Franchise closures and turnover (disclosure item)

A buyer meets this item when weighing how well units in a system hold up. It is a count and a reason, set beside the franchisee list, which names who left. See what a franchisor must disclose before you sign.

What each regulation asks for

Ontario’s s. 6 requires, for each closure of a franchise of the type offered within the three fiscal years before the date of the disclosure document, the reasons, including whether the franchisor terminated or cancelled the agreement, refused to renew, or the franchisee refused to renew or otherwise left. Alberta’s Schedule 1, item 15, asks, for outlets under the same trade name as the franchise offered, for the total number of franchises in the franchisor’s total operating territory in the previous three fiscal years that were terminated or cancelled by the franchisor, not renewed by the franchisor, reacquired by it, or otherwise left the system.

What to ask

• How the closures compare with the number of franchises in the system
• Which closures were the franchisor’s decision and which the franchisee’s
• Whether the departed franchisees on the franchisee list will speak with you