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BMO Bank of Montreal

January 28, 2011 13:45 ET

Growth in Retail/Service Sector Bodes Well for Franchising

BMO Offers A Playbook on Investigating a Franchise Business

- Over 78,000 franchises across Canada employ more than 1 million people

- Franchising accounts for 10 per cent of Canada's GDP

- Franchised businesses account for 40 per cent of all retail sales

TORONTO, ONTARIO--(Marketwire - Jan. 28, 2011) - Entrepreneurs running franchise outlets in Canada have been able to rely on established business practices to help weather the recession and stand to benefit from an economic recovery as the retail and service sectors continue to bounce back.

"Demand for retail services, including food services, should remain solid in the years ahead in response to steady growth in the economy and population. Canadian real personal consumption of services grew 3.4 per cent in the year to the third quarter of 2010, slightly above the decade-long average of 3.3 per cent," said Sal Guatieri, Senior Economist, BMO Capital Markets.

The franchising sector is burgeoning as more Canadian entrepreneurs turn to pre-established business models that are poised to ensure long term success in the wake of the recession.

"Franchise owners benefit from a proven business format and also access to professional marketing, national advertising, specialized training, and centralized purchasing – resources that are very attractive to prospective business owners," said Steve Iskierski, Senior Manager Franchising, BMO Bank of Montreal. "And while these resources do provide a significant advantage, there are many aspects of owning a franchise that need to be investigated before making the substantial investment required to be successful."

If you are thinking about franchise ownership, BMO suggests ten key issues of franchising that you should investigate first.

1. Who's buying what are you selling?
  • Is there strong consumer demand, and is the demand expected to continue?
  • Who are your competitors, and could more enter the market in the next few years?
  • Is the product or service of outstanding quality, and how does its quality compare to the competition?
2. Do your research
  • What's the story on the franchisor's business record and reputation?
  • Have you contacted government consumer protection agencies, Canadian Franchise Association and your local Better Business Bureau?
  • Is the franchisor's infrastructure comprehensive and stable?
3. Read the fine print
  • Have you reviewed the franchise agreement with an independent lawyer who specializes in franchise law?
  • Are the terms of the agreement in line with your expectations?
  • Does it cover the challenges you will face in running an independent business?
4. Do they have staying power?
  • Is the franchisor financially strong and stable?
  • What is the background and experience of senior management?
  • Does the franchisor make available a "Disclosure" document?
5. What does it cost and what do you get for it?
  • How is the franchisor compensated?
  • What does the franchise fee cover?
  • What do you receive in exchange for on-going royalty payments?
6. What's in it for them?
  • Does the franchisor own the land or building?
  • Is the franchisor prepared to go on the lease?
  • Will the franchisor provide you with financial assistance?
7. Is there room to grow?
  • What is the franchisor's plan for expansion and target markets for growth?
  • Will your franchise be located where the traffic and demand are likely to be?
  • Are you assured of exclusive rights to the franchisor's product and service?
8. Will you have the research, tools, and support you need?
  • Does the franchisor thoroughly research new markets using reliable and credible market research methods?
  • Will you, as a potential franchisee, have access to marketing and product information regarding your industry as well as your specific business?
  • Will the franchisor assist you in the development of your business plan?
9. Do you fit the profile?
  • What kind of people is the franchisor looking for as potential franchisees?
  • Is there a typical franchisee profile?
  • Are there any special training, educational or other requirements the franchisor would ask of you?
10. Get the big financial picture
  • What is the total cost, including staffing, equipment, inventory, leasehold improvements, taxes, advertising and promotion?
  • What is the minimum cash commitment you must make?
  • Has the franchisor established a pre-arranged financial services program for franchisees with a financial institution?

BMO Bank of Montreal can help provide you with expertise and guidance in finding customized solutions to meet all your financial needs, including comprehensive financial and cash management arrangements tailored to support your business.

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