Franchising in Canada

It’s hard to visit any major street or shopping centre in Canada these days without seeing many franchised businesses operating from every corner. Whether it’s bagels or burgers, fast food or fast lubes, franchising as a means of doing business is firmly entrenched in Canada as a means for entrepreneurially minded business people to embark on their own business while being a part of a larger organization.

A franchise is essentially a licence to operate the franchisor’s business system and trademark according to the franchisor’s standards for between five and twenty years, depending on the franchise. In exchange for the right to carry on business under a trademark such as “Cookies By George”, or "White Spot", the franchisee usually pays the franchisor an initial franchise fee for these rights, plus an ongoing royalty linked to the gross sales of the franchised outlet. There is often a requirement for the franchisee to make regular contributions to a national advertising fund as well, so that the franchisor can advertise the brand in high cost media like radio, TV and national newspapers/ magazines.

Additionally, the franchisee either constructs and develops the premises itself (and at its cost), or buys the constructed premises on a “turnkey” basis from the franchisor. Either way, there are dollars at stake, and "buying" a franchise could be the single largest business investment a person might ever make in their lives.

Franchisors are essentially selling three things:

1. The value of its recognizable trademark and brand

2. The know-how associated with the franchisor’s business system (and being able to teach that know-how to the franchisee); and

3. The lower unit costs that come with the purchasing power of a large buying group.

Legally, franchising is very document intensive and it is important for the prospective franchisee to understand what he or she is signing.