Dennis Germyn - Commercial Real Estate Specialist   It's the extra mile that makes the difference!

Contacts


Dennis Germyn
(604) 542-2444(Office)
(604) 230-9991(Cell)
(778) 294-4435(Fax)

unit 27
20326 68 Ave
Langley, British Columbia, V2Y 0E3
Canada


Buying a Franchise or Business Package


 

What do we mean by 'business package'?
                    
 There are some organizations which enable the budding entrepreneur to start in business by providing the
 necessary equipment, expertise or training to do so within a package. For example, one company offers all
 the equipment that you need to start a business manufacturing garden ornaments. The package includes a
 number of moulds and tools, the materials and a day's training to show you how to use them. 'Business
 packages' are not 'franchises'.
 
What is a franchise?
 
 The term 'franchising' covers a variety of arrangements in which the owner of a product, process, service or
 even just a name (in the terms of a celebrity) allows someone else to use it in exchange for some payment.
 This rest of this page refers particularly to 'business format franchising'.
 It is a method of starting a business which minimizes risk by using or emulating a tried and tested 'business
 formula'. A contract is forged between 'the franchisor' - (the organization that supplies the franchise) and 'the
 franchisee' - (the party that purchases the franchise).
 The franchise package supplies most of the things that one needs to launch the business successfully:-
 training, license to use franchise name, customer base, supplies and raw materials, equipment, promotional
 material etc.
 In addition a set-up fee, the franchisor may charge an ongoing fee based on the percentage of sales or
 profits of the business.
 The key point is that it should be a proven business system that is offered - not merely the right to sell a
 product or service.
 
Business format franchises generally fall into one of two categories;
 
· A 'job franchise' (in which the franchisees actually do the work that provides the service to the
  customers)
· A 'management franchise' (in which the franchisee is mainly organizing others to do this labour)
  It is important to appreciate the difference between the two categories because it will help you to find a
  franchise that suits your skills.
  In order to prevent franchisees within the same organization competing for the same customer base,
  territorial limits are often stipulated within the franchise contract.
  Also, the franchise contract may stipulate certain standards regarding the quality of service or products
  supplied by the franchisee, thus upholding the brand image.
  When choices have to make, we tend to go for the 'familiar'. Thus, a company can win business by
  'branding' a product or service to make it more familiar to potential customers.
  A franchise opportunity enables you to buy into this brand image and win custom that would otherwise go
  elsewhere.
 
Comments and Advice.
 
 For many people franchising is an excellent way of starting up in business. It is in the franchisor's long term
 interest for you to succeed and so there is often continuing support at hand, unlike buying an existing
 business or starting from scratch on your own.
 You may feel that the restrictions stipulated in a franchise contract-with regards to your choice of suppliers,
 recruitment policy or products- contradict the ethos of 'working for yourself'. However, in the majority cases,
 these are in place to uphold the franchise brand name and are part of a successful business formula.
 You may also find it painful to see a percentage of your hard earned profits being diverted towards the
 franchisor. Again, in most cases, the majority of this money is spent on advertising / marketing and benefits
 the group as a whole.
 When considering a franchise, try to understand why they are offering you the business in the first place.
 Very often, franchising is an extremely quick low-risk method of expanding a successful business across the
 world. The franchisee has the local knowledge and takes on the majority of financial risk. In return the
 franchisor is offering a successful business formula that has been proven to work. But before you go ahead,
 ask yourself whether the support, training, stock, experience and brand name justifies the investment asked.
 Watch out for companies that create franchises as an 'end product'.
 Be aware that some companies use the term 'franchise' to describe what is really a commission agency,
 network marketing opportunity or other form of start-up.
 Always thoroughly check the contract, you don't want to discover three years down the line that your
 successful business has to be sold back to the franchisor after they increase the cost of your supplies to
 unreasonable levels, and at the same time forbid you to seek a more competitive price.
 Seek independent specialized legal and financial advice from experts in the field. You may have to pay
 relatively high fees for such a service but it could save a great deal of disappointment in the future.
 Don't expect to be able to change the franchise contract, it is often a standardized format used across the
 network.
 Before accepting the advice of a third party franchise 'broker' be aware that they may not be entirely
 independent.
 Be aware of the high level of investment or borrowing that you may need to succeed, but don't overstretch
 yourself.
 
As with every business start-up, you have to be careful.
 
 Franchising used to have a bad name but regulation in recent years has improved the industry beyond
 recognition (Canada). It is now a very realistic method of starting up a long term successful business.
 
Pros:
· You are often investing in a tried, tested and successful business formula.
 
· You are gaining the benefit of a franchisor's experience and knowledge thereby reducing
  the scope for mistakes. In particular you are spared many of the administrative
  headaches associated with setting up a business.
 
· In many cases you will be taking advantage of the name and reputation which has
  already been built up by the franchisor.
 
· On many occasions the franchisor offers training and ongoing support within the
  package.
 
· You can benefit from the franchisor's activities in such areas as advertising, marketing,
  research and development and you can take advantage of their enhanced buying power.
 
· Many high street banks see franchising a sound investment and are more likely to lend
  more, and on better terms, than if you were starting your business from scratch.
 
· A properly tested and structured franchise system, offered by a competent franchisor,
  offers more of a safety net than going into business independently.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dennis Germyn (604) 542-2444 Email Dennis