Franchised businesses are never supposed to fail. But on occasion, they do.
That's why doing your homework before you “buy” is so important, so the prospective franchisee can avoid disastrous mistakes and the agony of defeat. Legally, franchising is very document-intensive and it is important for prospective franchisees to understand what they are signing.
Here are a few matters to keep in mind when thinking about buying a franchise:
• Although you may be purchasing the tables, chairs and other assets related to the business, remember that, conceptually, you aren't buying. Instead, you are acquiring the legal right to use a franchisor's business system and trademark for the term of the franchise and any renewals. When that's over, the franchisor has no obligation to offer you a new franchise so, in some ways, you're just renting the rights.
• If you're living in Ontario, Alberta or PEI, has disclosure been provided to you under the laws of those provinces? Have you read the Disclosure Document and Franchise Agreement and discussed it with your legal and financial advisers? If you live in another province, is the franchisor providing you with a copy of its disclosure document (and if not why not)?
