Pitfalls await those who don't do their homework before buying a franchise business, experts warn. But rewards can quickly add up for those who are willing to invest the money, time and hard work necessary to take a ready-made opportunity and make it flourish.
Former dental hygienist Connie O'Dwyer, 55, says she was ready to take control of her career in 1992 when she bought the Drumheller area franchise for Decorating Den Interiors, a U.S.-based franchise that helps homeowners enhance the look of their homes, after seeing a booth at a home show in Calgary. "I knew that I wanted to work with people and I knew I wanted to be in sales because I thought I was doing that in dental hygiene, believe it or not, because I was selling them on good dental care," she recalled. "It was more about having a business than it was about being in interior decorating."
The franchise had a lot going for it, starting with an affordable $18,000 franchise fee, a training program and a slate of proven suppliers that would have taken years to compile on her own. As time went on, O'Dwyer came to appreciate the flexibility of working from a home office, the annual conventions, design contests, online advice from head office and her fellow franchisees and the ability to net $50,000 a year or more in income. Another plus: The ability to do a really great job redecorating the house she shared with her auto dealership owner husband and two children.
Franchise lawyer George Wowk of Burnet, Duckworth and Palmer in Calgary said the franchise sector is growing in Canada and there's a lot of appeal to the idea. "If it's done properly, all of the errors have been worked out of the system so it should come to the purchaser or the franchisee as a well-developed system that should have little risk as far as the business operations go," he said. "But it can still be a tough business financially. You're paying a fair bit in terms of ongoing royalties and it can be very competitive." He said franchisees can pay $10,000 to $300,000 as an initial fee and normally the agreement must be renewed after 10 to 20 years.
In Alberta, franchisors must provide a disclosure document letting the prospective franchisee know what their rights and obligations are - including terms of eventually selling the franchise - but Wowk said a lawyer should still look over the franchise agreement. He said another essential research step is talking to existing franchisees so that challenges can be anticipated. He suggested consulting an accountant as well to see if the business plan is feasible.
Lorraine McLachlan, president and chief executive of the Canadian Franchise Association, said there are an estimated 1,200 franchise brands in 78,000 locations in Canada. The CFA has 450 members. The advantage to running a franchise is that it is consistent and predictable, she said, but that can also be its biggest disadvantage if the owner wants to change things. "The business can be exactly replicated and the customer experience is going to be consistent regardless of whether they are in Edmonton or Halifax," she said.
Wowk pointed out that the franchisor also has the right to change things and, if it does, everyone must get in line. That's the source of O'Dwyer's only complaint about her franchise. "The one thing was the name," she said. "When I started it was called Decorating Den. Then they changed it to Decorating Den Interiors, which was great. Then someone did a study and they changed it to Interiors by Decorating Den, which was difficult because it changed your name even in the Yellow Pages. "Now they've changed it back to Decorating Den Interiors. But that's the one thing that annoyed me because we had to change our letterhead each time."
Changes can be more than annoying. When Tim Hortons implemented a chain-wide switch to par-baking in a central factory in 2002, it prompted a class-action lawsuit by franchisees that still hasn't been resolved. McLachlan said having an exit strategy is vital for any franchisee. Franchises can be sold but the new owner usually has to be approved all over by the franchisor. O'Dwyer is lucky because her daughter, Katie, has stepped up to take over the franchise. "It's sort of like stopping a moving train when you have a business like this," said Connie O'Dwyer. "Although I don't want to work as much, it keeps going."
The Canadian Franchise Association lists opportunities offered by its members on its website, www.cfa.ca. Some of them:
- Lice Squad Canada Inc. - offering head lice eradication to schools, camps and families. Franchise fee, $20,000; investment required $15,000; startup capital $5,000. Training provided.
- Massage Addict - massage therapy. Franchise fee, $39,000. Training provided.
- Buck or Two Plus! - extreme value retailer. Franchise fee, $25,000; investment required, $275,000 - $600,000; startup capital, $75,000. Training offered.
By Dan Healing, Calgary Herald