Feeling entrepreneurial? Buying a franchise might be the right move

Dawn Mucci didn’t start a franchise with her own Lice Squad when she started 23 years ago, but there are now 35 franchisees and four corporate locations across Canada.Amy Hutchison/The Globe and Mail

Dawn Mucci’s lice removal business had been in business for about a year in Toronto when she got a call from a woman in Sudbury asking to buy a franchise.

“I didn’t have any privileges to sell it because I didn’t plan to do so when I started my business,” says Ms. Moshe, CEO of Lice Squad Canada Inc. Brick and mortar lice screening and removal clinics across the country. But it seemed like a good idea, so I said ‘yes’.

That was 23 years ago, when franchising in Canada was still in its relative infancy and franchise legislation existed only in Alberta. Today, Lice Squad Canada, which has 35 franchisees and about four corporate locations across the country, is among an estimated 73,000 franchises in Canada that collectively generate more than $68 billion in GDP and employ nearly 1.4 million workers.

David Drucker, Chairman of the Canadian Franchise Association and President and CEO of UPS Store Canada, a network of print, shipping and business services of centers owned by Oakville, franchisee MBEC Communications Inc. Based in Ontario “It’s a sector that has done really well over the past 30-40 years, even in times of uncertainty.”

Druker says, the main factor behind a franchisee’s strength is its business model – one that provides franchisees with a proven system and support to run and grow the business for an upfront fee and, in many cases, ongoing royalty payments paid to the franchisor or business owner.

Depending on the franchise they purchased and whether they licensed one or several locations, franchisees can generate a net income of about $75,000 per year or make millions.

As in any other type of business, there is no guarantee of success in franchising, says Mr. Drucker.

“But it is undeniable that franchisees have a higher success rate than independent companies,” says Mr. Drucker, a former UPS Store Canada franchisee in the region who previously owned several Rogers Wireless franchises. “Although franchises are mostly made up of moms and kids who host their own businesses in different parts of Canada, the difference is that they work under a system and have a support team behind them.”

For many franchisees across the country, this support team made a huge difference during the height of the pandemic when entire sectors were closed for weeks.

“A lot of franchisees were able to get better directions more quickly than other companies because of an organized team,” says Mr. Drucker. “At UPS Store Canada, we had UPS working with governments and they were able to establish us early on as core services. Most of the freelance shipping and printing services weren’t able to do that.”

Treat buying a franchise like starting a new business

Those looking to buy a franchise can improve their chance of success by applying the same level of due diligence as if they were building a business from scratch, says Edward Levitt, Toronto partner with global law firm Dickinson Wright.

As a starting point, it’s important for potential franchisees to know what franchise – or type of franchise – is most compatible with their personal and business goals.

“Ask yourself what you want to do, what do you see yourself doing – do you want to be a restaurateur, or do you see yourself more in a business-to-business franchise?” says Mr. Levitt, who specializes in franchising and distribution law. “This is really important because most franchisees work day to day in their business and for many, buying a franchise is basically their way of buying a job.”

Once they’ve decided on the most appropriate type of franchise, the next step is to identify the franchisees that operate in the sector and “shop, shop, shop, and talk to franchisees and franchisees in place,” says Mr. Levitt. “Ask the franchisees how they are qualified and trained, what kind of support they have received, and whether they are happy or if they are struggling.”

“I find the people who have problems are the ones who don’t ask for help because they feel it is a symptom of failure,” says Ms. Moshe.Amy Hutchison/The Globe and Mail

It’s also a good idea, he adds, for potential franchisees to talk to their banks about their experience lending money to any franchisees in the sector, as well as to landlords who lease space to these franchisees.

“Go to a couple of these perks and spend time watching,” says Mr. Levitt. “That can really give you a good idea of ​​whether or not this is something you can do on your own.”

The big advantage these days for anyone interested in franchising is the wider range of business types and sectors. Shelley Alvarado, co-owner BeTheBoss.caan online platform that connects potential franchisees with franchisees, says franchising has come a long way since the days when franchising meant running a fast food operation – usually in a mall – or a coffee shop.

“Today we have franchises that offer web design services, landscaping, window blinds, drone work, and computer and educational services such as programming or teaching,” she says. “We can attribute some of this to COVID, when a lot of people lost their jobs or thought the time was right to make a change and decided to start a franchise. But even before COVID, the franchise was really starting to diversify.”

For Canadians interested in buying a franchise, this means greater opportunities to enter at ground level before markets become saturated, says Ms. Alvarado.

That also means greater risks, Levitt adds.

“The franchise builds on past successes, on a proven formula,” he says. “But when new franchisees come in and do something no one else has done before, perhaps in a sector that wasn’t there before, you take a little flyer with a new system in a new industry.”

In such cases, potential franchisees may be in a position to negotiate an agreement that puts a factor in this greater risk — something that is usually “not possible” with an established franchisee, says Mr. Levitt.

Franchisors also take risks with every franchise they sell. Some franchisors have difficulty following the franchisor system, either because they are intrinsically entrepreneurs better suited to starting their own businesses or, in some cases, because they are trying to cut corners, says Mr. Levitt.

Some franchisees may also reach a certain level of success and decide that this is good enough for them. “That’s fine for the franchisee, but of course franchisors are always looking for growth,” says Mr. Levitt.

Ms Mucci of Lice Squad Canada says that while following the discipline is critical to franchising success, the ability to embrace change is just as important.

“Franchise is always evolving — it has to be in order to keep pace with changes in the market and economy, and with consumer demand,” she says. “I’ve sometimes found that people who are new to the system tend to be good at following it and developing with it, while those who come early can get stuck in their ways.”

Whether they are veterans or novices, franchisees can also focus so much on making their business successful, sometimes they forget that there is an outside team they can turn to for help, says Ms. Moshi.

“I find the people who get in trouble are the ones who don’t ask for help because they feel it’s a symptom of failure,” she says. “So my advice to franchisees is to rely on your franchisor and fellow franchisees, find a peer support group, and be part of an organization like CFA.”

Mr. Drucker agrees. Being in a franchise — as a franchisor or franchisor — means being part of a network “in which you work for yourself, but not on your own,” he says.

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