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CFA Guidebook Series FRANCHISING 101: An Introduction to the Basics of Franchising 4 } CFA: The Authoritative Voice of Franchising in Canada 8 } Franchising 101 12 } 10 Reasons to Become a Franchisee 14 } Your Franchise Investment To Do List 16 } Franchising A to Z $5.00
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Page 1: CFA Guidebook Series FRANCHISING 101: An Introduction to the Basics of Franchising · CFA Guidebook Series FRANCHISING 101: An Introduction to the Basics of Franchising 4 } CFA: The

CFA Guidebook Series

FRANCHISING 101: An Introduction to the Basics of Franchising

4 } CFA: The Authoritative Voice of Franchising in Canada

8 } Franchising 101

12 } 10 Reasons to Become a Franchisee14 } Your Franchise Investment

To Do List16 } Franchising A to Z $5

.00

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2 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

CFA Board of Directors

BOARD CHAIR John DeHart*, Nurse Next Door Home Care Services & LIVE WELL Exercise Clinic

PRESIDENT & CEO Sherry McNeil*, Canadian Franchise Association

1ST VICE CHAIR Gerry Docherty*, Good Earth Cafes

2ND VICE CHAIR David Druker*, The UPS Store

TREASURER Rick Chittley-Young*, BDO Canada LLP

SECRETARY & GENERAL COUNSEL Peter Snell*, Gowling WLG LLP

PAST CHAIR John Wissent*

CHAIR, LEGAL & LEGISLATIVE COMMITTEE Larry Weinberg*, Cassels Brock & Blackwell LLP

CHAIR, FRANCHISE SUPPORT SERVICES Tony O’Brien*, TruShield Insurance

DIRECTORSHadi Chahin, Mary Brown’s Chicken & TatersSteve Collette, 3rd Degree Training/Actual NutritionFelix DeCata, Boston Pizza International Inc.Lawrence Eade, Box Concepts Food GroupLafleche Francoeur, PaciniSebastian Fuschini, Pizza PizzaClark Harrop, McDonald’s Restaurants of Canada LimitedTerry Hould, ServiceMaster of Canada LimitedAndrew Hrywnak, Print Three Franchising Corporation Rimma S. Jaciw, CFE, WSI DigitalMarc Laurin, MTY GroupDon Leslie, A&W Food Services of CanadaJon-Anthony Lui, Tutor DoctorSherry McNeil, Shoeless Joe’s LimitedGary Prenevost, FRANNETStephen Schober, Metal Supermarkets Family of CompaniesFrank Stanschus, Little Kickers Bob Tipple, Expedia CruiseShipCenters

*Executive Committee member

Published by Canadian Franchise Association

ABOUT THE CANADIAN FRANCHISE ASSOCIATION (CFA)The Canadian Franchise Association (CFA) is the recognized authority on franchising in Canada. With more than 700 corporate members nation-wide, representing many of Canada’s best-known brands, CFA is the indispensable resource for the franchise community and advocates on behalf of franchisors and franchisees in Canada to enhance and protect the franchise business model. CFA promotes excellence in franchising and educates Canadians about franchising, specific franchise opportunities and proper due diligence through its many events, programs, publications, and websites (www.cfa.ca | www.LookforaFranchise.ca).

CANADIAN FRANCHISE ASSOCIATION 5399 Eglinton Avenue West, Suite 116Toronto, Ontario M9C 5K6Ph: 416-695-2896 or 800-665-4232F: 416-695-1950 W: www.cfa.ca / E: [email protected]

© 2019, Canadian Franchise Association (CFA). All rights reserved. Contents of this publication may not be reproduced either wholly or in part, without the consent of the CFA.

Legal Disclaimer: The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

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CFA Guidebook Series: Franchising 101 3

TABLE OF CONTENTSCFA: The Authoritative Voice of Franchising in Canada ��������������������������������������������� 4

Franchising 101 ��������������������������������������������������������������������������������������������������������������������������������8

10 Reasons to Become a Franchisee������������������������������������������������������������������������������������12

Your Franchise Investment To Do List ����������������������������������������������������������������������������������14

Franchising A to Z ������������������������������������������������������������������������������������������������������������������������� 16

The CFA wishes to acknowledge and thank these National Sponsors for their support throughout the year. Find out more about these companies at www.cfa.ca/sponsorship.

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4 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

CFA: The Authoritative Voice of Franchising in Canada

What is the Canadian Franchise Association?Back in 1967, as Canada’s centennial was being celebrated, a group of franchise business owners recognized a need for a national umbrella organization committed to the growth, enhancement, promotion, and development of ethical fran-chising across the country. The Canadian Franchise Associa-tion (CFA) was founded with this mission and principles, and is now the only national trade association serving the fran-chise industry and the needs of franchisors, franchisees, and anyone considering opportunities in the franchise sector.

The CFA is now the recognized authority on franchising in Canada, and represents more than 700 corporate members nationwide, including some of Canada’s best-known brands like McDonald’s, Tim Hortons, and Boston Pizza.

CFA: The Authoritative Voice of Franchising in Canada

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CFA Guidebook Series: Franchising 101 5

CFA: The Authoritative Voice of Franchising in Canada

What does the CFA do?CFA publishes the annual Franchise Canada Directory and bi-monthly Franchise Canada magazine, considered the country’s most trusted franchise resource. It also produces Canada’s only tradeshows that exclusively feature CFA member franchise systems, The Franchise Canada Show, in major cities across the country.

CFA’s wealth of knowledge flows, in part, from its prominent role in the nation’s busi-ness community. CFA members represent more than 40,000 business outlets across the country. As a whole, the franchise industry employs well over a million people. About half of these employees work under the ban-ners of over 700 CFA member franchise sys-tems.

What can CFA do for you?One of CFA’s primary roles is to help pro-spective franchisees make the best decision when investing in a franchise by providing resources and education about franchising. The CFA websites (www.cfa.ca, Lookfora-Franchise.ca, and www.FranchiseCanada.Online) offer valuable information and resources about franchising, as well as detailed listings in its online member directo-ries. Directories are separated into franchise systems and franchise support services pro-viders (e.g. franchise lawyers, accountants, consultants, etc.).

CFA members represent a diverse cross-section of franchise systems in Can-ada, ranging from very large, established operations to smaller regional concepts. When you deal with CFA members, you can be confident you’ll be treated fairly, because all members must adhere to a strict Code of Ethics. Franchisors can become members only after they undergo a review process performed by a committee of their peers.

Members join CFA voluntarily, as franchise systems are not obliged to belong to any trade organization. CFA members share the conviction that their commitment to ethical franchising improves the industry as a whole

for everyone involved, including franchisors, franchisees, suppliers, and customers.

Realistically, however, what the Associ-ation can’t do is protect potential investors from making bad business decisions. CFA does not have specific punitive powers to use against members if they violate the Asso-ciation’s Code of Ethics. Members, however, may use the confidential, complimentary services of the Franchise Ombudsman (avail-able through www.cfa.ca) to help resolve disagreements between franchisors and franchisees.

Canadian franchising is a diverse and thriving community with a vast array of opportunities across the country. “A lot of people immediately think of fast food when they think of franchises, but what most people don’t realize is that a franchise can be found in nearly every industry. Any busi-ness that can be exactly replicated can be a franchise,” CFA President and CEO Lorraine McLachlan notes.

A look at the listings in the Franchise Can-ada Directory shows hundreds of franchise brands in approximately 50 different catego-ries ranging from accounting services to hair and nail salons to home renovation.

Not only is there a wide range of busi-nesses being franchised, there’s also diver-sity in investment levels, making it possible for almost anyone to go into business for themselves. The biggest challenge when reviewing franchise opportunities is decid-ing what you want to do. With so many options, the choice can be overwhelming.

“Above all,” advises McLachlan, “choose a franchise you’re going to love. You’re invest-ing a significant amount of money, time, energy, and emotion.” That’s why it’s essen-tial, she adds, to go into it with your eyes open. “Risks are reduced through research. Starting with CFA members is a good first step. Then investigate the opportunity thor-oughly, talk to existing franchisees and an experienced franchise lawyer, and enjoy building your new business.”

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6 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

CFA: The Authoritative Voice of Franchising in Canada

ABOUT US• Founded in 1967, CFA is the only national trade association for franchising in Canada.• CFA is the authoritative, recognized voice for franchising in Canada and the

indispensable resource for the Canadian franchise community.• CFA advocates on behalf of franchisors and franchisees to enhance and protect the

franchise business model.• CFA promotes excellence in franchising and educates Canadians about franchising,

specific franchise opportunities, and proper due diligence through its many events, programs, publications, and websites.

For Members:CFA offers its members exclusive programs and services, including:• Promotion of excellence and growth in franchising.• Industry credibility• Advocacy and government relations• Free, confidential ombudsman program• Awards programs• Educational programs and networking opportunities, including full-day seminars,

webinars, and annual national convention• Member savings program• Mentorship program• Members-Only Resource Area on www.cfa.ca

Quick Look: Canadian Franchise Association

PROGRAMS AND SERVICES

OmbudsmanProgram

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CFA Guidebook Series: Franchising 101 7

CFA: The Authoritative Voice of Franchising in Canada

ABOUT OUR MEMBERSCFA members represent a diverse cross-section of Canadian businesses, ranging from large, established franchise systems to smaller, regional systems, as well as professionals and organizations that provide support services and supplies to the franchise sector. In joining CFA, members commit to pursuing excellence and voluntarily adhere to the CFA Code of Ethics.

Franchise System Members: • Companies that are offering franchises in Canada.• Member franchise systems can be found in more than 50 different business

categories and sectors.

Franchise Support Services/Suppliers Members:• Persons or companies engaged in providing products and/or services to franchise

systems and franchisees.• FSS members include, but are not limited to, accounting firms, legal firms,

consultancies, insurance providers and financial institutions.

For Prospective Franchisees:CFA helps prospective franchisees learn about the franchise business model, as well as specific franchise opportunities, through resources such as:• CFA’s official online franchise directory, www.LookforaFranchise.ca• Online resources, like Franchisee Tutorials• Franchise Canada magazine and website (www.FranchiseCanada.Online)• Franchise Canada Directory• The Franchise Canada Show tradeshows• CFA Information Kit

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8 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

Franchising 101

Through the proven business concept and support provided by the franchisor, fran-

chisees are able to be in business for them-selves, but with the advantage of the fran-chise system’s past success and access to the knowledge and experience of a network of franchisee peers.

Franchising is about sharing success. The success of a franchisee leads to the further success of the franchisor and the franchise system as a whole. When you invest in a fran-chise, you gain access to consumer awareness and loyalty in the Canadian marketplace, be it nationally, regionally or locally. This instant brand recognition can bring many advantages, including a stronger position when applying for a business loan. As a franchisee, you will benefit by being licensed to use the franchise system’s proven branding, trademarks, and proprietary products, services, recipes, etc.

A franchise also provides you with the advantage of a tried-and-true system and an operations manual that fully explains how you are to replicate the franchise’s system at your location. While it’s impossible to elimi-nate all risk, if you work and follow that sys-tem, you can reduce the risk of business fail-ure and increase your likelihood of success.

The franchise system can save you time and money by keeping you up to date on

your market. Through the franchisor, you can stay on top of things such as business trends, research and development, new mar-keting initiatives, and changes in consumer tastes or behaviours. This allows you (and the other franchisees in the system) to focus on the day-to-day operation of your location, knowing that you have this shared knowl-edge available when you need it.

Being a franchisee also means there is strength in numbers. Many franchise systems have an established supply chain and strong relationships with suppliers. By ordering your stock, supplies, and equipment through approved suppliers as a member of your franchise system, you may receive the bene-fit of preferential pricing or special delivery. Joining a franchise system also gives you a network of peers upon whose knowledge and experience you can draw. If you encounter an issue or have a question, your franchise sys-tem colleagues are just a phone call or email away. It’s highly possible that they may have encountered the same concerns you have, and will be able to provide information or advice to help you. In many systems, there are opportunities for franchisees to come together and share ideas and experiences as part of a franchisee advisory group or at a franchisee convention.

FRANCHISING 101 An introduction to the essentials of franchising

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CFA Guidebook Series: Franchising 101 9

Franchising 101

What are the key responsibilities of the franchisee?While system-specific responsibilities required of the franchisee will be outlined in the franchise agreement, there are a few key responsibilities that are generally required of the majority of franchisees.

The franchisee should:• follow the franchisor’s standards,

methods, procedures, techniques, and specifications to ensure consistency;

• pay a fee (typically an initial franchisee fee and ongoing royalties) to the franchi-sor for the right to use the franchisor’s trademarks (brand) and business system;

• take care of accounting, local marketing, staffing, and the other administrative aspects of operating a business;

• invest their time, particularly during the start-up phase, by working hands-on in their business to fully understand the operational side of the franchise; and

• work in partnership with the franchisor, allowing for effective two-way commu-nication between the two parties and a mutually beneficial relationship.

While there are many important responsi-bilities that must be shouldered by the fran-chisee, an important benefit of investing in a franchise is the ability to rely on the support, guidance, and assistance of the franchisor. That said, a franchisee must be prepared to work hard and take initiative, as no franchi-sor will do everything for you.

What are the key responsibilities of the franchisor?While the franchise agreement will outline the specific responsibilities and obligations of the franchisor, there are a few key respon-sibilities of the franchisor that generally apply in most scenarios.

The franchisor should:• undertake to provide franchisees with

operating systems and support services to help their businesses grow in ways that are effective, efficient, and profitable;

• continue to evolve the franchise system through, for example, research and devel-opment of new products and services;

• handle all brand advertising and (usually) provide franchisees with assistance for their local marketing activities;

• protect and manage the brand and its trademarks while ensuring consistency and quality standards are maintained by all franchisees in the system; and

• provide initial and ongoing training and support.

It’s important to note that though most franchisors are ready and willing to offer assistance and guidance, each franchise sys-tem is different and may provide different levels of support. Regardless of the degree of assistance provided, as a franchisee, you’re considered a small business owner, and it’s important for you to assume a leadership role in your business.

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10 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

Franchising 101

How do I research a franchise?Conducting proper due diligence and research is your first step in becoming a successful franchisee. The franchise listings on LookforaFranchise.ca are a good place to start the process. All companies listed on this website are Canadian Franchise Asso-ciation (CFA) members in good standing, and voluntarily agree to adhere to the CFA Code of Ethics. You can peruse CFA mem-ber franchise systems alphabetically or by industry category. Each listing will give a brief overview of the system and provide contact information for you to follow up with the individual companies. It’s recommended that you contact the franchise systems in which you’re interested directly for further details and more specific information.

Some questions you may want to ask as part of your due diligence include:

• Is the franchisor a member of the Cana-dian Franchise Association?

• How many years has the franchisor been operating?

• How many franchisees does the franchi-sor have?

• Can the franchisor provide a list of all franchisees?

• How does the franchisor choose its fran-chisees?

• How much is the initial franchise fee?• What are the franchisor’s plans for future

development?

• What is the competition for the product?• What kind of support does the franchi-

sor provide to franchisees?• Will you be provided with a disclosure

document? Does it comply with provin-cial laws or CFA’s minimum disclosure requirements?

• The CFA Starter Kit provides a more comprehensive list of questions to ask, along with other information vital to your franchise due diligence process.

Additional information will usually be sent to you by your franchise systems of interest in the form of a franchise information package, which may include (but is not limited to) the following: a history of the company; summary of the support and systems provided; news articles and/or press releases about the sys-tem; company mission statements and/or core values; common questions and answers (FAQ); an outline of estimated start-up costs; industry statistics and information; and an overview of the franchise application process.

Once you have requested, received, and reviewed the franchise systems’ information packages, a full investigation of the franchise systems that make your short list will usually start by meeting with company representa-tives. These meetings will serve as mutual interviews, where both you and the franchi-sor can ask questions, get more information, and better determine if you’ll be a good fit with the system.

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CFA Guidebook Series: Franchising 101 11

Franchising 101

From there, you’ll usually receive the com-pany’s disclosure document. Some Canadian provinces mandate the provision of disclo-sure documents through legislation (Brit-ish Columbia, Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island). Review these documents with your lawyer (preferably a franchise specialist; see the list of CFA member law firms) before you sign any contracts or agreements. This compre-hensive summary of information will pro-vide you with background on the company, including its officers, on topics including (but not limited to) estimated working cap-ital and annual operating costs for franchi-sees, training and support provided, litiga-tion, and, typically, financial statements of the franchisor. The disclosure document should also give you contact information for current and former franchisees of the sys-tem. It’s recommended that you speak with these people, as they can give you essential firsthand knowledge of the day-to-day reality of operating that particular franchise.

Franchising is about sharing success. The success of a franchisee leads to the further success of the franchisor and the franchise system as a whole. When you invest in a franchise, you gain access to consumer awareness and loyalty in the Canadian marketplace, be it nationally, regionally or locally.

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12 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

10 Reasons to Become a Franchisee

A franchise provides you with the advan-tage of a tried-and-true system and an

operations manual that fully explains how you’re to replicate the franchise’s system at your location. While it’s impossible to elimi-nate all risk, if you work and follow that sys-tem, you can reduce the risk of business fail-ure and increase your likelihood of success.

Each year, thousands of people across Canada invest in franchise opportunities for a multitude of personal, financial, and voca-tional reasons. Here are 10 of the many ben-efits that becoming a franchisee can bring:

1. No ‘reinvention of the wheel’ requiredA franchise prides itself on the system that it has developed and tested over time. When you invest in a franchise, you gain access to and use of its operations systems, products/services, logos, and more. If you were start-ing your own independent business, the onus would be solidly on you to figure out all of the aspects of the business, including what works, and what doesn’t. With a franchise, you’ll have the road map to recreate the brand’s success at your location – providing you follow it to the letter.

2.  Trademarks and patentsA good franchisor will have already secured the trademarks and patents related to its brand. Franchisees are then licensed to use the franchise’s branding, trademarks, and proprietary products, services, recipes, etc. This can save you time and money during the start-up process, as there will be no need for you to go through the legal and govern-

mental processes to secure the appropriate rights. You can also rest assured that your rights to make use of your brand’s trade-marks and patents are enshrined in your franchise agreement.

3. Territory rightsIn most cases, you, as a franchisee, will be awarded an exclusive territory, giving you exclusive rights to offer your product or ser-vice within your designated area. The terri-tory is designed to reduce competition and can vary in size and scope. (A territory can be small, like a specific shopping centre, or large, like a geographic region.) Your territo-rial rights should be set out in and protected by your franchise agreement.

4. Start-up costs estimatedIn an independent business, you would be charting new waters. With a franchise, oth-ers have gone before you and can provide you with an example of what to expect in terms of start-up costs. Though each franchi-see’s experience can vary, and there’s always the possibility of unexpected or unforeseen expenses, your franchisor should be able to provide you with start-up cost estimates that are specific to the system.

5.  Franchisor support and trainingAs a franchise system requires consistency in quality and service from location to loca-tion, most systems will train new franchisees on the basics of operating their location. The duration, breadth, and depth of the initial training may vary by system, but most will

10 REASONS TO BECOME A FRANCHISEE

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CFA Guidebook Series: Franchising 101 13

10 Reasons to Become a Franchisee

offer education on aspects such as opera-tional procedures, accounting, marketing, computer systems, and more.

6.  Consumer awarenessAny business that opens in a new area, be it a franchise or an independent business, would expect to have to conduct local marketing initiatives to introduce the business to local consumers. A franchise, however, can bring with it pre-existing consumer awareness; though the business may be new to the area, potential customers may already be famil-iar with the brand, whether through other locations or through its regional or national marketing. While local marketing and com-munity outreach will usually factor into your franchise location’s marketing mix, having an established base of consumers who have experience with your brand can give you a leg up. A brand’s history of success may also give you an advantage when applying to a financial institution for a business loan to finance your location.

7. Strength in numbersAnother advantage of a franchise system is working with suppliers and other merchants that have already been vetted for quality, pricing, reliability, and consistency. As a member of a growing franchise network with group purchasing power, you can gain imme-diate access to established relationships with vendors, and may even enjoy perks such as preferred pricing or special delivery.

8.  Peer network and supportBeing part of a franchise system also means you have a pool of knowledgeable peers who are just a phone call or email away. If you’re experiencing an issue or challenge with your business, chances are there are other franchisees in your system who have encountered the same or a similar issue and will have firsthand advice for overcoming it. Some franchise systems have more formal-ized ways for franchisees to interact, such as online forums, franchisee advisory councils, or franchisee meetings and conventions.

9 . Research and developmentThrough the franchisor, franchisees can be kept up to date on business trends and con-sumer tastes and behaviours. They can also benefit from their system’s research and devel-opment initiatives for things such as new prod-ucts and services, technology, and marketing. With the franchisor looking after this side of things, franchisees can focus on the day-to-day operation of their location while knowing that they will still be on the leading edge in their industry and marketplace.

10.  Small business ownership In addition to the reasons already men-tioned, don’t forget that you’ll also be a small business owner, operating your own busi-ness with the brand and support of the fran-chisor backing you up. As the saying goes, in franchising you’re in business for yourself, but not by yourself.

Explore, Investigate, and EvaluateAs wonderful as these reasons are (and there are more that could be added to this list), all of these advantages may be for nought if a prospective franchisee does not fully investigate the franchise system before signing on. Franchising is a business model that brings with it many benefits and challenges, so it’s important to make sure you have all of the facts and infor-mation available before taking the plunge. For more on the franchise investigation process and conducting proper due diligence, visit www.LookforaFranchise.ca/DueDiligence.

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14 FranchiseCanada.Online | www.cfa.ca ©Canadian Franchise Association, 2019

Your Franchise Investment To Do List

1. Do your due diligenceBefore you start investigating all of the excit-ing franchise opportunities available, take some time to do a self-assessment and con-sider your own personality and work style. Franchising may not be right for everyone, so these questions will help determine if becoming a franchisee would suit your char-acteristics and goals. Ask yourself: Are you able to follow standard procedures? How hard are you willing to work? What are you passionate about?

Once you’ve done some self-reflection, start your due diligence process by collect-ing as much information as possible on the franchise brands in which you’re interested. Review all materials and information you receive from the franchisors with franchise professionals (consultants, lawyers, accoun-tants, etc.) as required to ensure you fully understand your rights and responsibilities.

2. Do assess your financial situationWhen investing in a franchise, you need to cover the cost of the franchise and also

leave yourself with a financial buffer. Ensure you have enough funds to cover the initial expenditure, as well as operating expenses. Financial experts also generally advise new franchisees to reserve funds for living costs for the first three to six months as you kick-start your business. Going into business underfunded is a common reason for busi-ness failure.

The franchises that you are investigat-ing will usually provide an overview of the upfront costs involved in joining them (such as the franchise fee) and other expenses you may incur early on. You need a complete picture of your financial situation, including a personal net worth statement and your credit rating, to find a franchise that fits your financial capabilities.

3. Do create a comprehensive business planBusiness plans are an important part of any business, and are particularly useful in securing business loans from financial insti-tutions and other lenders. Business plans are

YOUR FRANCHISE INVESTMENT TO DO LIST9 Important things to check off before you sign on

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CFA Guidebook Series: Franchising 101 15

Your Franchise Investment To Do List

a great way to clearly describe your vision and goals for your franchise.

In general, a business plan consists of two parts: a business model and a financial plan. The business model covers the qualities of the franchise – industry, customers, compe-tition, your qualifications, etc. – while the financial plan explains the quantitative side, including a projected balance sheet and cash flow statement. Your franchise accountant will be able to assist you in creating a com-prehensive plan for your business.

4. Do explore every opportunityWhile it’s good to know what kind of fran-chise in which you are most interested, keep an open mind. You never know when the per-fect opportunity may arise that you may not have thought about. While many people first think of food service when they think about franchising, the reality is that franchises can be found in just about every industry and business sector.

The Canadian Franchise Association offers many events, programs, and resources to help prospective franchises explore the opportunities available, including The Fran-chise Canada Show tradeshows in major cit-ies across Canada; its websites, www.cfa.ca, www.LookforaFranchise.ca, and www.Fran-chiseCanada.Online; and publications like the Franchise Canada Directory.

5. Do invest in a franchise brand you’ll be passionate aboutWhile it’s imperative to do due diligence, it’s equally as important to feel good about the business, the products and/or services offered, and the people involved in the fran-chise. The franchise is going to be a big part of your life, and you’ll need to spend much of your time on your business, especially in the early years. This time will be better spent if you’re passionate about the franchise.

As the franchisee, you’re a brand ambas-sador, and your passion and belief in the brand will go a long way toward the success of your location.

6. Do consult a franchise lawyerUsing a franchise lawyer who understands franchise law and agreements can save you a lot of headaches down the road. Franchise lawyers will be able to clarify any documents you receive from the franchisor, as well as spot any atypical clauses and/or help you negotiate on certain points as applicable.

7. Do make sure it’s a franchise opportunityWhile business opportunities (biz-ops) are often packaged to seem like franchises, there are many differentiating factors of which pro-spective franchisees should be aware.

Key limitations of a business opportunity include: limited training; little to no ongoing support or marketing from the licensor; no binding franchise agreement; and, no trade-mark or branded strength/recognition. Also, in general, biz-ops don’t offer exclusive terri-tories or disclosure documents.

8. Do not assume that a franchise is like a Guaranteed Investment Certificate (GIC)A franchise is a business and requires work. While, in general, franchisors are ready and willing to offer some level of support and assistance, the franchisor is not going to do all the work for you. As a franchisee, you must be prepared to work hard, most likely in a hands-on capacity, and take responsibil-ity for your location’s success.

9. Do remember to include your familyFranchising is a big investment in both resources and time, and may require changes to your lifestyle. Make sure your family is on board with your decision, particularly if they’re going to be a source of financing.

If your family is going to be part of the day-to-day operation of the location, make sure that you establish the primary roles each member will play. For example, will you look after the administration of the business while your spouse handles more of the customer service, or vice versa? Having defined roles at the outset will help prevent conflict later on.

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Franchising A to Z

Area Developer: Also referred to as an area franchisee or master franchisee, an area developer is granted the franchise rights to open and operate multiple locations in a defined geographical area. There is usually a set schedule for when and where the locations will be developed.

Business Plan: A business plan is a document created by a prospective franchisee that sets out his/her business goals and the strategy for attaining them. The document may also include background information on the franchisee, the concept, and the market in which they plan to operate. Business plans are also used when approaching financial institutions for loans and other funding for the business.

Cash Flow Projections: A part of business planning, cash flow projections capture the movement of money coming into the business, as well as any expenses. Creating month-by-month cash flow projections can help prospective franchisees to

better understand how and how well their potential business will be funded, and if they will have sufficient capital. An accountant can assist in creating cash flow projections.

Disclosure Document: A disclosure document is a collection of information on a franchise system, such as information on the franchise and its officers, initial investment and other fees, training and support, and the rights and obligations of both the franchisee and franchisor. It’s provided to prospective franchisees as part of the due diligence process. In some provinces, franchise systems are required by law to provide disclosure documents to franchisees.

Entrepreneur: A person who organizes, operates, and assumes the associated risks and benefits of a business venture. Franchisees are sometimes also referred to as entrepreneurs and small business owners, as they’re operating their own business and are responsible for its success.

FRANCHISING A TO ZAn alphabetical glossary of some common

franchise terminology

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CFA Guidebook Series: Franchising 101 17

Franchising A to Z

Franchise Agreement: The franchise agreement is the main contract in the business relationship between the franchisee and franchisor. It will set forth the rights and obligations of each side, as well as information on territory, training, renewal, and suppliers.

Group Purchasing Power: One of the biggest advantages to joining a franchise system is its strength in numbers. Most franchises have an established supply chain through which franchisees order their stock, supplies, and equipment. As part of a purchasing group, franchisees may receive perks like preferential pricing or special delivery.

Home-Based Business: A growing sector in franchising, home-based businesses are those that can be run from a franchisee’s home or home office. In many cases, the start-up costs for this type of business are minimal, as there is no build-out or leasing of a bricks-and-mortar location, little or no inventory to be purchased, etc.

Initial Investment: Initial investment indicates the amount of money required to open and start to operate a franchise location. This investment total may include initial fees like the franchise fees or could pertain solely to the start-up costs.

Join: Many in the franchise industry use the phrase ‘joining a franchise system’ to indicate someone investing in a franchise. Other phrases that may be used to indicate this include ‘awarding a franchise’ and ‘investing in a franchise.’

Kit: A franchise information kit is a packet of information sent to interested prospective franchisees. Usually requested through an interaction with the brand (i.e.: online, at a tradeshow, etc.), these marketing packages provide further details on the franchise, concept, investments costs, etc. to help

prospective franchisees learn more about the franchise opportunity.

Liquid Capital: Liquid capital is the amount of ‘cash on hand’ a potential investor has that is not a loan or tied up in another asset. For example, if your brother gives you $500 for your birthday, that would count toward liquid capital. If he loaned you the $500 and expected it to be paid back, it would not. Similarly, other assets such as houses and cars are not considered liquid capital (though they would be part of your net worth).

Multi-Unit Franchisee: A franchisee that operates more than one franchise unit or location.

Net Worth: Net worth indicates a person’s total assets (things that are owned), minus any liabilities (anything that is owed). A net worth statement indicates the person’s net economic position.

Operations Manual: A manual (or set of manuals) that outlines the operations for a franchise location, as well as system-wide policies. Franchisees must follow the policies and procedures outlined in the operations manual to the letter in order to ensure consistency between locations in their franchise system. The operations manuals will include sections on topics such as quality control, management practices, use of trademarks, fees and royalties, and approved suppliers.

Product Standardization: As consistency is paramount for franchises, most systems employ product standardization and quality control to ensure that the products and/or services offered in each location are uniform.

Quality Control: Along with product standardization, a franchisor will employ quality control to ensure that the products and/or goods at each location in their system meet a uniform standard of quality.

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Franchising A to Z

Franchisors will usually supervise and regulate their locations through quality control to ensure consistency.

Royalty Fee: An ongoing fee paid by the franchisee to the franchisor as part of the agreement for the franchisee to make use of the franchisor’s brand, trademarks, etc. Royalty fees are usually remitted on a weekly or monthly basis and may be calculated as a flat rate, a percentage of sales, or a combination of the two.

Site Selection: Site selection is the process by which a location is chosen for a franchise unit. Key considerations in site selection include market characteristics, traffic, local demographics, and zoning.

Turnkey: The phrase ‘turnkey franchise’ is used to describe a franchise opportunity that is streamlined and set up for the franchisee in advance so that, in order to start operations of their franchise, all they need to do is ‘turn the key’ and get started.

Unit: A franchise location may also be referred to a franchise unit.

Validation Process: Also known as due diligence, the validation process refers to the research and investigation a prospective franchisee should conduct regarding a franchise opportunity before investing. It’s important to keep in mind that, in general, the franchise system will be conducting its own validation process to ensure new franchisees brought on board are a good fit for the system.

Work: Investing in a franchise is not like a GIC. Successful franchise locations require work, and many require the franchisee to take a hands-on role in the operations of their location. While one of the many benefits of joining a franchise is the support of a franchise system, franchisees must be prepared to work hard and take initiative.

eXclusive Territory: An exclusive territory is a defined area in which a franchisee operates and in which the franchisor agrees to not open a competing location or allow another franchisee to do so. Rights regarding exclusive territory will generally be outlined in the franchise agreement, though not all franchises offer exclusive territories.

YTD: YTD stands for year-to-date and indicates the time period between the start of a fiscal and/or calendar year and the present date. YTD is often used in financial reports detailing the ongoing performance of a business, such as a franchise location. It’s important for franchisees to maintain detailed, up-to-date financial reporting so they can stay on top of the day-to-day operation of their location. Many franchise systems provide their franchisees with proprietary or specialized reporting and/or accounting tools to assist with this.

Zees/Zors: The terms ‘zees’ and ‘zors’ are used to refer to franchisees and franchisors, respectively, in a shortened manner.

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