The pros and cons of buying a business franchise

Franchise businesses in Canada contribute almost $100 billion annually to the economy and generate jobs for 1.8 million people, according to the Canadian Franchise Association.

Owning a franchise can also be a solid investment, provided a person does their due diligence before signing on the dotted line.

Cam Loveday, a REALTOR® with CIR Realty who specializes in commercial real estate, says one option is to buy an already operating franchise from the current franchisee owner. The purchase will need to be approved by the franchiser company, and in many cases the buyer will also need to take over the lease for the franchise location.

He adds there are both positives and negatives to owning a franchise.

For someone who has never run a business before, a franchise provides a structured way of doing business, "such as knowing how much coffee to put in a cup, so there's no waste," said Loveday, to ensure profit margins are met.

He says the franchiser often provides training for the owner, or a manager if they choose to hire one, to teach them the franchise system.

"You have to run the business their way, you don't have any leeway as far as altering or changing things." - Cam Loveday, CIR Realty

Supplies are available through the franchiser and the franchiser also usually looks after advertising for the chain, which is done in exchange for a percentage of sales, on top of the franchise fee.

However, for some people the strict rules of the franchiser might be viewed as a downside, says Loveday.

"You have to run the business their way, you don't have any leeway as far as altering or changing things," he said.

"The franchise agreement might also say that you're going to have to fix up their store when the franchise lease is ending. So, if you want to keep the franchise, you are probably going to have to spend a lot of money in order to remodel the place."

Loveday says if you are buying an existing franchise, your Realtor will have the franchise agreement, which needs to be examined thoroughly.

Many people finance a franchise purchase with savings or equity in their home, since getting approval for a loan can be difficult and would require a solid business plan.

Loveday adds it also makes sense to have experience in the type of business you want to buy.

"Most businesses, you have to be the working manager," he said, so if you're thinking of buying a restaurant franchise, it would be a good idea to have worked in a restaurant before.

For more information, visit the Canadian Franchise Association's website at www.cfa.ca.