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National Franchising

Franchising combines the expertise and marketing sophistication of a franchiser with the entrepreneurial motivation and investment capital of a franchisee. The franchisee, as a small business person, gains the advantage of a proven operational system, with business management, training and advertising while buying into a tested product or service. The franchiser gains the capital resources required to expand the business in a relatively short period of time.

Is franchising for you?

You're not just purchasing a business, you should expect to be involved in running it. CIBC can provide you with valuable information and a complete range of Small Business products and services for both your franchising and personal banking needs. We can help you start up your business and we'll provide you with ongoing assistance as it continues to grow. A personal evaluation of your level of interest, business experience and general administrative skills is critical to the success of your venture. To help ensure your success as a franchisee, you should be aware of all the facts pertaining to your franchise investment opportunity. For this reason, CIBC has created a series of questions for self-evaluation, considering a franchising opportunity, evaluating the product or service and determining a location for your franchise that will help enlighten you and provide you with some answers that are critical to your decision-making process.

Self-evaluation

When considering the acquisition of a franchise, it is important to remember that you are not just purchasing a business you should fully expect to be involved in the running of the operation. Therefore, a personal evaluation of your level of interest, business experience and general administrative skills is critical to the success of your venture. CIBC has prepared a list of questions to help provide you with information necessary to your decision making process.

  • Do you have the management skills and educational background to successfully run a franchise operation?
  • Do you fully recognize the work involved in running your own franchise and the potential effects on your lifestyle?
  • Will the franchise concept be compatible with family goals?
  • Are you a self-starter?
  • Can you work in a highly structured environment?
  • Do you have the capital investment required?

Considering a franchising opportunity

To help ensure your success as a franchisee, you should be aware of all facts pertaining to your franchise investment opportunity.

The franchise operation

  • Is the franchiser well established?
  • Are the principals highly knowledgeable about the industry?
  • Are new locations being opened on a regular basis?
  • Are all existing locations operating successfully? (Ensure there have been no failures.)
  • Are other franchisees positive about the franchiser's commitment, knowledge and support?
  • Does the franchiser have an exclusive on the name and/or trademark?

The franchise agreement

  • If the premises are leased, is the lease and the term of the agreement the same?
  • Is the franchise fee a one-time payment? (Investigate what other payments you will be responsible for: royalties as a percentage of gross sales, payable monthly or weekly; advertising contributions; service fees).
  • Is there a flexible amount of merchandise you must purchase from the franchiser each year? (Or, are you obligated for a minimum amount?)
  • Are the company policies, procedures and training support clearly identified?
  • Can you resell the franchise?
  • Can your family continue to run the franchise in the event of your death?
  • Does the franchiser pay for the legal fees, site evaluation fees, permits, etc?
  • Have your accountant and lawyer carefully checked the termination, renewal, transfer and sales of the franchise?

Equipment, fixtures and Training

  • Are the types of equipment and fixtures to be purchased specified?
  • Do you have an option to purchase or lease the equipment?
  • Do you have the flexibility to purchase equipment and fixtures from any supplier?
  • Has the franchiser considered POS Terminals for electronic payment that may contribute to an increase in your sales?
  • Are there training programs in place for you and your staff?
  • Who should attend these training seminars?
  • At what cost are training sessions and how competitive are they?

Prices and Promotion

  • Are you clear as to how the product prices are determined?
  • Is there provision for special discounts or other sales incentives to meet local competitive pressures?
  • Are the promotional and advertising programs satisfactory?
  • Do you have any say in these programs?

Determining a location

  • Where will your franchise be located and what should be considered when choosing this valuable real estate?
  • Is your territory clearly defined and exclusive?
  • Is there a chance of zoning changes or redevelopment in the area which could affect traffic patterns, etc.?
  • Does the area have strong market potential?
  • Does the franchiser assist you in choosing your location?

Evaluating the product or service

  • Have sales of the product been increasingly steady over a period of time?
  • Are sales cycles steady throughout the year? (Investigate any seasonal changes.)
  • How is the product or service differentiated from that of the competition?
  • Is the product priced competitively?
  • Are there any product warranties or guarantees? If yes, who backs them?
  • Are there assurances that the franchiser will be able to keep you continually supplied with product at a fair price?

Understanding the financing

Do you have a clear understanding of the issues surrounding financing?

  • Have you calculated your net worth and determined what you need to do to raise the required equity?
  • Will the potential cash flow generated by the franchise be sufficient to meet your lifestyle expectations?
  • Does the franchiser have bank financing programs in place or provide any internal financing assistance?
  • Do you have a financial contingency plan?
  • Have you considered the benefits of equipment leasing?
  • Are you eligible for a small business loan?
  • Will you be receiving financial support from friends or family members? If so, have you considered that such "silent partners" may later wish to take some active role in your business?
  • Do you have a business plan? Has that plan been evaluated by an independent third party?
  • How often will you compare your current position against your business plan? We recommend that you review your position periodically; at least once per year.

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The information in this article is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual.