Feeling entrepreneurial? Buying a franchise could be the right move

0
10

Dawn Mucci didn’t set out to start a franchise with her Lice Squad business when she started it 23 years ago, but now there are 35 franchisees and four corporate locations across Canada.AMY HUTCHISON/The Globe and Mail

Dawn Mucci’s lice removal business had been operating for about a year in Toronto when she got a call from a woman in Sudbury asking to buy a franchise.

“I didn’t have any franchises to sell because I didn’t set out to do that when I started my business,” says Ms. Mucci, chief executive officer of Lice Squad Canada Inc., a Barrie, Ont., company with bricks-and-mortar lice inspection and removal clinics throughout the country. “But it sounded like a good idea, so I said ‘yes.’”

That was 23 years ago, when commercial franchising in Canada was still in its relative infancy and franchise legislation existed only in Alberta. Today, Lice Squad Canada, which has 35 franchisees and about four corporate locations across the country, is among the estimated 73,000 franchises in Canada that collectively generate more than $68-billion in gross domestic product and employ close to 1.4 million workers.

“The franchise industry is the 12th largest industry in Canada and a major contributor to the country’s economy,” says David Druker, board chair at the Canadian Franchise Association and president and CEO of UPS Store Canada, a network of printing, shipping and business services centres owned by Oakville, Ont.-based franchisor MBEC Communications Inc. “It’s a sector that’s fared really well over the last 30 to 40 years, even during times of uncertainty.”

A key factor behind franchising’s strength, says Mr. Druker, is its business model – one that provides franchisees with a proven system and support for running and growing a business in exchange for an upfront fee and, in many cases, ongoing royalty payments made to the franchisor or owner of the business.

Depending on which franchise they bought and whether their licence is for one or multiple sites, franchisees can bring in a net income of around $75,000 a year or rake in millions.

As is the case in any other type of business, there is no guarantee for success in franchising, says Mr. Druker.

“But it’s undeniable that franchisees have a higher rate of success than independent mom-and-pop businesses,” says Mr. Druker, a former UPS Store Canada area franchisee who, before that, owned multiple Rogers Wireless franchises. “Even though franchising is made up mostly of mom-and-pops hosting their own business in different parts of Canada, what’s different is that they’re operating under a system and have a support team behind them.”

For many franchisees across the country, that support team made all the difference during the height of the pandemic when entire sectors were shut down for weeks.

“A lot of franchisees were able to get better directions more quickly than other businesses because there was an organized team in place,” says Mr. Druker. “At UPS Store Canada, we had UPS working with governments and they were able to get us established early on as essential services. Most shipping and printing services that were independent were not able to do that.”

Treat buying a franchise like starting a new business

Edward Levitt, a Toronto-based partner with the global law firm Dickinson Wright PLLC, says those looking to buy a franchise can improve their chance for success by applying the same level of due diligence as they would if they were building a business from scratch.

As a starting point, it’s important for potential franchisees to figure out which franchise – or type of franchise – is most compatible with their personal and business goals.

“Ask yourself what you want to do, what you see yourself doing – do you want to be a restaurateur, or do you see yourself more in a business-to-business franchise?” says Mr. Levitt, who specializes in franchising and distribution law. “This is really important because most franchisees work every day in their business and for many buying a franchise is basically their way of buying a job.”

Once they’ve decided on the most suitable type of franchise, the next step is to identify which franchisors operate in that sector and “shop, shop, shop, and speak to the franchisors and franchisees in the space,” says Mr. Levitt. “Ask the franchisees how they were onboarded and trained, what kind of support they’ve had, if they’re happy or if they’re struggling.”

‘I find the people who get into trouble are those who don’t ask for help because they feel it’s a show of failure,’ Ms. Mucci says.AMY HUTCHISON/The Globe and Mail

It’s also a good idea for would-be franchisees to talk to their banks about their experience loaning money to any franchisees in the sector, as well as to landlords who lease spaces to these franchisees, he adds.

“And go to a couple of those franchises and just spend time watching,” says Mr. Levitt. “That can really give you a good sense around whether or not this is something you can see yourself doing.”

A big advantage these days for anyone interested in franchising is the broader spectrum of business types and sectors. Shelley Alvarado, co-owner of BeTheBoss.ca, an online platform that connects potential franchisees with franchisors, says franchising has come a long way from the days when being a franchise meant running a fast-food operation – usually in a mall – or a coffee shop.

“Today we’ve got franchises that offer web design services, landscaping, window blinds, drone work, and computer and educational services like coding or tutoring,” she says. “We can attribute some of this to COVID, when a lot of people lost their jobs or just thought it was good time to make a change and decided to start a franchise. But even before COVID, franchising had already started to diversify.”

For Canadians interested in buying a franchise, this means greater opportunities to get in on the ground level before markets get saturated, says Ms. Alvarado.

But it also means greater risks, adds Mr. Levitt.

“Franchising is based on past successes, on a proven formula,” he says. “But when new franchisors come in and they’re doing something that no one has done before, perhaps in a sector that didn’t even exist before, then you’re taking a bit of a flyer with a new system in a new industry.”

In such cases, potential franchisees may be in a position to negotiate an agreement that factors in this greater risk – something that usually “isn’t possible” with an established franchise, says Mr. Levitt.

Franchisors also assume risk with every franchise they sell. Some franchisees have a hard time following the franchisor’s system, either because they’re entrepreneurs at heart who are more suited to starting their own businesses or, in some cases, because they’re trying to cut corners, says Mr. Levitt.

Some franchisees might also reach a certain level of success and decide that’s good enough for them. “And that’s fine for the franchisee, but franchisors of course are always looking for growth,” says Mr. Levitt.

Ms. Mucci at Lice Squad Canada says while following the system is critical to success in franchising, the ability to embrace change is just as important.

“Franchising is always evolving – it has to in order to keep up with market and economic changes, and with consumer demand,” she says. “I’ve sometimes found that it’s the people who are new to the system who tend to be good at following it and evolving with it, while the ones who came in early can get stuck in their ways.”

Whether they’re veterans or novices, franchisees can also get so focused on making their business succeed they sometimes forget there’s an external team they can turn to for help, says Ms. Mucci.

“I find the people who get into trouble are those who don’t ask for help because they feel it’s a show of failure,” she says. “So my advice to franchises is to lean on your franchisor and your fellow franchisees, find a peer support group, be part of an organization like the CFA.”

Mr. Druker agrees. To be in franchising – as a franchisor or a franchisee – means being part of a network where “you’re in business for yourself, but not by yourself,” he says.

Source