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Tips for signing a franchise agreement

Geography and competition
Market conditions also play a significant role in the relative success or failure of any given franchise. It is important to be in the right place at the right time. Two new units operating under identical systems can experience opposite results, simply by virtue of their location and/or the timing of their opening. And even the benefits of a prime location can be negated by an oversaturated market.

When considering the right franchise for your market, you should evaluate different systems with the following criteria:

● Is there sufficient consumer demand within your market for the franchise’s products or services and, if so, is it seasonal or highly ‘elastic’ throughout the year?

● Is the consumer pricing appropriate for your market?

● Are the products and services new and novel—potentially fads without lasting demand—or well-established in terms of long-term viability?

● Is there widespread competition in the franchise’s industry in your market or will you be able to take advantage of being the ‘first mover?’

● If there is not currently a high degree of competition, what is the likelihood it will increase in the future?

Avoiding oversaturation and inconsistent consumer demand, while also identifying new opportunities in untapped markets, is as much an art as a science. A reasonable amount of market research and the advice of experienced professionals can go a long way toward improving your odds.

Franchising legislation
Alberta, Ontario, New Brunswick, Prince Edward Island and, most recently, Manitoba (see Canadian Business Franchise, September 2012, page 66) have all enacted franchise-specific legislation. Each of the provincial acts imposes an obligation on franchisors to provide disclosure documents with certain information to franchisees. They also hold both parties to a duty of fair dealing.

When you are considering a franchise located in one of these provinces, the mandated disclosure document will contain financial statements and some of the other aforementioned information about the franchisor’s system. The acts vary from province to province, however, so be sure to understand the specific rights of franchisees in your jurisdiction.

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