Resources & Insights

Want to Franchise? Here’s What You Should Know

Thinking about starting or buying a franchised business? There’s certainly a wealth of opportunity out there! Before you jump into buying or starting a franchised business, it’s important to know the legislation that attempts to provide protection for potential investors.

In Ontario, the legislation that governs the protection of potential investors of franchises is called the Arthur Wishart Act.

One of the many things the Act does is set out a number of disclosure requirements for franchisors to adhere to. Franchisors are required to provide potential franchisees with a “disclosure document.” The disclosure document will provide background information and a sample franchise agreement for review prior to the potential franchisee making a final decision to move forward.

Franchise agreements may or may not be negotiable, as it usually depends on the strength, popularity, and age of the franchisor. But even if you can’t change a thing in it, it still is good practice to understand what you are signing and the pros and cons. Try remembering these two simple notations when going through an agreement:

  1. “C” for Control: look for and make note of which areas the franchisor has indicated they have control over, such as decisions that may effect your business like pricing or inventory; and
  2. The Dollar Sign ($): areas where the franchisor has the power to make you spend further money, such as forced upgrading to leasehold improvements, or forced buying from franchisor-approved suppliers only.

Buying a franchise can often be a very lucrative way of starting a business. The pros are that you will benefit from the experience of the franchisor, and can benefit from things like combined marketing, trade-name value, etc. The cons include, quite often, that you will need to give up some control over the business operations and the costs of things like royalty payments and required marketing.

Franchising isn’t for everyone, but if you are considering it, speak to a lawyer. Knowing what the arrangement will be from the outset, and making sure it fits with your plans, goals, and personality makes good business sense.

Written by Joanne McPhail and Nahal Golmohammadi