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Franchise Tutorials

When it comes to opening and operating a franchise business, there’s a lot to learn. But don’t worry, the Canadian Franchise Association has you covered! Originally published in Franchise Canada Magazine, our Franchise Tutorials cover the fundamentals of franchising you’ll need to know before you open – from the various fees you’ll pay to training, inventory, renewals, and so much more.


Table of Contents:

Tutorial 1: What is a Franchise?
Franchising is a business relationship where a franchisor (a company or individual who owns the franchise system) grants a licence to a franchisee (a company or person who contracts to use the franchise system) the right to use the franchisors trademark, brand and operating system for an initial fee (initial franchise fee). In return the franchisee provides a share of the income back to the franchisor (a royalty). The licence is contractual and is usually for a fixed period of time, often five, 10, or 20 years. (Read more…)

 

Tutorial 2: Intro to Franchise Fee fundamentals
Franchise fees are typically paid for the use of the franchisor’s trademark, brand and the operating system. There is usually a one-time initial franchise fee as well as an ongoing fee, called a royalty. The ongoing royalty may be a flat monthly or weekly fee, or a percentage of the gross sales from the business. (Read more…)

 

Tutorial 3: Intro to Deposits
Deposits are often collected by franchisors prior to entering into a full franchise agreement. They are typically a percentage of the initial franchise fee or the full initial franchise fee amount. When entering into a franchise agreement, the deposit is credited towards the amounts owing. (Read more…)

 

Tutorial 4: Intro to Disclosure Documents
Disclosure Documents are a summary of information on the franchisor, its executive team and its franchise agreements. The document is provided to potential franchisees so that they may make a more fully informed business decision. In Canada, franchise systems are required by law to provide a Disclosure Document to prospective franchisees in provinces where franchise legislation is enacted. (Read more…)

 

Tutorial 5: Intro to Franchise Royalties
Most franchises require the franchisee to pay a royalty for the right to use the franchisor’s trademarks and operating system. Royalties are the franchisor’s portion or share of the revenues for allowing you to use the system. By being connected to an established brand, franchisees benefit from using the trademarks and operating system to increase the value of their business assets and future income. (Read more…)

 

Tutorial 6: Intro to Advertising Fees
In most franchise systems the franchisee is required to contribute a certain amount of money, called the advertising fee, for regional and/or national advertising. It is the pooling of advertising dollars so that the franchisees can create a greater marketing impact by spending collectively on promoting and advertising the brand versus if each franchisee were to spend their advertising dollars independently. (Read more…)

 

Tutorial 7: Intro to Initial Training
Once you have been granted a franchise, one of the first things that will happen is initial training. This training provides you with the knowledge and skills to duplicate the franchisor’s proven business model and to provide a consistent customer experience. (Read more…)

 

Tutorial 8: Intro to Ongoing Training
Great franchisors don’t stop at providing initial training. They provide ongoing training and support designed to continue to develop the skills of the franchisee and franchisee staff for the duration of the franchise agreement. As with initial training, the details and extent of ongoing training varies widely between franchise companies and requires you to ask a lot of questions. (Read more…)

 

Tutorial 9: Intro to Operation Manuals
The operation manuals of a franchise system are the written documents that provide the franchisee with all the details to duplicate the business model. It is the proven operating system defined in writing. Critical success factors are identified and communicated so that franchisees can consistently duplicate success. (Read more…)

 

Tutorial 10: Intro to Franchisee Advisory Councils
A Franchisee Advisory Council (FAC) is a group of established franchisees who meet with company executives to discuss business issues that are of relevance to the majority of the franchisees. It is a structured vehicle for constructive two-way communication between the franchisee and franchisor. (Read more…)

 

Tutorial 11: Intro to Inventory
Within your franchise business, typically one of the major expenses is the inventory. Inventory is defined as all the goods and materials that are held in stock and used by a business for the day-to-day operations. (Read more…)

 

Tutorial 12: Intro to Approved Suppliers
Supply chains, or approved suppliers, are suppliers that a franchisor has identified, investigated and approved to provide their product or service to the systems franchisees. The franchisee is typically required, under the terms of the franchise agreement, to purchase only from approved suppliers. (Read more…)

 

Tutorial 13: Intro to Insurance
When opening a business as a franchisee, you will want to ensure that you are adequately insured. Proper insurance allows you to recover from a financial loss during the occurrence of a specific event. (Read more…)

 

Tutorial 14: Intro to Recruitment
As a franchisee, one of the roles you will spend a lot of time in is the area of recruiting staff. Unless you are operating a one-person operation, this will be an important part of your business. (Read more…)

 

Tutorial 15: Intro to Term Of Agreement And Renewals
All franchise agreements have a fixed term. They come to an end. That is the nature of a licensing relationship. A licence has a beginning and an end. You are not buying the right to use the brand but instead leasing it, like the lease of a commercial space. (Read more…)

 

Tutorial 16: Intro to Renewal Fees And Redesign Costs
When it comes time to renew your franchise agreement, there will typically be some costs in the form of a renewal fee and redesign or remodeling costs. You will want to plan for these costs and be prepared financially when it comes time to renew your franchise agreement for a new term. (Read more…)

 

Tutorial 17: Intro to Territories And Protected Areas
Franchise agreements will typically address the issue of territories and/or protected areas. Protected areas may be defined by distance radius, postal codes, municipalities, cities or simply outlined as within the four walls of the franchised location. (Read more…)

 

Tutorial 18: Intro to Franchise Growth Formats
Within franchising, there are a variety of different growth formats used by franchisors such as single-unit franchising, multi-unit franchising, area development agreements, and master franchisee agreements. These formats provide different opportunities for a prospective franchisee. (Read more…)

 

Tutorial 19: Intro to Head Leases and Subleasing from the Franchisor
Many franchises will require that their franchisees operate out of a retail, office or commercial location. In these circumstances, you, as a franchisee, would enter into a head lease or sublease agreement. (Read more…)

 

Tutorial 20: Intro to Leasehold Improvements
Leasehold Improvements are fixtures or improvements that are attached to the retail or commercial space and installed by the franchisee when setting up a new location. Upon expiration of the lease, these improvements remain with the space and become the property of the landlord. (Read more…)

 

Tutorial 21: Intro to Reporting
Most franchise agreements require the franchisee to report information to the franchisor on a regular basis. This is frequently done on a monthly basis and can be submitted as written reports or digitally. (Read more…)

 

Tutorial 22: Intro to Audits
When a franchisee enters into a franchise agreement, they acquire specific rights but they also commit to certain obligations. The franchisor/franchisee relationship is largely based on good faith. The franchisor trusts the franchisee will comply with the franchise agreement. In most situations, this is the case, but not always. (Read more…)

 

Tutorial 23: Intro to Dispute Resolution
Despite best efforts, there may come a time during a franchise partnership where franchisee and franchisor disagree. This is a reality in any relationship. (Read more…)

 

Tutorial 24: Intro to Termination, Transfers and Assignments
At some point during the franchise relationship there may come a time where a decision is made to bring the franchise partnership to an end. The franchise licence term may simply come to an end and you may decide not to renew, or there could be other reasons why an end of the franchise agreement would take place. (Read more…)

 

 

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Disclaimer
The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.