Sunday, September 30, 2007

Franchising Pros & Cons

Thinking about starting or buying a franchised business? There are certainly lots of franchise opportunities out there. And there is some important legislation out there, as well, which attempts to provide some protection for potential investors. In Ontario, that legislation is called the Arthur Wishart Act. One of the things the Act does is sets out a number of disclosure requirements for franchisors so that potential buyers have information pertaining to the history of the franchise and its current status. Franchisors are required to provide potential franchisees with a "disclosure document" which will provide background information and a sample franchise agreement for review prior to the potential franchisee making a final decision to move forward. Franchise Agreements may or may not be negotiable. Usually it depends upon the strength, popularity and age of the franchisor. But even if you can't change a thing in it, it still makes good sense to understand what you are signing and the pros and cons. If I am asked to review a franchise agreement, I will often go through the agreement, using two very simple notations:

1. - The letter "C" for control: areas which indicate that the franchisor has control over decisions effecting your business - such as controls over pricing or inventory; and

2. - The dollar sign ($): areas where the franchisor has the power to make you spend further money - such as forced upgrading to leasehold improvements or forced buying from franchisor-approved suppliers only.

Buying a franchise can often be a very lucrative way of starting a business. The upside should certainly be the fact that you will benefit from the experience of the franchisor and also from things like combined marketing, trade-name value, etc. The downside is that, quite often, you will need to give up some control over the business operations. Franchising is not for everyone. If you are consideraing it, speak to a lawyer and make sure it's a good fit for you. Knowing what the arrangement will be from the outset and being sure that it fits with your plans and your personality makes good business sense.

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