Franchising 101

Franchising is a very popular form of entrepreneurship in Canada.  After all, buying into a proven business concept makes sense to a lot of people.  The basic underlying principle in all franchises is that the franchisor retains control over the franchisee's business in return for the use of the name, and by virtue, obtaining the advantage of the franchisor's goodwill. Franchisors retain a significant level of control over the franchisee, which distinguishes this relationship from that of a licensing arrangement, where there is little or no control.  The franchise's advertising and purchasing power is also a benefit to a local franchisee, and the research, development and training provided by the franchisor are likely beyond the financial capacity of an individual franchisee.

However, before you buy into a franchise you should consider a couple things.  First, location, location, location.  A poor location can significantly curtail your profits.  Second, the high level of compensation paid to the franchisor could eliminate many of the advantages that a franchise offers.  Third, the degree of control to which you are subject, as franchisee, can be troublesome and restrictions on transfer can affect the franchisee's marketability.  Finally, a franchise model can lead to an element of uncertainty as the franchise agreements are generally for a specific term.  

In Alberta, every franchisor must give every prospective franchisor a copy of its disclosure document, and a franchisee has the right to rescind all franchise agreements with a franchisor if the franchisor fails to provide a disclosure document within the time restrictions set out in the Franchises Act.  Before you jump into a franchise, make sure it's in the right location and has the right business model, and make sure you do your due diligence and go through your franchise agreement in detail.