A future in franchising?

Plus, we’ve all heard the horror stories from those who have taken on a franchise and had a falling out with the parent company, only to lose the franchise and their investment.

The Toronto Sun
September 23, 1996

A future in franchising?
Linda A. Fox

LindaAFox.jpg

Franchising is a $90 billion a year industry in Canada and it’s the first place many prospective small business owners look when they are thinking of setting up their first venture.

The attractions are many – full training provided, locations scouted, advertising support and, often the apparent ease of a turn-key operation.

On the downside, the hours are long if you want to be a success. Plus, we’ve all heard the horror stories from those who have taken on a franchise and had a falling out with the parent company, only to lose the franchise and their investment.

This past weekend hundreds of people had the chance to investigate various franchise opportunities at the first ever national trade show, organized by the Canadian Franchise Association at the Queen Elizabeth Building. Would-be entrepreneurs could check out businesses ranging from A&W Food Services to Kwik Copy Printing to Maaco Auto painting and everything in between.

INVESTORS WARY
Richard Cunningham, who has been president of the CFA for the past four years, feels that franchise investors are becoming more wary – as are franchisors.

“During the boom years of the 1980s, both the franchisor and the franchisee often got into situations that were not good for either side,” de says. “Now both parties tend to do more research before deciding if they are a good fit. Back then, if you had the money, you could get a franchise.”

“These days, you have to show you have some business sense as well as the money. After all, the parent company is in business to make money, too.”

Cunningham, who is also one of four founders of the 32-country World Franchise Council, says many would-be entrepreneurs still think only of “fast food” when they think of a franchise business.

“While that is still a large part of the business, there are many new opportunities that have come online because of cutbacks in other sectors of the economy,” he says. “For example, we are seeing a growth in technology and educational franchises. With the cuts in education spending, there is room for outside instruction and tutoring. Both for children and in the hi-tech field.”

Cunningham says most people don’t realize how many places they shop on daily basis that are actually franchises.

“About 40 cents of every dollar spent on retail items goes to franchises,” he says. “Franchising crosses almost all business sectors and makes a tremendous contribution to the economy.”

Cunningham says the CFA, with 300 franchise members representing about a third of the industry, has been a strong advocate for ethical standard and business integrity in the franchise industry.

“Only the province of Alberta has legislation in place providing disclosure of a franchisor’s operations,” says Cunningham.

“What the CFA does, at least here in Ontario, is try and act as an arm’s length mediator when a dispute arises between the franchisor and franchisee.”

He says the most common problem the CFA office deals with is when someone changes his mind and wants the deposit back after negotiating for a franchise.

Franchising appeals to people of all ages and education levels. Cunningham says there are more people coming right out of university who, upon finding a right job market, decide to open a franchise.

Other potential franchise owners are the Baby Boomers, who might have been downsized from their longtime job but don’t feel like being put out to pasture yet.

SETTLEMENT MONEY
“They often come out of their former career with a good settlement and that gives them the seed money to buy a franchise,” says Cunningham.

The success level for most franchises is quite high in Canada, according to the CFA.

“Most franchise owners make a profit in the second or third year,” he says. “It depends on what attitude you bring to the business and what expectations. You have to ask yourself if you are just looking for a job or an investment.”

You can come into a franchise for as little as $7,000 to $10,000 for a home-based operation (maid service or janitorial for example) right up to hundreds of thousand of dollars for a major restaurant franchise.

“The franchisor is not making his money from the start-up fee he charges the new entrepreneur,” says Cunningham. “A portion of that is invested back in the franchisee for training and se up costs. The head office makes its money from overseeing a number of well-run franchisees who then return a percentage of their profits.”

So, if you don’t have your own bright idea for a small business, franchise ownership might be the route to consider.

But think carefully before making the commitment. Does the franchise world fit your lifestyle or your family’s lifestyle – and are you prepared to devote the hours and labor to make your business a success?

You can visit the Canadian Franchise Association at 5045 Orbitor Dr., Building 12, Unit 201, Mississauga or call (905) 625-5896


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