For a SME to enter into a franchise opportunity one must weigh the options of how unique is the business, can it be replicated w/o buying a franchise and does the ‘turnkey’ aspect of the franchise make it both affordable and quicker to get into operation.
Control is extremely important to the franchisor as it maintains the brand, provides the franchisor hands on control and provides them a percentage of your business forever. As a franchisee you must sign specific exclusive contracts outlining your obligations to the ‘brand’, your intention to follow all of the franchisor’s regulations and to purchase each and every product or service that you sell from the parent company. An efficient and well run franchise will generate you a lot of money but a marginal franchise can be fraught with delivery issues, support and lack of support when needed. Even a well run franchise like Tim HortonÃ¢â‚¬â„¢s will cost you over $600000 to get in the door and they will tell that after paying you your salary as the owner/operator you will earn $75k on sales of $1.5M. Franchisors know their stuff to the point that your dream of being an entrepreneur will be dashed by the fact that there are no surprises, no control and long than average hours of work.
Jurisdictional issues are another obstacle to you and aÃ‚Â protection for the franchisor. Imagine buying a t-shirt company in Vancouver and with low sales and little support on the horizon you try to increase sales by opening an eBay store and selling online. Unless the franchisor had been asleep he would have thought of the internet as a sales tool. By selling online you would be ‘trespassing’ on someone else’s territory just as if you had moved in and opened a store. Under English common law you would be open to recourse by the franchisor and would need to compensate and probably close it down immediately. Besides that obvious example how does the franchise deal with complex health issues for example in provinces, cities and communities when they are a US based company? Have they taken in consideration labour market trends, socio-economic or cultural concerns?
Territories, exclusivity are the main controls of the franchise company and protect these rights diligently and above all else. Legal options are immediate and remedies are according to the extensive contract you signed. Consider a medium school photography business in a suburb of Vancouver servicing the province of BC. To better serve the clients the photo company franchise several out of the way communities. All is fine until a school on the border calls head office to find a photographer and the HO gives them the name of the neighbouring franchise because the territory was loosely defined. Problems need to be addressed and egos are bruised and income is lost. Complicated issues which need to be addressed and issues that the client has no idea of a problem and wouldn’t care anyhow.
Exclusivity can also be further defined by larger territories, e.g. instead of franchising several territories in BC, a national franchisor may give a master license for all of BC and that franchisee can then setup numerous locations. That’s not a bad setup if the main corporation is in a distant province.
The bottom line is franchises work for some people and are a bane to the real entrepreneur. The thought that the franchise is safe and secure and will provide good income for some time is a nurturing consideration for most people. However, in these economic times even Starbucks (which is not a franchise) is closing stores. The recourse for a franchise that goes bankrupt is a big problem and would tie up your business for years.
– Gary Bizzo