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People walk through a street in Tokyo's Shinjuku district March 8, 2012.
People walk through a street in Tokyo's Shinjuku district March 8, 2012.

Guest Column

Is buying a franchise right for you? Add to ...

If you want to run your own business, the franchise route offers a number of benefits, including brand recognition, training and support.

But it’s not a guarantee of success, and it’s not a good fit for everyone. Here are some tips on how to determine whether a franchise is right for you:

Understand the difference between a franchise and a non-franchise

A franchise is a business that’s already been established. It has developed a brand and a following. Businesses that work best as franchises can be easily replicated in other locations and maintain their success.

Be prepared to follow the rules

The person who established the franchise has developed an operations manual covering every aspect of the operation. The franchise agreement spells out that the franchisee must follow the manual. So franchise buys are a bad move for entrepreneurs who want to do things their way.

Recognize the pros and cons

The pros of a franchise are that the business is already out there, it’s recognized and it’s a proven success. With an operations manual in place, you can get up and running immediately, the learning curve is short and you are likely to make fewer mistakes.

The biggest con is the lack of opportunity for creativity. Another is that some franchisors require you to purchase all your products through their company instead of from local suppliers.

Do your homework

A good starting point is the disclosure statement from the franchisor, which will include its financial position, how many franchises have opened and how many have closed. If some have closed, ask why. In addition to Internet research, speak to existing franchisees. You would be surprised how open they are and how much you can learn by listening to a franchisee, especially an unhappy one.

Many franchises also have franchisee councils. If there is one, try to connect with it.

Figure out what you can afford

A franchisor will expect you to invest some of your own money. There are typically three types of payments involved:

The initial franchise fee.

A royalty paid to the franchisor, based on revenues.

An allowance paid to the franchisor for local and regional marketing.

Know yourself

A franchise does not guarantee success. You need to be sure you are comfortable following the franchisor’s rules. Be prepared for long hours and hard work.

Special to The Globe and Mail

Chartered accountant Marvin Martenfeld is a partner with MNP LLP in Markham, Ont. This article is courtesy of the Institute of Chartered Accountants of Ontario.

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