What are the benefits and drawbacks of buying a franchise?

What are the benefits of buying a franchise? The Canadian Franchise Association (CFA), a national, not-for-profit franchise association, describes one as the chance to be in business for yourself but not by yourself. The drawbacks come from the same structure. This page sets out what the CFA says on both sides, and the disclosure right that Ontario and British Columbia give a prospective franchisee.

The benefits the CFA describes

The CFA says a franchisee is licensed to use the system’s proven branding, trademarks and proprietary products and services. It also says a franchise provides a tried-and-true system and an operations manual that fully explains how to replicate the franchise’s system at your location. Whether a given brand delivers those benefits is for you to test, not assume.

The drawbacks the CFA describes

The CFA says franchising is not the perfect fit for every entrepreneur, because it requires the franchisee to strictly follow the franchisor’s operating systems and procedures. The CFA does not list fees as a drawback, but it says a franchisee pays the franchisor a fee, typically an initial franchisee fee and ongoing royalties, for the right to use its brand and system. Read the franchise agreement for what those fees are, what you cannot change, and what happens when you want to sell.

Disclosure rights in Ontario and British Columbia

Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 says a franchisor shall provide a prospective franchisee with a disclosure document, which the prospective franchisee shall receive not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise and paying any consideration relating to the franchise, subject to the deposit carve-out in section 5(1) and the exemptions in section 5(7). British Columbia’s Franchises Act sets a similar 14-day rule in section 5, with its own exemptions in section 5(8). These are the Ontario and BC Acts only, so check the law where you are buying.

The CFA calls it critical to carry out proper due diligence with a franchise lawyer, accountant and banker. For the steps, see how to buy a franchise in Canada.