Not long after Krista Castellarin’s appearance on Dragons’ Den, the Fabulous Furballs business model went to franchise heaven. The agreements between the founder of the Sherwood Park-based luxury pet boutique and her three franchisees were terminated in the second week of February. The split has beenpublic and acrimonious. While the former franchisees create new identities for their businesses, Castellarin plans to rebuild Fabulous Furballs, but with a corporate model this time.
LuAnne Morrow has seen too many business partnerships end on bad terms. She’s counsel with the intellectual property group of Borden Ladner Gervais LLP (BLG) in Calgary and has worked on franchise agreements for more than six years. She says when it comes to looking for the right business partner in the franchise world – whether you’re a franchisor or franchisee – there’s no such thing as too much research. “Do your due diligence and it will pay off; jumping in with both feet could result in a lot of problems,” Morrow says. “The franchise agreements that are the most successful, the people have gone in with their eyes wide open and have done lots of due diligence.”
If you’re looking to expand your business by bringing franchisees on board, here are a few things Morrow suggests considering:
Financial strength and reserves – many franchisors focus on the ability of a new franchisee to pay the start-up costs, but they also need reserves to keep the business going.
Desire to follow the system – lots of franchisors look for entrepreneurial people, but you need people who are willing to follow a system. It was the business model and processes of the franchisor that made it successful. You need to find people that will follow that structure.
Management skills – franchisees might not have experience owning a business, but it’s important they have strong customer service skills or experience managing people as part of their work history.
Understanding time commitments – being a business owner is not a 9-to-5 job. Make sure a franchisee understands the time commitments of owning a business and you might want to avoid people who are looking to make a quick buck.
If you’re looking to become a business owner by joining an established business as a franchisee, here are some things Morrow suggests looking into:
A history of success – it’s harder if you’re looking at a newer franchise with fewer locations, but you should consider how proven the brand and system are. Talk to existing franchisees in the system and ask them what they’re experience has been like. Find out if the business has lots of failed franchisees, if people stay in the system or drop off.
A little disclosure – there are disclosure laws in every province regarding what details a franchisor must provide, but if the disclosure really sets out what you need, it shows they’ve put a lot of thought into it.
Full support – find out exactly how the franchisor supports its franchisees. Individual owners might benefit from joining a franchise system that supports its business partners with marketing initiatives, training, visits from head office on a regular basis and learning opportunities in the franchise system.
Intellectual property – do the basic business due diligence: do they have the trademarks they claim to have?