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The Franchise Advantage

Why franchised businesses can quickly and successfully fill market gaps in difficult economic times

By Lauren Huneault

There’s no question that Canadians are experiencing unprecedented challenges in the face of the COVID-19 pandemic. Months of closed doors or limited business have had a major impact on Canadian businesses, with owners forced to make difficult decisions, including some who have had to shutter their operations.

While this is a trying time for Canadians, it’s also a time of opportunity for those looking to start their own business. As the economy begins to open again, franchised businesses are in an excellent position to do so quickly while filling any market gaps left in the wake of this economic crisis.

The time is right for franchising

Joel Friedman, president, JSF Franchise Group, says the tough economic climate can lead to more people turning to franchising. “The realization that they have little or no job security is a real concern for people in corporate employment and they become highly motivated to control their destiny. Franchising will boom during these times,” he explains. He notes that he signed four new franchisees since March 23, 2020, when everything shut down. “It was with people who took this time to look at what they wanted in their life and it was to be an owner.”

Wayne Maillet, president of Franchise Specialists, says this is the perfect time to open a franchise. “As the economy grows stronger, franchising will play a part in the rebound of the economy as we get back to the new ‘normal.’ Opening a business post COVID-19 provides many advantages,” he explains.

He points to the large labour pool that exists since many have lost their jobs, lowered interest rates, and increased lending from banks, along with government support programs and incentives as examples. He also notes that business closures will have an impact.

“There are prime locations that will become available and it can be expected that landlords will be willing to negotiate favourable rents for prime locations,” he says, adding that “Vendors and suppliers have been hit by the crisis and may have pent-up inventory. New franchisees will be able to leverage the better pricing and terms that will be available.”

The power of franchising in times of crisis

Greg Windle, director, national industry programs at CIBC, says franchisees have advantages in an uncertain economic climate, including the built-in support that comes with the franchise business model. “A well-run franchise system thrives not only on the entrepreneurial spirit, business acumen, and local market knowledge of the franchisees but also on the support provided by the franchisor and the knowledge sharing of best practices amongst the network of franchisees,” he explains.

Franchisor support, notes Windle, comes in the form of a trusted brand, sharing best practices, providing financial relief directly (i.e. financial aid programs) or indirectly (i.e. royalty relief), providing access to key financial partners and sources of funding, and providing information on government assistance programs. Franchisee-to-franchisee support comes in the form of increased availability of information and the sharing of best practices.

“All of these benefits of being a part of a franchise system give the franchising model great potential to accelerate the path to normalcy for a franchisee emerging from an economic downturn when compared to an independent, non-franchised competitor,” explains Windle.

The franchise advantage

While an individual owner may not have experience with economic downturns or be able to quickly roll out a new strategy required to adapt to challenges, the benefit of being part of a franchise system is having access to that experience and those tools.

“Successful franchise business owners are being innovative to continue to succeed, pivoting to adapt to the new normal. One of my clients is having weekly conference calls with all the franchisees who are sharing what they are doing to adapt, change, and continue to grow during these unprecedented times,” explains Maillet. “As a new business owner, you can capitalize on the experience of others who are in the same business as you, facing the same challenges. The alternative is being in business on your own and having to adapt and change based on trial and error.”

Friedman notes some additional advantages to joining a franchise system instead of going it alone, including initial and ongoing training and the higher success rates of franchises versus start-up businesses. He also points out that you may find it easier to secure financing for a franchise and it may also cost less to buy a franchise than to start your own business of the same type.

“It will be much easier – and less expensive – to attract customers with a brand that’s established,” he adds. “You’ll also benefit from any national advertising campaigns that your franchisor is running, and other franchisees can offer up their experience and suggestions. You have operational systems and processes that can be standardized to provide a consistent product or service by all franchisees. You have many minds working at head office that can change direction to go with the trends and times.”

Mohammed Jehangir, director, packaged loans & strategic partnerships, CIBC, says franchisees also have an advantage when it comes to financing. “All other things being equal, franchise business owners with a track record of business success and strong franchisor backing do have quicker/easier access to business financing. While franchisors do not typically provide guarantees to financial institutions for the liabilities of their franchisees, financial institutions take comfort in knowing that there is another party to any lending agreement that has a substantial stake in the success of its client,” he explains, adding that that banks typically offer a suite of lending solutions to franchisee clients, from direct provision of operating lines and term loans to federal government-backed lending solutions.

“New independent business owners with a three-year historical track record of financial success are in most circumstances going to have to rely on personal resources and personal liability lending sources to fund their start-up business,” notes Jehangir. “New franchisees, on the other hand, have been vetted and qualified by a franchisor for both business aptitude and personal net worth. These two things, combined with the knowledge a lender will have as to what support that the franchisor will provide going forward to ensure that the franchisee is successful, may be the difference between qualifying for bank financing or not.”

Words of wisdom from the experts

Friedman emphasizes the importance of undertaking a thorough self-evaluation before you make a franchise investment decision, regardless of the economic climate. “You need to look at yourself and understand if you are ready to take the risk. If you’re able to follow a system, then franchising is for you. Every good franchise I met in my career may not have always agreed with the policies and system, but they still always followed them,” he advises. “You need to choose the right franchise – buy a franchise that you will enjoy not based solely on the bottom line.”

Windle and Jehangir from CIBC encourage those considering franchising to cover all their bases. “First, do your research on what franchise systems were performing well pre-COVID and industries that are likely to rebound quickly. Second, make sure you have substantial personal liquidity and that you are prepared to use it to support your new business, as there will be more uncertainty going forward,” they advise. “Explore the support the franchisor has provided to their franchisees during the pandemic and carry out a thorough review of the franchise agreement with a franchise lawyer to ensure the clauses provide the necessary protection should there be a second or third wave of the virus or similar situation in the future.”

“Finally,” they add, “be patient. In this period of uncertainty, the road to success may be less clear, but those who are well-capitalized, have a plan, and stick to it will emerge from the period of uncertainty as strong players moving forward.”

“Take advantage of the benefits provided by a post COVID-19 business environment,” adds Maillet. “Do your homework and find a franchisor that is providing a high level of support and is adapting to the new marketplace. Have the confidence of knowing that the pandemic will come to an end. Now is a great time to explore franchise opportunities.”