ex per t advice
Edward (Ned) Levitt | Partner | Dickinson Wright LLP
How Can You Tell
the Good Franchisors from the Bad? The success of a franchise system and the contentment of the franchisees in the system are very much a product of the character, strengths and weaknesses of the franchisor. A franchisor, to be successful, has to become an expert in the business of franchising, as well as the business being franchised.
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Fortunately, we are living in a time when information is only a few keystrokes away. Prospective franchisees today habitually do background checks on prospective franchise systems and the franchisor on the Internet. Without a doubt, the legislative requirement in many provinces (Alberta, Manitoba (by October 1, 2012), Ontario, Prince Edward Island and New Brunswick) to provide a pre-sale disclosure document to prospective franchisees adds greatly to their ability to investigate a possible franchise purchase. Other sources of information include those who deal with the franchisor, such as suppliers and landlords. The current franchisees in the system are some of the
best sources of information. However, a less obvious, but equally valuable source of information about the franchisor is the franchise agreement itself. In fact, in many ways, it may be one of the most important sources of information, provided one knows what to look for. A franchise agreement, which can run to 50 pages and more, is a “Franchisor’s document�, which is to say that its principle intent is to protect the interests of the franchisor and the system. While there are important elements for franchisees in the franchise agreement, like the term, renewal rights, the territory, exclusivity, etc., the bulk of the franchise agreement deals with what franchisees must do, cannot do or how they will