Conducting proper due diligence and research is your first step in becoming a successful franchisee. The franchise system listings on CFA's online franchise directory
are a good place to start the process. All companies listed on the 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 you with ways to request additional information from the individual companies. It is recommended that you contact the franchise brands 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 Starter 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. (Learn more about franchise legislation in your province.
) Review these documents with your lawyer (preferably a franchise specialist, see the list of CFA member directory
for 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.