Franchising is an attractive and powerful way for Canadians to achieve success as small business owners.
Through the proven business concept and support provided by the franchisor, franchisees are able to be in business for themselves but with the support and assistance of the franchisor, the advantage of the franchise system’s past success, and access to the knowledge and experience of a network of franchisee peers.
Franchising is about sharing success. The success of a franchisee leads to further success of the franchisor and the franchise system as a whole. When you invest in a franchise, you align yourself with a brand that may already enjoy established consumer awareness and loyalty in the Canadian marketplace, be it nationally, regionally or locally. This instant brand recognition can bring many advantages, including a stronger position when applying for a business loan. As a franchisee, you will benefit by being licensed to use the franchise system’s proven branding, trademarks, and proprietary products, services, recipes, etc.
A franchise also provides you with the advantage of a tried-and-true system and an operations manual that fully explains how you are to replicate the franchise’s system at your location. While it is impossible to eliminate all risk, if you work and follow that system, you can reduce the risk of business failure and increase your likelihood of success.
As a franchisee, you are considered a small business owner and it is important for you to assume a leadership role in your business. By joining an already established system, you do not have to invent the business from the ground up like you would as an independent business.
The franchise system can save you time and money by keeping you up-to-date on your market. Through the franchisor, you can stay on top of things such as business trends, research and development, new marketing initiatives, and changes in consumer tastes or behaviours. This allows you (and the other franchisees in the system) to focus on the day-to-day operation of your location knowing that you have this shared knowledge available when you need it.
Being a franchisee also means there is strength in numbers. Many franchise systems have an established supply chain and strong relationships already established with suppliers. By ordering your stock, supplies and equipment through approved suppliers as a member of your franchise system, you may receive the benefit of preferential pricing or special delivery. Joining a franchise system gives you a network of peers upon whose knowledge and experience you can draw. If you encounter an issue or have a question, your franchise system colleagues are just a phone call or e-mail away. It’s highly possible that they may have encountered the same concerns you have and will be able to provide information or advice to help you. In many systems, there are opportunities for franchisees to come together and share ideas and experiences as part of a franchisee advisory group or at a franchisee convention.
What are the key responsibilities of the franchisee?
While system-specific responsibilities required of the franchisee will be outlined in the franchise agreement, there are a few key responsibilities that are generally required of the majority of franchisees.
The franchisee should:
- follow the franchisor’s standards, methods, procedures, techniques and specifications to ensure consistency;
- pay a fee (typically an initial franchisee fee and ongoing royalties) to the franchisor for the right to use the franchisor’s trademarks (brand) and business system;
- take care of accounting, local marketing, staffing and the other administrative aspects of operating a business;
- invest their time, particularly during the start-up phase, by working hands-on in their business to fully understand the operational side of the franchise;
- work in partnership with the franchisor, allowing for effective two-way communication between the two parties and a mutually-beneficial relationship.
While there are many important responsibilities that must be shouldered by the franchisee, an important benefit of investing in a franchise is the ability to rely on the support, guidance and assistance of the franchisor. That said, a franchisee must be prepared to work hard and take initiative, as no franchisor will do everything for you.
What are the key responsibilities of the franchisor?
While the franchise agreement will outline the specific responsibilities and obligations of the franchisor, there are a few key responsibilities of the franchisor that generally apply in most scenarios.
The franchisor should:
- undertake to provide franchisees with operating systems and support services to help their businesses grow in ways that are effective, efficient and profitable;
- continue to evolve the franchise system through, for example, research and development of new products and services;
- handle all brand advertising and (usually) provide franchisees with assistance for their local marketing activities;
- protect and manage the brand and its trademarks while ensuring consistency and quality standards are maintained by all franchisees in the system;
- provide initial and ongoing training and support.
It is important to note that though most franchisors are ready and willing to offer assistance and guidance, each franchise system is different and may provide different levels of support. Regardless of the degree of assistance provided, however, a franchisee must be prepared to work hard and take initiative, as no franchisor will do everything for you.
How do I research a franchise?
Conducting proper due diligence and research is your first step in becoming a successful franchisee. The franchise listings on LookforaFranchise.ca are a good place to start the process. All companies listed on this website are Canadian Franchise Association members in good standing and voluntarily agree to adhere to the CFA Code of Ethics. You can peruse CFA member franchise systems alphabetically or by industry category. Each listing will give a brief overview of the system and provide contact information for you to follow up with the individual companies. It is recommended that you contact the franchise systems in which you are interested directly for further details and more specific information.
Some questions you may want to ask as part of your due diligence include:
– Is the franchisor a member of the Canadian Franchise Association?
– How many years has the franchisor been operating?
– How many franchisees does the franchisor have?
– Can the franchisor provide a list of all franchisees?
– How does the franchisor choose its franchisees?
– How much is the initial franchise fee?
– What are the franchisor’s plans for future development?
– What is the competition for the product?
– What kind of support does the franchisor provide to franchisees?
– Will you be provided with a disclosure document? Does it comply with provincial laws or CFA’s minimum disclosure requirements?
– The CFA Info Kit provides a more comprehensive list of questions to ask, along with other information vital to your franchise due diligence process.
Additional information will usually be sent to you by your franchise systems of interest in the form of a franchise information package, which may include (but is not limited to) the following: a history of the company; summary of the support and systems provided; news articles and/or press releases about the system; company mission statements and/or core values; common questions and answers (FAQ); an outline of estimated start-up costs; industry statistics and information; and an overview of the franchise application process.
Once you have requested, received and reviewed the franchise systems’ information packages, fully investigating the franchise systems that make your shortlist will usually start by meeting with company representatives. These meetings will serve as mutual interviews, where both you and the franchisor can ask questions, get more information and better determine if you will be a good fit with the system.
From there, you will usually receive the company’s disclosure document. While some Canadian provinces mandate the provision of disclosure documents through legislation, all CFA members are required under the CFA Code of Ethics to provide disclosure documents in all Canadian provinces and territories. (To find out more about franchise legislation in your province, click here.) Review these documents with your lawyer (preferably a franchise specialist, see the list of CFA member law firms) before you sign any contracts or agreements. This comprehensive summary of information will provide you with background on the company, including its officers, on topics including (but not limited to) estimated working capital and annual operating costs for franchisees, training and support provided, litigation, and, typically, financial statements of the franchisor. The disclosure document should also give you contact information for current and former franchisees of the system. It is recommended that you speak with these people as they can give you essential firsthand knowledge of the day-to-day reality of operating that particular franchise.
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.