Have you always wanted to own your own business? Sure there are a plethora of reasons for doing so, but we all know the success rate isn’t as promising as we would hope. For this reason, many entrepreneurs find themselves exploring the opportunity of becoming a Franchisee with the expectation that a franchise’s goodwill and know-how will become the factor that sets them apart and ultimately leads to success. With food brands and chains comprising the overwhelming majority of franchising options in Canada, the remaining franchise industry has largely been dominated with business-to-business consulting, hair and nail salons/spas, commercial/residential services, seniors/home care and services, and children’s products and services. Further, as the opportunities available continue to expand, so too will the number of individuals exploring these growing markets. However, before going too far we recommend, at the very least, that you ask yourself these three questions:
1. What Are Some Factors I Need To Consider Before Buying A Franchise?
Purchasing a franchise can be one of the largest investments in your life. Not all franchises are built the same. What are some typical factors to consider before buying a franchise?
- Size of investment. Can you afford the franchise fee and set-up costs? Many franchises fail because there is simply not enough money to operate the franchise during the early stages, as the initial investment was too great.
- Industry. Is the industry a growth industry or are there too many competitors and franchisees? A potential franchisee should give careful consideration to the growth potential of the franchise industries they are exploring.
- Reputation of the franchise. A reputable franchisor can provide training, support and guidance. A poor franchisor can cause headache, frustration and stress.
Legal counsel can advise franchisees on the factors to consider when buying a franchise, the right questions to ask and the legal agreements which need to be in place.
2. What Is The Process Of Purchasing A Franchise In Ontario?
A fully informed franchisee usually follows the following process in purchasing a franchise:
- Research franchise opportunities
- Receive and review an information package known as a “Franchise Disclosure Document” with legal counsel
- Submit a Franchise Application Form
- If accepted, enter into a Franchise Agreement
- Build out franchise
3. What Duties Does A Franchisor Have To Franchisees?
In Ontario, the Arthur Wishart Act (Franchise Disclosure) 2000 (the “Act”) governs the relationship between franchisors and franchisees. The Act requires the franchisors to:
- Provide accurate, clear and concise disclosure documents
- Treat franchisees with a duty of good faith and in accordance with reasonable commercial standards
- Ensure franchisees are not misrepresented
Questions? Devry Smith Frank LLP can assist. We have advised franchisees on the purchase and sale of franchises of all industries and sizes. Please call us today at 416-449-1400 to arrange a consultation.