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Sweat Equity And Capital: What It Takes To Open A Successful Franchise

Darpan News Desk The Canadian Press, 12 Oct, 2017
  • Sweat Equity And Capital: What It Takes To Open A Successful Franchise
VANCOUVER — Beeru Mannan owns two Freshii locations in British Columbia with his brother, and the duo plan to open another pair of the chain's restaurants in the province next year.
 
The veteran franchisee, who's been affiliated with three other brands previously, was drawn to Freshii's focus on healthy dining options. Standing in his Burnaby, B.C., location while employees prepped fresh vegetables in the kitchen, Mannan said he believed it was an up-and-coming chain in the health food segment that could grow exponentially.
 
The brothers are two of many Canadians running the 78,000 franchise units in the country that fall under some 1,300 brand names, including Freshii, according to the Canadian Franchise Association.
 
People looking to join their ranks want to be their own boss, enjoy the flexibility that comes along with that, and desire direct control over their financial investment, according to survey responses compiled by the CFA.
 
Prospective franchisees should research the company, build an emergency fund and closely read the fine print on all documents before making a big capital investment, according to franchisees and industry insiders.
 
Freshii provided Mannan and his brother a list of all their franchisees and they travelled to Toronto, Chicago and Portland to speak with some.
 
"That was important to us, that it wasn't dictated who we speak to," says Mannan, who asked about the level of support they receive from head office and any operational challenges.
 
A big red flag, he says, would have been negative comments about their experiences with head office.
 
Recently, disagreements between some Tim Hortons franchisees and their parent company, Restaurant Brands International, about management moves has resulted in two class-action lawsuits being filed on behalf of franchisees and RBI taking legal steps of its own.
 
Sukh Aujla, who owns 11 A&W locations with his brother, says one way to determine how much a franchisor will support you is through its application process.
 
When his family first looked into owning a franchise, they applied to and were accepted by a number of chains.
 
"Some franchises just wanted the basic information — how much money you had, what's your basic experience and background — and you got accepted very quickly," Aujla says, adding A&W's more thorough vetting process made them more feel the company would likely be more supportive of its selected candidates.
 
Once prospective business owners choose a chain, they must be prepared to put up a big capital investment.
 
It's also important to set aside some funds for working capital beyond the initial requirements to cover any shortfalls if, for example, the franchisee underestimates the number of staff needed or overestimates initial sales.
 
Upfront fees can range between less than $10,000 to more than $1 million. A&W, for example, requires a minimum investment of $350,000, according to its website, though it runs a program asking for $150,000 up front for people under 35 years old.
 
Most people need some type of loan to finance the investment, Lorraine McLachlan, the CFA's CEO said in an email. There's a dedicated franchise team at most banks, she says, who can help secure financing.
 
Some franchises also have relationships with certain banks, says Aujla, and financial institutions tend to have more confidence in franchisees than entrepreneurs going into business for themselves.
 
"You got the brand power behind you," he says.
 
"It's not like you're opening up your own restaurant under your name. No one knows who you are on the street."
 
Once the business is open, part of the path to success comes down to hard work. Aujla recalls being a teenager when his parents opened their first A&W location and working long shifts in the restaurant with his brother.

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