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Challenges in Canadian Franchise Financing in 2010

Guest post by: Stan Prokop

Article Overview: The article discusses the challenges around franchise financing in the current 2010 financial environment .

Challenges in Canadian Franchise Financing in 2010

Recently the U.S. based IFA ( International Franchise Association) released a report on the 2010 franchise business outlook. Let's take a look at some of the challenges in that report as it relates to the Canadian Franchise Industry and some of the financing and business challenges related to that report. We'll try and put that report in Canadian context.

At the hub of the entire IFA report was of course, no surprise to any of us, the generally weak economy and the recession we have just come out of. Canadians are in exactly that same boat. Jobs aren't being created to any extent, certainly not to the extent that economists would like them to be. Growth isn't happening, and clearly business entrepreneurss and franchisors are being ultra selective, respectively, in either considering a franchise, or opening another franchise unit.

The U.S. report indicated that almost 25% of the financing required to fund all franchises in the U.S. currently cannot be identified. Naturally this has a spill over effect in both the U.S. and Canada, as those new businesses will not generate jobs and employment, and will not create any economic wealth, tax generation,etc.

The report indicated that new unit franchises will grow by about 2%.

In Canada, as well as the U.S the banks and some major independent finance firms are the basis of the vast majority of franchise financing. As in all other business segments of the economy the banks have pulled back in lending. Naturally the food and hospitality industry are as out of favor right next to the auto industry!

The economics of the franchise industry goes straight to the roots of the North American economy. Employment in the franchise business as a whole declined by a significant 4%, and franchise units in general were ' flat ' in the 2009 difficult financial environment. Franchise revenue as a whole was flat at best.

In Canada organization such as the CFRA ( Canadian Food and Restaurant Association ) indicated that the industry as a whole has somewhat negative growth. Fine dining spending is down, but QSR ( Quick Service ) is up. Naturally the majority of franchises are in the QSR segment.

Canada faces the same challenges as the U.S. in franchise finance and lending - the outlook is a bit more bullish for 2010 but lenders still not are 100% on side and some of the major programs under which franchises are financed are under attach at very government levels. To quote the IFA report, quite simply ' Credit is a major hurdle '.

Franchisors and potential franchisees need to understand the current franchise financing environment and avail themselves of the best tools, programs, and people to reach their goals.

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Article Tags: canadian franchise financing, financing challenges



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how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
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