Your Franchise Investment To Do List

9 important things to do before you sign on to become a franchisee

Franchise Tiles

DO your due diligence

Before you start investigating all the exciting franchise opportunities available, take some time to do a self-assessment and consider your own personality and work style. Franchising may not be right for everyone, so these questions will help determine if becoming a franchisee would suit your characteristics and goals. Ask yourself: Are you able to follow standard procedures? How hard are you willing to work? What are you passionate about?

Once you’ve done some self-reflection, start your due diligence process by collecting as much information as possible on the franchise brands in which you are interested. Review all materials and information you receive from the franchisors with franchise professionals (consultants, lawyers, accountants, etc.) as required to ensure you fully understand your rights and responsibilities.

DO assess your financial situation

When investing in a franchise, you need to cover the cost of the franchise and also leave yourself with a financial buffer. Ensure you have enough funds to cover the initial expenditure as well as operating expenses and your own living costs for the first 3-6 months of business. Going into business underfunded is a common reason for business failure.

The franchises that you are investigating will usually provide an overview of the upfront costs involved in joining them (such as the franchise fee) and other expenses you may incur early on. You need a complete picture of your financial situation, including a personal net worth statement and your credit rating, to find a franchise that fits your financial capabilities.

DO create a comprehensive business plan

Business plans are an important part of any business, and are particularly useful in securing business loans from financial institutions. Business plans are a great way to clearly describe your vision and goals for your franchise.

In general, a business plan consists of two parts: a business model and a financial plan. The business model covers the qualities of the franchise – industry, customers, competition, your qualifications, etc. – while the financial plan explains the quantitative side, including a projected balance sheet and cash flow statement. Your franchise accountant will be able to assist you in creating a comprehensive plan for your business.

DO explore every opportunity

While it is good to know what kind of franchise in which you are most interested, keep an open mind. You never know when the perfect opportunity may arise that you may not have thought about.

Through its many events, programs and publications, the Canadian Franchise Association is the National Voice for franchising in Canada. CFA’s online franchise directory features hundreds of franchise brands in nearly 50 categories.

DO invest in a franchise brand you’ll be passionate about

While it is imperative to do due diligence, it is equally as important to feel good about the business and the people involved in the franchise. The franchise is going to be a big part of your life and you will need to spend much of your time on your business in the early years. This time will be better spent if you are passionate about the franchise.

As the franchisee, you are a brand ambassador and your passion and belief in the brand will go a long way toward the success of your location.

DO consult a FRANCHISE lawyer

Using a franchise lawyer who understands franchise law and agreements can save you a lot of headaches down the road. In reviewing documentation you receive from the franchisor, franchise lawyers will be able to clarify them for you, as well as spot any atypical clauses and/or help you negotiate on certain points as applicable.

DO make sure it is a franchise opportunity

While business opportunities (biz-ops) are often packaged to seem like franchises, there are many differentiating factors of which prospective franchisees should be aware.

Key limitations of a business opportunity include: limited training; little to no ongoing support or marketing from the licensor; no binding franchise agreement; and, no trademark or branded strength/recognition. Also, in general, biz-ops don’t offer exclusive territories or disclosure documents.

DO not assume that a franchise is like a G.I.C.

A franchise is a business and requires work. While, in general, franchisors are ready and willing to offer some level of support and assistance, the franchisor is not going to do all the work for you. As a franchisee, you must be prepared to work hard, most likely in a hands-on capacity, and take responsibility for your location’s success.

DO remember to include your family

Franchising is a big investment in both resources and time and may require changes to your lifestyle. Make sure your family is on board with your decision, particularly if they are going to be a source of financing.

If your family is going to be part of your business, make sure that you establish the primary roles each member will play. For example, will you look after the administration of the business while your spouse handles more of the customer service? Having defined roles at the outset will help prevent conflict later on.