How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
There are distinct pros and cons to the different types of business ownership. Before you invest in a Canadian franchise, take the time to learn more about all of the options for your new business.
Building from the ground up
Starting an entirely new business means you start off with
nothing:
no brand,
no web presence,
no building, and
no employees.
As tough as this sounds, it can be done, and people start new companies every day in Canada.
The pros of starting from scratch are pretty obvious:
- you own everything, and
- you have complete freedom and full control over the wealth you
create.
In the con department, however, there is:
- extreme risk, according to Statistics Canada, 96% of small
businesses survive the first year, 85% survive for 3 years, 70%
survive for 5 years and about 50% surpass this time.
- funding difficulty, due to the risk factor most senior banks do
not finance this type of endeavour unless there is significant
collateral in place.
- having to establish a brand and connect with the public on your
own, and
- the additional costs of finding help.
Taking over an existing business
You can buy a local business that's already operating.
Here, the upsides are:
- the fact that the business and the brand (provided their reputation is good) are established already.
- Funding is often easier when you have a business with its own assets,
- and as with starting from scratch, you'll have complete control.
The downsides may involve:
- the brand - if the company has a bad reputation, you'll have to
overcome it - along with viability and the potential cost and work
involved in re-branding if you feel that's what you'll need to
do.
- You will have to take into account that you will be buying all
assets, reputation, potentials as well as liabilities (financial
and legal).
Buying a franchise
When you join a franchise, you pay a fee to a brand that is already established in return for the use of its name and other benefits. You'll run your location according to the franchisor's model, with some brands being stricter than others, and you will pay a portion of your profits to the franchisor.
With an established franchise:
- you'll get a brand the public already knows,
- a proven business model and a level of support that's simply not
available when you start off with nothing or take over a local
business,
- depending on the franchise, funding may easier to obtain than
with the other business types, and
- there are other benefits with some systems, such as group
purchasing power.
However,
- you will not own the business name or have full control, and
- a percentage in royalties will go to your franchisor.
The ideal business ownership type for you will depend on your goals, your lifestyle and the experience you're looking for. Fully weigh the cons and pros of the different business types so you can make the right choice for your life.
