Canadian Franchise

Three Ways to Go into Business for Yourself

from John Blair, director of marketing and public relations, FranNet.

So you think you may be ready to start your own business. You’re considering realizing the dream of business ownership, of running your own shop, of being your own boss. But you’re not quite sure where to turn or where to start.

The good news? There’s a lot of information available on what to do. The bad news? There’s a lot of information available on what to do. As you can see, depending on where you place the emphasis, the search for a business can begin what may seem like an overwhelming process to go from curious business seeker to full-fledged entrepreneur. The best news? Here are some simple tips and other things to think about as you begin your search.

The first thing to understand is there are essentially three different ways to go into business for yourself:

  1. Start a business from scratch
  2. Buy an existing business
  3. Buy a franchise

All three options provide the opportunity to go into business for yourself and each opportunity has its pros and cons.

1. Start a business from scratch

This is truly the entrepreneurial dream in play here. You have a great product or selling. We’ve all heard the success stories of the person who had nothing and built an empire business from scratch. But are you cut out to be a self-made entrepreneur?

Starting a business from scratch is typically described as the business that started from someone’s passion. You’ll hear stories of this type of business that got started in someone’s basement or garage, and before they knew it, they had a functioning business underneath them.

Be careful though – this type of business also has the highest failure rate. According to research performed by Entrepreneur Weekly, roughly 25 percent of all start-up businesses fail in their first year. And more than half never see year five in the business’ lifespan. In addition to writing a business plan and securing financing for your business, there are many steps you need to take to make sure you’re operating strategically, legally and able to finance any growth you may see in this business venture. Necessary considerations for your start-up business include: determining the legal structure of your idea that you’d like to start marketing and business; registering your business name; obtaining business licenses and permits; and understanding your roles and responsibilities as an employer.

These are all critical to the operation of your business. When starting this type of business venture, there are positives and there are negatives.

Positives:

  • You have total control
  • Room for creativity
  • Build the business from passion

Negatives:

  • You have to create all systems
  • Highest failure rate
  • Limited financial options

What sorts of things should you consider when starting your business from scratch? Jumping into business for yourself is nothing to be taken lightly and should be carefully considered prior to any commitments being made.

2. Buy an existing business

The second option for going into business for yourself is to buy an existing business. Let’s say there’s a local hardware store or a flower shop in your town or community that comes up for sale and you’re interested in buying it. To many, this is an opportunity that seems a little less risky than starting a business from scratch. The business is operating (hopefully somewhat successfully or you wouldn’t be interested, right?), they’ve built a reputation in town and customers seem to like the product or service. You may even see this as an opportunity to perhaps improve some facet of the business to make it operate even more efficiently. One of the first considerations when looking to buy an existing business is to consider what you enjoy doing. For some people, turning a hobby into a career in business ownership is just the key they need. However, be careful — what you enjoy doing as a hobby may not be as from the outside are all keys in ensuring you’re stepping on the right path to successful business ownership.

Positives:

  • Cash flow
  • Good will
  • Actual financial results

Negatives:

  • Higher debt service
  • Bad will
  • Hidden seller motives

One of the other major roadblocks you may see with this type of business is ensuring the business is properly valued. Especially true of an owner who built this business from scratch, the previous owner has put a lot of blood, sweat and tears into the building of their business otherwise called “sentimental value.” And many times, the previous owner sees the blood, sweat and tears as having value, so they’ll tend to overprice their business based on the sentimental value. Unfortunately for them, there is no sentimental value – at least in terms of dollars of cents. You’ll be forced to really dig into the books and make sure you’re properly valuing the company based on revenue and profits – not blood, sweat and tears. There are several ways to properly value a company. Make sure you’re doing it correctly.

3. Buy a Franchise

The third option for going into business for yourself is to invest into a franchise. According to The Canadian Franchise Association’s website (www.cfa.ca), the organization has roughly 600 corporate members across the country representing more than 40,000 business outlets. Many people think their only exposure to franchises is through fast food chains and retail outlets, but that couldn’t be further from the truth. From service based franchises to retail outlets, there are many popular industries that have
franchised units, including hair care, senior care, automotive repair services, executive business coaching, and residential cleaning services. But with so many to choose from, what is the right one for you? That is the biggest question.

FranNet (www.frannet.ca), a franchise consulting company with more than 100 consultants across North America, including six in Canada, helps match individuals seeking franchise business opportunities with their skillset, lifestyle and budget. According to the company, those franchise matches have resulted in more than 85 percent of them still open and operating after five years in business.

A franchise consultant will also factor in your behavior profile, risk tolerance and lifestyle goals to determine the ideal opportunities in franchise business ownership. With a franchise, what you’re
essentially investing into is a “business in a box.” You’re piggybacking on the learnings of someone else who can train you to operate their business. The franchisor will supply the name brand, opportunity, support and training — you’ll supply the motor and financing that will launch and grow your franchise business in your community.

However, all that name recognition, training and support doesn’t come without a cost. Most franchisors will require you to pay an upfront franchise fee, as well as ongoing royalty payments based typically on your gross revenue.

In order to protect the consumer from fraudulent franchisors, there’s federal and provincial franchise legislation across Canada that regulates the franchise industry. One document franchises are required to have and be able to provide you is the Franchise Disclosure Document (FDD). The document must contain
information about the franchisor, its officers and its business. The FDD also provides information on litigation, bankruptcies and all costs associated with starting and operating the business, among many
other items. This document will be a critical part of your due diligence process when researching specific franchise opportunities.

There are also specific regulations in place governing how much time you must be given to review the FDD. It’s critical you know what’s required of the franchisors in your local province.

Positives:

  • Name recognition
  • Required disclosure
  • Franchisor support and expertise

Negatives:

  • Territory restrictions
  • Franchise fee and royalties
  • Can only sell their products

Whether you’re starting your business from scratch, buying an existing business, or investing in a franchise, considering your own business is a significant decision.

Remember: the best buyer is an educated buyer. There are a lot of variables to consider, but there are also many resources readily available as you embark on this incredible journey to business ownership.


John BlairJohn Blair is the director of marketing and public relations for FranNet. John oversees brand development, strategy and innovation, and all public relations activities for FranNet while supporting more than 100 franchise consultants across Canada, the United States and Germany. A seasoned business professional, John has more than 20 years experience in executive roles in franchising and small business.

Website: www.frannet.ca