Franchising, Opening Day Jitters, & Getting Over the Hump

 In Business Law

Coming to a final form of agreement can undoubtedly be an arduous and complex task, but it is merely the beginning. The next step is actually to make your franchise “happen,” and the clock starts ticking towards your grand opening deadline date as soon as you sign your agreement (opening deadlines usually range from between one and two years, after which the franchisor will often have the option to terminate your franchise agreement and keep your initial franchise fee). Setting up a franchise is backbreaking work, and a franchisor will typically require that you hop through a few hoops on the way, but you can make this process easier on yourself by getting out ahead of what needs to be done before you actually sign your agreement.

So what typically needs to be done to get your franchise operational? Here are a few things to consider:

Financing

Your disclosure package should include a ranged estimate for setup costs (e.g. costs for acquiring equipment and fitting up your franchise location). These initial costs are typically high, and you may need financing to pay for them. If you do, try your best to start the financing approval process with your chosen financial institution as soon as possible. You will have the cost estimate before you sign the agreement, and so you can actually start the process before the clock starts. Remember though that what is provided in the disclosure package is only an estimate, and it is not uncommon for franchisor’s to undershoot cost projections to make their franchise more marketable. You may therefore want to consider financing options with greater flexibility in terms of maximum credit.

Insurance

Your franchise agreement will almost definitely set out specific insurance requirements. You will have access to this information in your disclosure package before you sign, and so this is something that you can set about obtaining. Get these requirements to your insurance broker as soon as possible so that they can look into a policy for you right away.

Leases

If your franchise requires a physical location, this will probably be the most challenging aspect of becoming operational.  It may take time to find a location within your franchise territory (especially if the territory is small), and it may be difficult to find a place that your franchisor approves of. Also, remember that the lease itself will usually require the franchisor’s approval too, and so you will have three parties involved throughout your lease negotiation process, being yourself, the landlord, and the franchisor (if you are considering a sublease, you will also have a sub-landlord/tenant to deal with). The more parties involved, the longer the negotiation process will be. If possible, start looking for locations and pursuing lease negotiations before signing your agreement, so that you can get an idea of the complexities that lie ahead.

Fit-Up

After finalizing the lease, you now have to go about physically building the franchise up. The amount of work required will vary, based on franchisor requirements and the already existing state of the premises, but it will certainly take time. Contractors and materials could be provided by the franchisor at your expense, but they also may not be.  If not, then you should start looking into what you need to fit-up the premises as soon as possible.   

Training & Employees

Before the opening, you will likely have to undergo training, and will usually have to travel to do so. Training usually lasts anywhere between one-four weeks, and since you will be away during this time, it may be difficult to keep making progress on your other start-up tasks. Keep in mind that after your training you may have to hire employees, and your agreement will usually stipulate that you have to provide them with training similar to what you received on your travels. This hiring and further training process can take a significant amount of time. While there is nothing you can do to shorten your mandatory training time, the least you can do is start vetting potential employee candidates as soon as possible.

It is important to remember that you can start to address all of the above start-up concerns before you sign your agreement, and this is the best approach to take. Deciding to wait until after the agreement is signed could leave you in a very stressful and time-pressed situation, which might result in desperate corner cutting to get you open before deadline day. 

This blog post was written by Ian McLeod, a member of the Business Law team.  Ian can be reached at ian.mcleod@mannlawyers.com or at 613-369-0373.

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