Before you Franchise: Key Considerations for Potential Franchisors

A business owner should consider whether they have carefully thought about their expansion plans, how they plan to adapt to multiple people running independent franchise locations, whether they have developed a complete guide so their franchisees can operate a store on their own, and the overall costs involved. 

Operating Multiple Locations – The business must be able to be duplicated. Reproducing results across different markets proves that your business can succeed when franchised. It is typical that a franchisor will have opened a few corporate store locations before expanding to a franchise model. Experience operating multiple locations before franchising can help develop an understanding of logistics, competing personalities and differing target audiences without focusing on only one location. 

Develop an Operations Manual – Franchises become successful largely through the hard work of well-trained franchisees and their staff. Before franchising, a comprehensive operations manual should be developed that sets out brand values, missions, standards and expectations. The manual needs to outline how the business operates, from managing employees, training, payroll, setting up accounts, placing orders for inventory goods, store buildout and design expectations, and more. It should be thorough enough that a franchisee can operate their store by reviewing the manual. It should also be strict enough that you can enforce standards if your franchisees do not follow your instructions. Standardizing the operations manual for franchisees is key and will help avoid pitfalls. 

Advisors and Contractors – This includes legal advisors, accountants, contractors, architects, advertising agents, brokers, and more. They will help determine your future growth and help manage your buildout and expansion. 

Market Conditions and Costs – Understanding the type of customers, if your franchise system can support your customer base, and typical locations or territories that your business can support, is critical to a successful franchise system. Researching the actual costs of opening and doing business in the territory will also be critical, and can vary depending on the location. There are various concerns you will want to keep in mind. For instance, you will want to consider whether a contractor costs the same across your proposed locations, or if the lease is more expensive. Additionally, it is important to look at whether employee wages higher, if there are regulatory hurdles, if the cost of goods and other economic factors may be at issue, and overall, if the proposed territory can support your system. 

Set Up Suppliers – Establishing your suppliers can help mitigate the cost of goods for your system. New franchisees should have an estimate of the types, quantities, and cost of goods to get started and sustain operations. Establishing a supplier will make it easier for you to control the product or service offering, and may offer you volume discounts or allow you to negotiate prices. This may also allow you to charge a markup on the goods offered to the franchisees. 

Intellectual Property – Franchises rely on branding. You should think of the style of business you want to run, what your branding and marketing will look like, and have your intellectual property trademarked to avoid the hassle and costs of a full rebrand. 

Legal – Franchisors in Canada have significant legal obligations under the laws. Failure to abide by the various provincial franchising statutes can have serious repercussions. You will be required to develop a franchise disclosure document, which sets out legally required information that a potential franchisee ought to know about. This is a comprehensive document, and should be carefully crafted with your legal advisors. 

Costs – Initial and operational costs are required for a franchisor to establish a franchise system. These costs typically include professional advice (lawyers and accountants), marketing, advertising, and in some cases, assisting your first few franchisees with buildout or financing costs. 

Franchising is a great way to expand your business and reach new markets. However, it is important to make sure that your business is ready for the challenges that accompany franchising. Before deciding to franchise, it is highly recommended to speak with an experienced franchise lawyer or franchise expert to help you get started to determine if franchising is right for your business. 

Edward (Ned) Levitt is a Certified Franchise Executive, a partner at Dickinson Wright LLP, Toronto, Canada, and provides legal services to Canadian and international clients on all aspects of Canadian franchise law. He was General Counsel to the Canadian Franchise Association (2000-2007) and is a member of the American Bar Association Forum on Franchising, the International Bar Association and the International Committee of the International Franchise Association. As a member of the Ontario Franchise Sector Working Team, Ned was instrumental in the creation of Ontario’s franchise legislation and has had significant input in the franchise legislative process throughout Canada. Among his many publications is the leading text, Canadian Franchise Legislation (2001, LexisNexis/Butterworths). Ned can be reached at 416.646.3842 or [email protected].

Richard Schuett is an associate of Dickinson Wright LLP, Toronto, Canada. His practice primarily focuses on franchising, commercial transactions, and commercial leasing. Mr. Schuett can be reached at 416-646-6879 or [email protected]. 

Remo Tramontozzi is a 2L Summer Associate at Dickinson Wright LLP, Toronto, Canada. He is currently completing his Juris Doctor at the University of Windsor Faculty of Law. [email protected]