Your Location and Traffic

Here are some things to consider about the location of your franchise:

 

Walk-By Traffic

Does the business require a high level of walk-by traffic to be successful?  If so, is it in a location that provides sufficient pedestrian traffic in order to provide sufficient growth, or will you have to consider relocating the business at some point in the future?

 

Drive-By Traffic

Does the business require a high level of drive-by traffic?  Is there adequate parking readily accessible to your business operation?  Is the parking free, as in a shopping mall, or will your customers have to pay to park in an underground lot or in a coin-metered space?  If you have a business that serves trade customers and delivers products like automobile parts to them, then parking for your customers may not be an important factor. When do the big traffic jams happen in your area? Throughout the day or just at various peak times during the day, evening, or weekend?  Do any of these traffic problems seriously affect a customer’s access to the business?

The Importance of Location

This is an introductory post in an ongoing series about the role location plays in a franchise. The ideal location for your franchise may depend on what type of business you are running and what your target market is.

 

Never underestimate the importance of the location of your business. It is as important as your product or advertising offers. It literally makes or breaks your business, especially in retail. Not only is a good location important, but you must ensure that your targeted demographic matches the people that live or work in the area.

 

If your franchise is in manufacturing or distribution, you may be less dependent on your location and instead need larger premises at a lower rental cost to maximize profit. If your business is a motel, donut shops, gas station or small family restaurant, your best location may be off a major highway.

 

Stay tuned for more specific information on locations and how to get the best location for maximum profit!

External Clauses and the Franchise Agreement in Quebec

The topic for the second post on franchising in Quebec concerns a series of rules set forth by the province’s Civil Code of Quebec which protect franchisees from external clauses. External clauses are clauses in a contract which incorporate documents that are not part of the actual contract signed between the franchisee and franchisor. This includes referencing outside documents, contracts made in an incomprehensible manner or agreements that contain abusive clauses.

 

One of the most common examples of an external clause is when the provisions of a franchise agreement allude to an operations manual that is not part of the contract. The legislature in Quebec is designed to protect franchisees from being responsible for conditions which they have not read or understood prior to signing the contract. It is common practice for the franchisor to provide an operations manual at the time the contract is being signed. There can be legal complications with this approach though if the manual is particularly lengthy, as it would be hard to prove in a court that the franchisee has actually read and understood it. Some franchisors go to such extremes as giving the manual prior to the agreement being presented, along with a Confidentiality/Non-Disclosure agreement.

 

The operations manual can be the source of other difficulties as well, since it is not supposed to be a fixed document but rather is designed to evolve over the period of the franchisee’s term. In the Quebec courts, it could be argued that any change to the operations manual is a change to the original franchise agreement. The matter is further complicated by the fact that the courts can not rewrite external, they can either uphold them or declare them null.

 

Franchising in Quebec

If you plan to do franchising in Quebec, there are some things you should know first all about their charter, rules and regulations. According to the Charter of the French Language, contracts predetermined by a single party which contain standard printed clauses must be written in the French language. Franchising agreements fall into this category.

 

Each person involved in said contract whose name is not French must use the French version of their name in carrying out all business activities. Basically, you have to have a French name in order to be carrying business in Quebec. These laws are very strict and you will suffer a serious blow to your career in business if you do not follow them.

 

There are also specific rules related to advertising in the Charter of the French Language. All commercial advertising, including public signs, posters and TV ads, must be in French. You can, however, include English with the French if the French is clearly dominant.

Fee Payment

Cons: Payment of Fees

A typical term of a franchise agreement is 5 or 10 years, depending on the franchise. You will pay an initial fee for entering into the franchise, followed by renewal fees at the end of the agreed upon term. A typical initial fee ranges from $25,000 to $35,000, with the renewal fee being around $5,000. There may also be a site selection fee of around $5,000 to offset the franchisor’s costs of lease negotiation and favourable location.

 

The franchisor also constantly receives royalties based on the business done by your location. Royalties are normally based on your gross sales, varying from 1% to 10%, though if your location is selling more, you will probably pay less in royalties.

 

You are also required to contribute to the franchises advertising fund at a national or regional level. This is for your use of the franchises advertising. You are also required to invest a certain amount in your own local advertising.

Advertising and Equity

Pro: Advertising Clout

One can never underestimate the importance of strong advertising, especially for new businesses. Advertising is the way in which the public becomes aware of your product or service. It makes them aware of their own need for you as a business, and consequently, you get their business. Many businesses just starting out can not afford the type of advertising that’s really needed to spring a company into the public’s awareness. As a result these companies usually fall flat. Fortunately for the franchisee, franchises offer a great deal of free advertising because you are plugging into a network of uniform branches all being taken care of by the franchisor. This greatly lowers the cost of advertising that you, the franchisee, are responsible for.

 

Pro: Building Equity

When you enter a franchise, there is already a significant amount of equity built up from the years the franchise has been around. National and regional name recognition is already quite high and by entering into a franchise, you receive territorial exclusivity. Because of these factors, your business with sell more and sell it faster.

Buyer Beware

Con: Misunderstanding the Franchise Agreement

Because most franchisees have never seen a franchising document before, they often feel overwhelmed and liable to take the franchisors word for everything. This is often the case when disagreements arise about the franchise agreement after it has been signed. These types of disagreements tend to inevitably lead to legal action being taken and never end well for either party. Be sure to have the franchisor thoroughly explain all aspects of his agreement to you before you sign anything. If he can not clearly explain his agreement, something’s fishy.

 

Con: Misrepresentation by the Franchisor

A franchisor may misrepresent himself to you, whether on purpose or not. He or she will show you projections of income and expenses, but these may be inappropriate for your level of experience or business location. Whether he is aware of this is never certain, and certain franchisors will bend numbers to get you to sign on the dotted line. 

 

Con: Caveat Emptor

The motto: “Let the buyer beware” applies to franchising as much, if not more, as it does to any consumer purchase or investment. That being said, consumers are notorious for choosing to ignore cautionary advice and warning signals. If you base your investment decisions on emotion without proper logic, you may find you money at the whims of someone else’s emotions, which is always a precarious and undesirable situation to be in.

The Security of having a Franchisor

Pro: Easier Access to Financing and Reduced Cash Requirements

Banks and other institutions of finance greatly favour lending money to well-established businesses because they are more secure. The consumer awareness created by a franchise through national or regional name recognition and advertising can greatly eliminate the cost of advertising when opening day comes around. Also, the franchisor’s purchasing power often greatly cuts back on the amount you, the franchisee, must spend on equipment and supplies.

 

Pro: Purchasing Power

A franchise allows for collective purchasing power on products, supplies, extended health and insurance benefits, equipment and advertising. This easily offsets ongoing royalties being paid by you.

 

Pro: Site Selection Assistance

Many franchisees are often inexperienced in choosing a location that will bring them success. Franchisors are experts in site selection as they have been dealing with the operation of demographics for years. Landlords and developers also often prefer to deal with people with established track records, making it far more difficult for you to open a location on your own. As part of an established franchise system, obtaining locations in major malls and other developments that otherwise would not be available to you becomes much easier.

Pros and Cons Part 2

In contrast with the previous post, here are some common drawbacks to think about in the world of franchising.

 

Con: Loss of Independence

Some franchisees consider the loss of independence required to go into a franchise a great drawback. It is a common scenario for a franchisee to enter a franchise wanting the guidance of the franchisor, yet upon entering immediately wanting to make a slew of changes. It is essential that you are honest with yourself about your ability to work within a confined system and acceptance of regimentation in your business. Remember, a franchise only works with strict compliance from all locations. Consistency is what a franchise thrives on.

 

Con: Franchisor’s Failure to Perform

It’s unfortunate, but sometimes franchisors don’t do as they say they will do. There are a number of common scenarios for this, many involving a shortage of capital. This is probably because of one of the following:

 

• The franchisor’s unrealistic franchise sales projections
• The franchisor underestimating the expenses associated with the development of the franchise system
• The franchisor’s failure to meet franchise sales projections
• High franchisee attrition

In certain cases, though it is rare, it may be that the franchisor is just not capable of providing the support and assistance you need. Not people will tell you this, but it is true that not all franchise owners are competent. Some of them should not be running a franchise at all. It is important to always exercise the best judgement possible and keep these possibilities in mind.

The Pros and Cons of Buying a Franchise

The Pros and Cons of Buying a Franchise

 

For the next few weeks, Franchising Now is doing a multi-post extravaganza on the pros and cons of by a franchise. In our previous posts, we have told you the nature of what a franchise is and how it defers from licensing, a similar business venture. But even after all this you may still be anxious or apprehensive about entering into a franchise. The question may still remain, “Is this right for me?” Because we at Franchising Now can relate to this feeling, we will attempt to bring you even more information to help you understand just what you are getting into. Each post will present either several pros or several cons of the world of franchising.

 

Pro: Reduced Risk

 

Although entering into a franchise may not guarantee success 100%, the very nature of franchising (and how it differs from licensing) greatly reduces the chance of failure.

 

Pro: A Proven System

 

Well before you, the franchisee, enter the picture, the franchisor has a proven-to-be-successful method of operation. Because of this, the franchisee loses the obstacles and gains only opportunities. Make sure when entering a franchise, that you receive a completely proven system that includes essential components such as initial training, opening assistance, accounting systems, established suppliers, manuals and use of the trademarks. Make sure that the franchise has already gone through a significant “learning curve” This helps prevent you from repeating previous mistakes made by the franchise and gives you extra information and the value of others experience in inventory levels, store design, competition, pricing structure and operational data drawn from the entire system of the franchise itself.