How can I check whether a food franchise is profitable before I buy it?

The sources checked for this page do not say whether food franchises as a category are profitable, and the Canadian Franchise Association says each franchisor is unique. The Association also says profit goals should be aligned between franchisee and franchisor, but that most new businesses take a while to become profitable. So the question to answer is narrower: what does this system’s evidence show, and can it be checked? Start with what the franchisor must hand you, then test it against people and records you can verify yourself.

Start with the disclosure document

Franchise disclosure is regulated at the provincial level rather than through one national law, and only some provinces have franchise disclosure legislation, according to the Canadian Franchise Association. In Ontario, the Arthur Wishart Act requires a franchisor to give a prospective franchisee a disclosure document at least 14 days before the earlier of two events: signing the franchise agreement or another agreement relating to the franchise, or paying the franchisor or its associate any consideration relating to the franchise (a deposit is excluded only if it meets the Act’s conditions). Section 5(7) lists grants this duty does not apply to, including some sales by an existing franchisee for its own account that are not effected by or through the franchisor, so a resale may not come with one. The Act also lets the regulations prescribe the financial statements to be included. Read what is in the document, and what is missing.

Talk to people who run the same model

The Association advises speaking with other franchisees in the system, along with suppliers, landlords and customers, before the final investment decision. For a food concept, ask franchisees how their own results compare with what you were shown, and whether they would buy in again. Ask for their view of the franchisor’s support. The Association says the potential for profit is within the franchisee’s hands, but that the performance of other franchisees in the system can have an impact on your own location, so speak to more than one.

Check the numbers against each other

If you are buying an existing location, BDC’s due diligence guide asks whether the figures match what the owner tells you and whether tax returns match the financial statements. Apply that to the location’s own statements, not only the system’s averages. Ask your accountant to separate one-time items from recurring ones, and to set royalties and other franchise charges against the results.

The Association calls for due diligence with a franchise lawyer, accountant and banker. Treat a profit claim that cannot be traced to a document as unverified.