Reviewing franchise opportunities can take time and throw you into the unfamiliar territory of reviewing documents and writing business plans.

A franchise consultant can help you:

• Identify your objectives during self assessment
• Understand the franchisor/franchisee relationship
• Introduce opportunities you may not have considered
• Clearly evaluate franchise opportunities
• Introduce you to franchise lawyers
• Assist with a business plan and arrange financing
• Minimize risk by negotiating conditions in the franchise agreement.

When it comes to financing, the first step is determining the cost of your investment and all the expenses included in the franchise.

You should:

• Consider the startup costs and working capital you need once your business is up and running
• Know how much money you need to invest. The franchisor often requires up to 50 per cent of the cost in equity
• Learn the difference between the total costs and the cash equity: the amount you’ll need to borrow
• Indicate the amount of time it will take to repay the loans, and for the business to cover the operating costs
• Account for unforeseen circumstances, such as a delay in opening or a slow ramp up period
• Speak with your advisors if you’re unsure about how to calculate costs. Your banker can assist you in determining financing requirements and work with you to ensure you start your business on the right foot.

As a prospective franchisee, you should know exactly what an investment will cost and how it will be profitable before you sign the franchise agreement.

You should:

• Determine the franchise fee and what it includes: pre-opening expenses, operating expenses, and personal expenses
• Learn that pre-opening expenses may include real estate, construction, consulting fees and many other expenditures
• Have sufficient capital to cover monthly overhead for three months up to a year until the franchise is generating profits
• Have sufficient funds to cover personal expenses for one to two years until the business is running
• Consult an experienced franchising accountant to reduce financial risks because they can recommend prospects, assist in reviewing documents, and advise on the potential upsides and downsides of the investment to avoid unwelcome surprises. They’ll also help calculate the startup cost and suggest appropriate financing by determining when the franchise will be profitable.

Once you narrow down a handful of brands that you’re interested in, it’s time to do a deep dive into researching their franchise systems.

During this research, you should:

• Ask for a copy of the franchisor’s disclosure document
• Speak with existing franchisees
• Visit the franchisor’s head office and meet the management and support team you’ll be interacting with
• Attend tradeshows, such as the Franchise Canada Expo
• Follow the franchisor’s system and processes, and ask a lot of questions along the way
• Look for a business that you’ll enjoy running which has a franchisor you’ll enjoy working with
• Consider brands that are Canadian Franchise Association members – they represent a broad range of opportunities, valuable information, and guidance.

With the business plan, you should develop cash flow projections for the first three to five years of your business.

The business plan should:

• Describe the services and products that you’re selling, with the demand for the items, and customer base
• Point out the franchisor’s strengths and track record with the franchise system
• Include a financial section that describes your personal financial situation and financial potential of the business.

Lenders will expect to see realistic budgets that demonstrate your ability to manage cash flow. Two key budgeting tools are cash flow projections—which indicate how much cash the franchise will need, when it will be needed, and where it will come from—and profit and loss forecasts, which predict anticipated sales, expenses, and profitability.

An accountant can assist in preparing the appropriate documents for your business plan.

It’s important to have proper legal and accounting advice early in the process.

A franchise lawyer can:

• Explain the conditions in a franchise agreement, such as protected territories, non-competition restrictions, and obligations following the termination of a franchise
• Advise if the franchise fee, royalty, and other fees are average for the market
• Explain the franchise agreement and outline the legal risks and consequences
• Review disclosure documents and provide a snapshot of a franchisor and its activities
• Assist in the negotiation and finalization of the franchise agreement and other documents.

Once you’re sure of the franchise system you’re buying into, it’s time to take a leap of faith and sign the franchise agreement! If you’ve completed the due diligence process, you should be well on your way to business success.

It’s important to have confidence in your decision and ability to run your own business, while remembering that the benefit of franchising is the support you have from your franchisor and fellow franchisees every step of the way.