The Life Cycle of a Franchise

By Amanda Rodriguez

 For entrepreneurial spirits out there that dont want to risk too much and want a head start in profits and marketability, perhaps the best business decision to be made is buying into a franchise of your choosing. Read on to find out the top benefits of the franchising model, and how you can boost your business credentials with a small startup cost yet a stable business and money making paradigm.

Budding entrepreneurs have many options but most consider starting their own business when they first start out. The truth is, building your own business from scratch is a lot of hard work and when you dont know the how to play the business game yet, it will be quite a struggle. This is where a great alternative of buying into a franchise comes in, which has far greater benefits, for first time entrepreneurial spirits.

First off, if you are passionate about a specific business sector, for example, restaurants, a recognized and highly reputable restaurant that is available for franchise should be thoroughly researched. If you like the way a certain company works, and the company culture and philosophy and find it suitable to your interests, why not open your own store or business under its policies and mantras? Youll learn the in and outs of the business while getting a head start on establishing brand awareness. Do not underestimate the power of brand recognition, this is what will get you customers right off the bat, and they wont have to question or try out your new establishment. A great and lucrative revenue stream will practically be handed to you because the start up efforts have already been laid out for you to pick up.

Secondly, when you own a franchise you avoid a lot of risky mistakes. Youll receive comprehensive training in the sector, and youll learn first-hand how to avoid profound mistakes that would otherwise cause your first try at your own business to crash and burn. This alludes to a higher success rate at a significantly lower rate of risk, since the franchise helps out and nurtures your success at whatever the cost. They dont want you to fail because that would hurt their brand and company also. In other words, youre in it to win it.

Starting your own business would normally entail a great amount of start up costs. With franchising, you know exactly what your initial costs are going to be, in the most efficient manner of spending. You c an open your business a lot sooner than if you were to build your business from the ground up.

Another great perk is that business insurance costs are included in the franchising costs, depending on the contract and your agreements with the franchise operating costs. If anything you would be saving money on monthly business insurance rates due to an established brand identity and foreseeable risks have been addressed. Start researching business insurance policies today and also start looking for the franchise that suits your needs and interests the most, as it will be the most lucrative and positive business decision you will ever make.

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By sprokop

 When we talk to clients about their concerns of getting franchise financing in Canada they also want to focus on whether the cost to finance that franchise is in effect a good ‘ return on investment ‘, in relation to both their own personal investment in the business as well as ongoing returns on that equity based on the ongoing profits of the business and the risk involved in this type of business, i.e. franchising!

The amount of capital you need to raise relative to your franchise loan varies in Canada. Factors that are critical here are the amount of capital that in some cases your franchisor might insist you put into the business. Another key factor is of course the amount of funding you are able to raise based upon your own personal financial situation, one factor of which is your personal credit rating. Clearly the majority of franchises in Canada are regarded as ‘ small business’ so it makes sense that the banks and other firms that participate in franchise financing are focusing on you personally as well as your overall business prospects.

Canadian chartered banks, contrary to popular opinion, do participate in franchise financing in Canada. In fact in our opinion you could call them the major lender to the industry. But what many clients don’t understand when looking for franchise financing in Canada is that the bank lending in the franchising industry is done under the auspices of the Government Small Busines Loan, which is perfect suited to the type of financing you probably need.

So how much do franchises cost. We can safely say that they range in price for very nominal amounts such as 10k or so for a small service based franchise to millions of dollars for such large brand names… think ‘ golden arches’ as an example .

Cost factors of your franchise vary with respect to how well your franchisor is doing in Canada, or perhaps it’s often the case of a franchisor in the U.S. who wishes to expand or introduce their presence in Canada.

We mentioned the government small business loan as a prime source of financing for the cost of your franchising proposal. This loan actually maxis out at $ 350,000.00 but in our experience that amount finances a huge amount of the franchise opportunities in Canada. They are great loans because they offer sensible maturities of 5-7 years, solid interest rates and nominal fees attached to the overall financing. The initial franchise fee itself is not financeable under the program, so typically our clients fund that portion themselves, which of course counts as their overall equity,

It’s important to start sourcing your financing for your new franchise early on in the process. The bottom line, it’s never too late to start looking at your financing options available, including our aforementioned SBL loan.

So where does the capital come from relative to your own investment in the business.

Typically we see these funds coming from a clients own personal savings. That might also come from a severance situation based on the clients exit from ‘ corporate life ‘. In some cases you may choose to collapse savings, registered, or otherwise.

We encourage customers to understand the concept of financial leverage when it comes to R O I, or return on investment. Measure risk against reward; ensure you can withdraw a reasonable amount as a salary from the business, based on your financial projections.

And that ROI! Compute and analyze it just as you would any investment, such as a stock. Let’s say something costs 100% and you earn a 6% dividend. That’s generally a reasonable amount. So if you sell that investment 12 months latter your ROI is 6%. Think of that stock as being your business and the dividend being your business profits. Measure risk and reward and factor in the time and commitment you need to make into the business.

Franchising financing in Canada can be as difficult or easy as you make it. Speak to a trusted, credible and experienced Canadian business financing advisor who is expert in financing the cost of your franchising. And here’s to your great, hopefully, Return on Investment!

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