How Does Franchising Work?

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How Does Franchising Work?

For small, medium and large Canadian businesses that are doing well, Franchising in Canada and beyond may be a viable business strategy. The following guide will outline the basics that any potential franchisor needs to know for success in North America.

Why Franchise?

If demand for your product and/or service has reached a certain level of success; unharnessed growth can get a little tricky. Perhaps you've attained a level of growth that has essentially tapped out your local market. Franchising can provide an additional revenue stream while expanding on your brand. It's an excellent way to continue to grow your business in this economy without assuming additional risk. Since franchisees make the startup investment, you've got little to lose.

How Does Franchising Work?

A franchise basically describes a relationship between two parties. The franchisor is the owner of the initial business upon which the new venture's business model will be based. The franchisee is an entrepreneur who wishes to build a new business based on a proven and successful model, brand name, product and/or service. When a franchise agreement is made, certain terms are laid out. Some of the factors that may be determined by the franchise agreement include:

- Business plan
- Operational standards and manual
- Marketing and advertising
- Products and service delivery
- Vendor agreements and accounts
- Store design and layout
- Staffing and training

The franchise agreement also provides confidence to the franchisee that they will not be left alone, and to the franchisor that their brand and reputation will not be ruined. The agreement also details what fees will be paid, what royalties the franchisee will pay the franchisor and so on.

Get Started

The Canadian, U.S. and Mexican governments have many regulatory and legal hurdles you must overcome in order to get started. Often these rules require registration with local or federal agencies as well as adherence to certain policies and procedures. Familiarizing yourself with the governmental red tape surrounding franchising in North America should be your first step.

Next, you must prepare a document describing your franchising opportunity. This document is called the Uniform Franchise Offering Circular (UFOC). The document will be received by potential franchisees before any agreements are made or monies paid.

In order to sell your franchise, you'll need to prove that the business model is financially viable. Financial statements will be necessary to prove your case. You will also need a significant amount of capital to get yourself set up as a franchisor. You will need to pay attorneys to help you draft your UFOC document.

You will also spend a significant amount of cash in order to attract franchisees. Paying accountants to prepare your financial statements will also take a chunk out of your wallet. Finally, the additional investments you'll need to make in marketing and advertising your brand will also require substantial capital.

All in all, franchising in North America can be done easily if you have access to capital, to professional assistance, and to a market that is hungry for your products and/or services.