Franchises are one of the fastest growing business models in Canada, and with good reason: you can start your own business with the added comfort of working within a proven operating system and utilizing the goodwill of a recognized brand. Franchisors are required, by law, to provide you with a comprehensive package of disclosure documents prior to entering into the franchise agreement. So, before you sign on the dotted line, you will want to review these documents not only to familiarize yourself with your ongoing rights and obligations as a franchisee, but also because there are a number of business issues unique to franchises that require some attention. These important issues include:
Training
Likely, one of the reasons you have chosen to become a franchisee is that you are looking for a business with a proven track record. One way to develop the skills and know-how required to operate comes from the hands-on experience provided by training from the franchisor. It is important to review your agreement for any initial or ongoing training provided for franchisees. If the agreement doesn’t contain much detail, ask for it, along with the anticipated costs or travel expenses. Often the agreement requires that you not only attend training, but that you bring certain key employees along. Generally franchisors provide initial training, but if it is important to you that there are programs available for upgrading your management and operational skills, make sure those rights are included in your agreement.
Time Requirements
Often franchise agreements will include provisions whereby you are required to devote your full time and attention to the operation of the business. So if you are planning on operating the franchise as a side business, you must make sure the franchise agreement is amended accordingly.
Marketing
Another benefit of franchising is that franchisors may develop and implement large marketing campaigns that are rolled out and viewed by a large audience. The franchise agreement will often set out the national and local campaigns in which franchisees must participate and contribute. If there is little detail, request additional information, including the anticipated costs. You will be required to self-promote so make sure you understand your obligations and any restrictions on the types of activities that may be done or where you can market.
Location/Territory
Are you thinking of opening a new franchise that doesn’t yet have any locations in the city? Although this can be a fantastic opportunity for you to generate goodwill in a large area, what happens when another individual wants to open up another location in the same city? Your agreement should provide you with an exclusive operating area. But the franchisor can place a new franchisee just outside of that area. You will need to make yourself comfortable with the size of your exclusive area and what it could mean to have another franchisee in close proximity to your business. It is also important to be aware of any rights the franchisor may carve out in your area or with respect to internet sales completed directly through their website.
These are just a few of the important issues involved in franchising a business and key items to review in your franchise agreement. There are many more, which is why it is important to surround yourself with trusted advisors to assist you in making this decision. No matter what business you are looking to open, visit some locations already in operation and speak with current franchisees about their experiences.
This blog post was written by a former member of the firm’s Business Law team. Please reach out to business@mannlawyers.com with any questions or for further information.
