to be “in business for yourself but not by yourself,” each business requires significant effort and attention to be successful.
Many consider their own financial circumstances as a key factor in assessing franchise opportunities. However, as the purchase of a franchise is both a significant financial investment as well as a long-term commitment, there are many other matters that need to be considered, even before canvassing the available franchise opportunities. At the outset of your decision towards business ownership and entrepreneurship, it is wise to first embark upon a personal analysis as part of your due diligence.
Many would argue that the perfect franchise is one that matches with your core interests; in essence, a marriage of the franchise system’s offering with your personal interests and aspirations. In deciding then whether a particular franchise is right for you, keep in mind that not everyone has the character suitable to be a franchisee and not every suitable franchisee is the right fit for every franchise. One of the keys to a successful franchise business is a good match between the franchisee and the nature of the goods and services being offered.
Each franchisee is an integral part of a network of similar businesses, all of which are required to be operated uniformly and in accordance with the franchise system’s standards and procedures. If your nature is one that is amenable to taking direction, then you may be well-suited to franchising and the requirement to “follow the rules.” However, if you are by nature inventive, creative or resourceful, you may be easily frustrated having to follow the rules which support uniformity throughout the franchise system and without the opportunity to bring your own ideas to the table.
“Passion” is a word that is used often, both from those making decisions to expand their business and from young people considering their future career path. It is not surprising that some of the most successful businesses and successful businesspeople are those that have a true passion for what they do and are able to persevere in order to achieve their goals. That same passion should be your starting point when deciding which industry sector(s) to explore as you consider the purchase of a franchise. The purchase of a franchise should not be viewed merely as buying yourself a job, a career or an opportunity to be explored. Rather, the purchase should be viewed as an investment in your future and should involve an opportunity to become involved in a business or industry that you are enthusiastic and passionate about or one in which your own know-how and past experience can be used to advantage.
Other factors are similarly important and can actually help to limit the choices available. Your personal and family circumstances are a crucial factor – are the workload and the hours required of a particular franchise business compatible with your lifestyle and able to accommodate your family responsibilities? A retail or restaurant operation will require significantly more hours than one in which you are at liberty to set your hours of operation, such as some home-based or service businesses. Equally important, do you have sufficient personal savings and available credit to establish the business and operate the business during the start-up period? Under-capitalization is likely the most common reason for failure of franchised businesses. Consultation with an accountant or banker can assist you in realistically determining the financial resources necessary to sustain your operation during the early days of operation of your franchised business.
Too often, the purchase of a franchise is seen by prospective franchisees as the easy road to financial success. Purchases are made within industry sectors that the franchisee soon discovers does not match with his or her personal likes or that requires more effort and longer hours than anticipated.
Due diligence is essential to making an informed decision to invest in a franchise This not only requires that you investigate the franchisor and its system, but also that you investigate yourself to ensure the perfect match.
Gowling WLC (Canada) LLP