Planning to kick start your own business? Investing or buying your own franchise is a lot less risky as the brand is already recognized and you don’t have to experiment on new marketing methods. Canada has about 76,000 franchises establishments accounting to annual revenues of approximately $100 billion!
The best way to go about this is to start looking for franchising opportunities in a field you are comfortable in. Apart from that, here are a few important facts to consider before investing.
Know your franchisor
There are many franchisors selling “reputed” franchises in Canada. Do not get carried away. Do your homework and conduct your own background research on the company and brand. There are many ways to identify a fraud. Keep a close eye on these:
- They promise unrealistic profits. If it’s too good to be true, it usually is
- They cannot provide you with hard business data like sales and profit margins.
- They refrain from supplying you with the names and details of corporate officers and or principles.
- They talk about pyramid schemes.
Disclosure Documents
“Disclosure Documents” are only required in Ontario and Alberta which is a legal document disclosing all facts pertaining to the franchise. This document must be made available at least 14 days prior to the franchise agreement. No documentation is required in Quebec.
Know what you are actually buying
When you purchase a franchise, you get the right to use the trademark or brand and also the obtain know-how to use the business system. This means you now have the rights to use the franchisor’s business system, usually for a minimum of 5 years to a maximum of 20.
Scrutinize US franchise agreements
Many US franchisors almost forget that Canada is a different country and do not include local regulations and practices. Thoroughly inspect the agreements with your lawyer or you may end up paying royalties in US Dollars or force to comply with the Patriot Act.
Avoid agreements where your spouse too has to be a guarantor
Some franchise agreements requires that both franchisee and spouse sign as guarantors. If this can be avoided, avoid it by all means. This only makes you and your spouse both liable if the businesses fails and both of you will end up being sued.
A franchise is a great business opportunity and has a higher success rate than starting your own business from scratch. However, since the cost to purchase a franchise is much higher, it is advisable to evaluate the investment with an independent lawyer specializing in franchising in Canada. |
