What should I check when comparing franchises to buy in Canada?

Anyone searching for a car shop franchise or any other system to buy needs more than marketing material to compare them. The way to compare franchises fairly is to look past the brochures and read the disclosure document that provincial franchise law requires a franchisor to provide, subject to the exemptions each Act sets out. In Canada there is no single national franchise statute, so the first thing to settle is which province’s rules apply to the system you are looking at. After that, the work is the same for each candidate: collect the same documents, ask the same questions, and compare the answers line by line before you let any one franchisor set the pace.

Start with the right law and a neutral list

The Canadian Franchise Association explains that franchise disclosure in Canada is regulated at the provincial level rather than through a single national law, and that while many elements are similar across provinces, there are important differences between jurisdictions. The CFA lists Ontario, British Columbia, Alberta, Manitoba, New Brunswick and Prince Edward Island as having franchise Acts, and says Saskatchewan has passed one, but not every province has one. Compare candidates against the law of the province where you would operate, and if it has no franchise Act, ask a lawyer what rules apply instead. For a neutral starting list, the CFA runs LookForaFranchise.ca, which it describes as the official online franchise directory of the CFA. A listing there is a way to find systems, not a recommendation of any of them.

Compare what the disclosure document must contain

Ontario’s Arthur Wishart Act requires that a disclosure document be one document, delivered as one document at one time, and that the information in it be accurate, clear and concise. British Columbia’s Franchises Act adds that, besides the statements, documents and information the Act lists, a disclosure document must include all material facts. Ontario defines a material fact to include any information about the franchisor’s business, operations, capital or control, or about the franchise system, that would reasonably be expected to have a significant effect on the value or price of the franchise or the decision to acquire it. Put each candidate’s document beside the others and note what is missing from one that another provides.

Check the timing before you compare anything else

Under Ontario’s Act, subject to the exemptions in section 5(7), a franchisor must provide the disclosure document and the prospective franchisee must receive it not less than 14 days before the earlier of the franchisee signing the franchise agreement or any other agreement relating to the franchise (other than certain agreements limited to confidentiality, use of information or a location) and paying any consideration to the franchisor or its associate relating to the franchise, with some deposits excluded. British Columbia, Alberta, Manitoba and New Brunswick each set a 14-day period in their own wording, with their own listed events and exemptions. If a franchisor asks for a deposit or a signature before your province’s 14-day period has run, note it as a point to raise with a lawyer, and note how each candidate handles the question.

Know what you can do if disclosure falls short

Ontario’s Act says every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement, which includes acting in good faith and in accordance with reasonable commercial standards. It also lets a franchisee rescind without penalty or obligation no later than 60 days after receiving the disclosure document if the franchisor failed to provide it or a statement of material change in time or the document’s contents did not meet the Act’s requirements, and no later than two years after entering into the agreement if the franchisor never provided it. British Columbia’s Act has its own 60-day rescission right in the circumstances its section 6 sets out. These rights are a backstop, not a substitute for reading the document first.

• Which province’s franchise statute applies to each system, and does the document you received follow it
• Whether the document arrived as one complete document, with the financial statements and agreements the Act requires, and on what date
• What the document says about the franchisor’s business, capital and control, and whether anything material seems to be missing
• The dates of any deposit requests or signing deadlines, set against the 14-day period in your province’s Act
• Which questions each franchisor answered in writing and which it avoided

Put funding beside every candidate

BDC advises buyers to meet potential lenders and investors before approaching a business, which it says will help them avoid negotiating a deal they cannot finance, and to be clear as negotiations start about how much capital they can put toward a purchase, how much equity other investing partners can contribute and what terms their bank can offer. Do that sums exercise for each franchise before you compare brands, so the comparison reflects what you can afford. Funding is covered in more detail in can a franchise purchase be financed, and the contract itself in what to check in the franchise agreement.