WHAT IS FRANCHISING?
Franchising is the expansion of a business by granting a license to operate that established business by adopting their knowledge, methods and business models. The franchisor, or the person who owns the business, is responsible for setting out exactly how they want their business to be run, while the franchisee, or the person buying the franchise, is responsible for following the franchisor’s instructions.
Franchising can be a great opportunity for both franchisors and franchisees. It provides the franchisor with the opportunity to expand their business by selling the “know-how” of the business in exchange for a franchise fee. Franchisees, on the other, are able to purchase a ready-made business that is able to make money early on, rather than having to spend the time and money to create their own business from scratch.
WHAT DO I NEED TO KNOW BEFORE BUYING OR SELLING A FRANCHISE?
Before getting started with buying or selling a franchise, it is important to exercise your due diligence. This goes for both franchisors and franchisees. Doing this would require a franchisor to prepare a Franchise Disclosure Document (FDD) for prospective franchisees. This FDD must comply with the requirements listed in the Arthur Wishart Act and provide complete and accurate information on the franchise and its operations. The franchisor is responsible for ensuring that the FDD allows the franchisee to make a fully informed decision, and the franchisee is responsible for assessing the information in the FDD in order to make that decision to move forward with the franchise.
WHAT HAPPENS NEXT?
If both parties agree to move forward, the franchisor will provide the franchisee with a Franchise Agreement. This Agreement will outline how the franchisor wants the business to be run, the costs of running the business, and the franchisee’s rights and obligations. As this Agreement is a legally binding contract, it will set out the expectations for each party and is the lifeblood of the franchisor-franchisee relationship. It is important to thoroughly review the Franchise Agreement before making any commitments.