CFA Guidebook Series: Franchise Canada Show

CFA Guidebook Series

KNOW BEFORE YOU GO: TRADESHOW FUNDAMENTALS Sponsored by:

Published by the Canadian Franchise Association

CFA Board of Directors BOARD CHAIR Ryan Picklyk*, A&W Food Services of Canada PRESIDENT & CEO Sherry McNeil*, Canadian Franchise Association 1ST VICE CHAIR Todd Wylie*, Master Mechanic

ABOUT THE CANADIAN FRANCHISE ASSOCIATION (CFA) The Canadian Franchise Association (CFA) helps everyday Canadians realize the dream of building their own business through the power of franchising. The CFA advocates on issues that impact this dream on behalf of more than 600 corporate members and over 40,000 franchisees from many of Canada’s bestknown and emerging franchise brands. Beyond its role as the voice of the franchise industry, The CFA strengthens and develops franchising by delivering best-practice education and creating rewarding connections between Canadians and the opportunities in franchising. Canadian franchises contribute over $133 billion per year to the Canadian economy and create jobs for almost two million Canadians. Learn more at www.cfa.ca or FranchiseCanada.online.

CANADIAN FRANCHISE ASSOCIATION 5399 Eglinton Avenue West, Suite 116 Toronto, Ontario M9C 5K6 Ph: 416-695-2896 or 800-665-4232 F: 416-695-1950 W: www.cfa.ca / E: info@cfa.ca © 2026, 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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TREASURER Lyn Little*, BDO Canada LLP SECRETARY & GENERAL COUNSEL Darrell Jarvis*, Fasken Martineau DuMoulin LLP PAST CHAIR David Druker*, The UPS Store Canada CHAIR, LEGAL & LEGISLATIVE COMMITTEE Andraya Frith*, Osler, Hoskin & Harcourt LLP CHAIR, FRANCHISE SUPPORT SERVICES Paul daSilva*, RBC DIRECTORS Andrew Arminen, Metal Supermarkets Jon Domanko, Restaurant Brands International Chuck Farrell, Pizza Pizza Dixie Ho, Mr. Lube + Tires Arno Krug Jr., CEFA Early Learning Scott McCannell, Foodtastic Ken Otto**, Redberry Restaurants Nathan Oxford, Jani-King Canada John Prittie, Koala Insulation Angela Rollins**, Great Clips Fiona Styant, CFE, MOLLY MAID Canada Cailin White, Boston Pizza Thomas Wong, CFE, Kevito Group *Executive Committee member **Franchisee Representative

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

TABLE OF CONTENTS Tradeshow Like a Pro �������������������������������������������������������������������������������������������������������������������� 4 3 Ways to Find the Right Franchise Fit ��������������������������������������������������������������������������������� 6 Checklist for Franchisees ������������������������������������������������������������������������������������������������������������ 8 Franchise Due Diligence Checklist ��������������������������������������������������������������������������������������� 16 Protect Yourself and Your Investment ������������������������������������������������������������������������������� 19

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

LAW FIRMS:

SHOWCASED FRANCHISOR:

Sponsored by:

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TRADESHOW LIKE A PRO

Top tips for navigating a franchise tradeshow

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hile a wealth of resources are available online for prospective franchisees looking to find their perfect franchise investment (including the CFA’s directory site, LookforaFranchise.ca), tradeshows remain an amazing opportunity for anyone looking to own their own business through franchising.

A franchise tradeshow is an opportunity for brands who are actively recruiting new franchisees to showcase their franchise system and connect in-person with potential future business owners.

For a prospective franchisee, a tradeshow is a great way to meet face-to-face with various franchisors, find out about brands you may not have considered before, ask specific questions tailored to your own situation, and even take advantage of educational opportunities.

Below, we run through top tips on how to make the most of your time at a franchise tradeshow!

Think ahead Once you identify a franchise tradeshow in your area, prepare ahead. Pre-register online to save time when you arrive, and take advantage of any early-bird deals.

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Before heading out, do your research to find out which brands will be exhibiting.

Create a list of brands to visit and prepare some specific questions to ask—this is your chance to learn everything you want to know about each investment opportunity.

Arrive prepared with a sturdy bag to hold the printed information (brochures, fact sheets, business cards, etc.) that you might collect throughout the day. Bring your partner, spouse, or a friend along, as well as anyone else who will be investing or working in the franchise with you. Buying a business is a big decision, so make sure your support system is involved in the process! That said, consider leaving your children with a sitter or relative—you’ll need to spend a fair amount of time talking to exhibitors and focusing on those conversations.

Do your research, but keep an open mind It’s likely that you won’t be at the point yet where you’ll need to make a decision on what franchise to buy—that decision comes later, after plenty of due diligence. So, take into account that you’ll be attending the show to collect as much information as possible; meeting with potential franchisors is a first step into a detailed research process.

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Tradeshow Like a Pro It’s exciting to be surrounded by so many opportunities, but keep in mind that the best franchise fit for you is not only a business that excites you, but one that also caters to your skills and experience, the lifestyle and work-life balance you’re hoping to achieve, and the investment level you can afford.

As you navigate the show, look for the CFA Member logo at the booths of brands you’re interested in—this indicates that the franchise system is a member of the Canadian Franchise Association, has signed on to the CFA’s Code of Ethics, and is committed to excellence in franchising.

While you should make sure to talk to everyone on your “must-visit” list, don’t close yourself off from different opportunities! Tradeshows are a great way to expose yourself to brands you may not have heard of or considered.

Take notes Tradeshows can pass by in a blur. You’ll likely spend a few hours having many conversations with representatives from diverse brands. It can help to jot down a few key points from your conversations to help you keep everything straight. Don’t forget to get a business card or exchange contact information with anyone you have an in-depth conversation with as well.

The beauty of a tradeshow is that it offers a pressure-free way to ask questions of franchisors and explore the different opportunities available to you. So don’t be afraid to ask! Additionally, don’t be shy—every exhibitor is there to provide more information on their franchise system and will be excited to walk you through the opportunities they have.

Learn from the best Many tradeshows offer learning opportunities like free seminars or roundtables. At the Franchise Canada shows in Toronto and Vancouver, for example, you can expect to hear from franchising experts on all kinds of topics related to the process of buying a Sponsored by:

9 Questions You Should Ask at a Franchise Tradeshow 1. How much is the initial investment, and what does it include?

2. What kind of fee structure does the franchise have?

3. What territories or locations are currently available?

4. How does the franchisor select franchisees and award locations?

5. What kind of initial training does the franchisor provide to franchisees?

6. What ongoing training/support does the franchisor provide to franchisees once the business is open?

7. Is the franchise system a member of the Canadian Franchise Association (CFA)?

8. Will I be provided with a Franchise Disclosure Document (FDD)?

9. What kind of opportunities for growth are available? Is there potential to expand to multiple franchise units in the future?

franchise, as well as success stories from growing brands and fellow franchisees.

Be sure to check the tradeshow’s website or information guide to find out when these education sessions are happening and plan to attend the ones most relevant to you.

Following up Don’t lose momentum when the tradeshow ends! The research continues at home, where you can continue to look into companies you’re interested in—fill out applications for those that caught your eye, visit their locations to see operations firsthand, and discuss any potential opportunities with your family and co-investors. www.theupsstore.ca

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3 WAYS TO FIND THE RIGHT FRANCHISE FIT

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he franchise industry in Canada is booming. With new franchise systems coming onto the scene and established brands continuing their growth across the country, there are more options than ever for those wanting to join a system as a franchisee.

From accounting to winemaking, franchises can be found in virtually every business category. This wide range of opportunities provides prospective franchisees with a great amount of choice, and a lot of questions they need to answer. One of the biggest questions prospective franchisees ask is: how do I find the franchise that best suits me? Here are three things any prospective franchisee can do to help find a franchise system that fits with their goals and passions.

1. Take a look at yourself Before you start to look at franchises, you should take a good look at yourself. This will help you to focus in on what you want and need from a franchise system, and to identify the skills and qualities you can bring to your potential role as a franchisee.

First, consider what you’re passionate about and how it could translate as a business – if you love animals, perhaps a pet grooming franchise would be of interest. As you identify ways that your passions could fit with your business goals, don’t forget to think about things that you absolutely don’t want to do.

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For example, if you have a passion for food, but dislike early mornings, it might make more sense to focus your investigations on restaurant franchises that don’t serve breakfast and open later in the day. Your friends and family members might be able to lend a hand as you come up with your lists.

Even if you’re considering franchising as a way to move in a new direction from your current line of work, you’ll want to take stock of the skills, qualities, education, and experience that you’ll be bringing to your franchise endeavour. Not only will franchisors be interested in your background, but having a good resume of your strengths can also help you zero in on your franchise fit. If, for instance, you have a history of success in sales and marketing, maybe a business consulting franchise would work. Or you could translate those skills into generating business for your franchise in a completely different sector that’s in line with your passions.

Another piece of the self-evaluation puzzle is a little more concrete. Once you’ve considered your passions and skills, you’ll also need to take a hard look at your financial situation. It’s important to know your net worth and assess whether your resources are readily available (unencumbered) or tied up in other assets (such as a house or car).

An accountant who specializes in franchising can help you evaluate your finances and

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

3 Ways to Find the Right Franchise Fit determine if you have the required resources to finance the franchises in which you are interested. (More on accountants and other valuable experts below!)

2. Get the facts By the time you’ve created a good overview of what you could bring to the role of franchisee, you’ll probably be itching to start investigating and evaluating the franchise systems that meet your criteria.

There are many ways to go about this. Currently, one of the most popular is the internet. Sites like the Canadian Franchise Association’s (CFA) LookForAFranchise.ca provide search tools to help you find franchises by category, investment level, and location. You can also request further information and materials from the individual systems.

Franchise publications (like the one you’re currently holding) can offer additional insight into franchise brands and the people who are making them a success. As well, they may introduce you to franchises that you had yet to discover or hadn’t previously considered.

Face-to-face communication can give you even more insight into the franchises you’re interested in. Attending a franchise tradeshow is a great way to meet with many representatives from franchise brands in a relaxed environment. Individual franchise systems may also hold their own ‘discovery day’ seminars to help prospective franchisees learn more in a live setting.

Once you’ve zeroed in on the franchises at the top of your consideration list, you’ll want to visit their locations, if possible, and familiarize yourself with their products and/ or services. Another key step will be to meet with key team members at their head offices.

This can give you a feel for the company culture and the people and personalities you’d be working closely with if you joined the system as a franchisee. It will be up to you to decide how comfortable you are with the system’s culture and people – be sure to listen to any ‘gut feelings’ you get.

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3. Call in the experts As you move along in your research, creating a team of franchise experts will help ensure your search stays on track, and that your eventual franchise business gets off to a great start. Here are a few professionals you’ll want to recruit. Keep in mind that many of these relationships can continue once you’ve established yourself as a franchisee.

• A s mentioned, a franchise accountant can help you assess your net worth, and can help in creating a business plan and cash flow for your business.

• A franchise consultant can guide you in your self-evaluation and can point you toward franchises that might meet your needs.

• A franchise lawyer can help you review any documentation and contracts and offer advice on issues such as irregularities or points of negotiation.

• A franchise banker can assist you in creating a business financing package, including loans and other financial products.

• A franchise insurance provider can help ensure you have the insurance coverage you need to protect your franchise business.

CFA’s franchise support services members include professionals from these disciplines and more, all of whom specialize in providing products and services for the franchise industry. The support service directory offers information and contact details.

Investing in a franchise business is an important decision; like all business ventures, there is some risk involved. One of the best ways to mitigate risk is to make the most informed decision possible, which is why it’s vital to do your due diligence before signing on the dotted line. Evaluating and assessing your own goals and strengths, fully investigating franchise systems, and assembling a solid support team to assist you should put you well on your way to finding your franchise fit.

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CHECKLIST FOR FRANCHISEES Investing in a franchise is a major investment decision, and not every franchise will be the right fit for you. That’s why it’s important to ask the following questions if you’re considering the purchase of a franchise. You may need to ask many more questions to properly conduct your due diligence, and it’s also very critical that you retain franchise professionals to assist you through the process of determining whether to purchase the franchise.

This workbook has been prepared with the assistance of the following franchise experts: Franchise Lawyer: Joseph Adler, Hoffer Adler LLP Franchise Consultant: Gary Prenevost, FranNet Franchise Accountant: Lyn Little, BDO Canada LLP *Note: The Franchisee Checklist is a public resource of general information which is intended, but not promised or guaranteed to be correct, complete, or up to date. It is not intended to be a source of legal advice. Readers should seek the advice of competent legal, accounting, and business counsel.

SECTION 1: The Franchisor – Identity & Experience Questions to ask the franchisor:

1. Who are the officers, directors, and shareholders of the franchisor?

2. What is the business experience of the franchisor’s shareholders, directors, and officers? For how many years have they been in the current business category?

How many years in the franchise industry?

3. Is the franchisor a subsidiary of another company (i.e. private equity company purchasing the franchisor system)? i. If so, who is the parent company?

Who are the shareholders of the parent company? ii. Has that franchisor or any of its affiliates ever franchised other concepts? iii. If so, which concept(s), and how successful are they?

4. What other companies are related to the franchisor? What role do these companies have in relation to the franchised business? i. Will any of the franchisor’s affiliates be your suppliers under the franchise agreement?

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5. Are the units franchised under a master franchise agreement? What are the terms/timelines of the master franchise agreement? How are you impacted if the master franchise agreement is terminated? Does the master franchisee have experience with franchising?

6. Has the franchisor and/or any of its associates, or any of their respective directors, officers, or shareholders been: i. convicted of fraud, unfair or deceptive business practices, or a violation of law that regulates franchises or business or been subject to an administrative order or penalty? ii. bankrupt or insolvent in the last six years? iii. charged (or have a charge pending) involving such matters?

7. For how many years has the franchise been operating?

8. For how many years has it been offering franchises in Canada? Outside of Canada? i. If a U.S. franchisor is coming into Canada, what work has been done to adjust for the Canadian market, i.e. supply chain, Canadianizing the marketing messages, PIPEDA, and e-marketing laws, etc.)

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Checklist for Franchisees 9. How many franchised and corporate units are currently operating in Canada?

In the U.S.?

10. Is the franchisor a member of the Canadian Franchise Association? If not, why not?

11. What is the franchisor’s reputation with the Better Business Bureau? With the Chamber of Commerce? With D&B Canada (Dun & Bradstreet)?

12. What is the franchisor’s financial condition? Have you reviewed its most recent financial statements, and have they been prepared in accordance with the applicable franchise legislation in your province? If the franchisor is permitted to simply disclose an opening balance sheet or is exempt from providing financial disclosure, do you have sufficient financial information regarding the franchisor to make an informed decision?

13. If the franchisor is young and has had previous limited experience in franchising, which franchise consulting company helped them build their support systems and business processes?

14. Has the franchisor tailored its disclosure documents to address the specifics of the offering that it intends to make to you? For instance, has it included a copy of the lease, if a lease exists, and all other agreements pertaining to the franchise offering?

SECTION 2: The Franchisor’s Relations With Its Franchisees 1. What is the franchisor’s reputation for relations with its franchisees, customers, and suppliers?

2. How does the franchisor qualify, screen, and choose its franchisees? i. Have your qualifications been reviewed? ii. Ask yourself: why do you feel you’re a good match?

3. What are the franchisor’s plans for future development, including product, service, and/or technology innovation? i. For expansion and/or diversification?

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ii. How will these plans affect your dealings with the franchisor?

4. Does the franchisor allow for/promote multi-unit operators? i. What proportion of franchisees own one unit? Two to five units? Seven to 15 units? 16+? ii. Does one franchisee have a disproportionate ownership of franchise units? iii. Does the franchise agreement contain any provisions for acquiring additional units?

5. How does the franchisor monitor franchisee operations to help improve performance? How much is by automated CRM and how much by manual reporting? i. Does the franchisor periodically inspect all of the franchises? ii. What are the franchisee reporting requirements? iii. Does the franchisor subject the franchisees to periodic audits of books and records? iv. Does the franchisor have a KPI dashboard or scorecard to help franchisees focus on the right activities and information as they launch and grow their business?

6. Is there a franchisee association or advisory council (FAC)? i. If so, who belongs: how many members are voted by the franchisees, and how many are appointed by the franchisor? ii. Does the franchisor relate well with the association or council?

7. Does the franchisor keep advertising funds in a separate account/entity? i. Will the franchisor regularly provide franchisees with a statement of how the advertising funds are disbursed? ii. Will the franchisor use the advertising fund to promote existing locations or fund expansion efforts? iii. Has the franchisor documented how the advertising funds will be used? www.theupsstore.ca

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Checklist for Franchisees 8. Does the franchisor solicit franchisee input into marketing strategies, new product development, etc.? i. What amount of control does the FAC have regarding how the ad fund revenues are deployed?

9. Does the franchisor account for the unique needs of different marketing (geographic) areas as it implements its marketing strategies?

10. Do all franchisees and corporate stores pay into the advertising fund at the same rate?

11. What support did the franchisor provide to franchisees during the COVID-19 pandemic? i. Was any financial support or royalty waivers provided as part of COVID19 support? ii. Was the franchisor quick to make changes as necessary to operations, as a result of the quickly changing market? iii. How was the communication from the franchisor to the franchisees during the initial phase of the pandemic?

12. Has the franchisor provided you with a list of all of its franchisees?

13. W hat is the failure/turnover rate for franchisees? i. Has the franchisor terminated any of its franchise agreements in the last three years? If so, how many, and for what reason? ii. What are the reasons for the failure/ turnover?

14. Has the franchisor litigated with any of its franchisees in the past? i. What was the outcome of such litigation?

15. Is there any pending litigation by or against the franchisor or any of its associates? i. What is the status, nature, and likely outcome of such litigation?

16. How does the franchisor describe its corporate culture and will you be comfortable with this culture?

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17. On a scale from one to 10, how well does the franchisor encourage sharing of best practices and new process innovations between franchisees?

18. Does the franchisor have a recognition program for exceptional performance and if so, what does this program involve?

19. How innovative is the franchisor? i. How important is innovation to the franchisor’s industry? ii. What successful innovation has the franchisor introduced since it began its business? iii. How has the franchisor responded to technological change or innovation in its industry?

SECTION 3: Required Investment 1. How much is the initial franchise fee?

2. Is there a deposit? If so, when is the deposit due and how much of the deposit is refundable, and under what circumstances?

3. What is the minimum recommended operating cash requirement at start-up, in addition to the original investment?

4. Is there a training fee, a site development fee, or a management or administration fee?

5. What is the anticipated cost of leasehold improvements, equipment, signage, and start-up inventory? Does the franchisor supply any of these items? Is the price reasonable?

6. What is the anticipated occupancy cost of the premises? i. Rental payments or purchase cost of real property? ii. Anticipated construction costs for the premises?

7. What is the general timeline between site selection and opening?

8. What other costs may be incurred?

9. Does the franchisor assist in the financing of the franchise?

10. W hat assistance, if any, does the franchisor provide to assist with

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Checklist for Franchisees site selection/lease negotiation? If there are no in-house resources, how closely do they work with external real estate professionals to assist with site selection/lease negotiation?

11. What is the anticipated period of time between start-up and profitability?

12. What are the anticipated franchise earnings, and has the franchisor provided you with any financial performance representations? If so, have you been provided with the underlying assumptions that substantiate the representations?

13. W hat is your anticipated “personal” working capital required through the launch period (the amount you need monthly to cover living expenses, multiplied by the number of months before you can draw income from your franchise)?

14. Do you have the resources to finance the initial investment? Has the franchisor negotiated any franchise finance programs?

SECTION 4: Franchised Product or Service 1. What makes the franchisor’s product or service unique? i. Does it satisfy a need? ii. Is it marketable in your territory? iii. What is the size of the market in your territory?

2. Is the franchise system easily replicated, and if so, how will the franchisor differentiate itself from its competitors?

3. Is there any goodwill attached to the franchise system?

4. How long has the product/service been on the market?

5. What is the competition for the franchisor’s product or service in your market?

6. On a scale from 1 to 10, how competitive is the pricing of the franchisor’s product or service?

7. Is the sale of the product or service subject to certain legal restrictions?

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If so, what are the applicable federal and provincial standards and regulations, and does the franchisor comply?

8. Is the product protected by patent, trademark, or copyright? i. Who owns the trademarks, copyrights, or patents? ii. Are the trademarks, copyrights, or patents registered in Canada or have trademark applications been filed for their protection? iii. If the trademarks are in the process of being registered, is there any opposition or other barriers to the registration of the marks?

9. Are there product warranties and if so, who is responsible for such product warranties – the franchisor, the franchisee, or a third-party supplier?

10. W hat products must be purchased from the franchisor or designated suppliers? i. On a scale from 1 to 10, how competitive is the cost with thirdparty suppliers? ii. If supplies are interrupted, can purchases be made through alternate suppliers? iii. Will the franchisor be receiving volume discounts or rebates? If so, will these savings be passed on to the franchisees?

11. How has the pandemic affected the supply chain? i. How much risk is there of supply chain disruption, should we experience future pandemic waves? ii. How does the franchisor enable franchisees to protect profit margins when the supply chain experiences sharp or unforeseen increases?

12. Innovation: i. How often does the franchisor update product/service offerings? ii. Do the innovation advances come from the franchisee base, or from head office? iii. How are the innovations field-tested to prove viability? www.theupsstore.ca

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Checklist for Franchisees 13. W hat are the franchisor’s policies with respect to gift cards and certificates, online orders, and food delivery applications? And is pick-up, delivery, or drive-thru an important component of the service offering?

14. How often does the franchisor require your premises to be renovated or upgraded and what is the estimated cost of these renovations/upgrades?

15. Will you be able to renew the franchise agreement without completing renovations?

SECTION 5: Sales Territory And Location 1. Is your franchise territory exclusive? i. If not, would there be some other form of territorial protection? ii. If so, what are the parameters of the exclusive territory granted to you? iii. Will there be other outlets opening near your territory which may undermine your sales? iv. Would these be company-owned or owned by other franchisees? v. Can you get a first right of refusal for any adjoining territories? vi. Does the franchisor sell its products through other channels of distribution? vii. If so, what are these channels, and how will they impact the profitability of the franchise?

2. Can you decrease or expand your sales territory? If so, under what conditions and at what additional investment level?

3. Has the franchisor conducted a site selection analysis of the location of the franchised business and the territory, and provided you with information that substantiates the viability of the location and territory? If not, how could you obtain this information?

4. What is the franchisor’s policy regarding the sharing of customers’ online purchases through the franchisor’s website when customers are domiciled within the franchisee’s DMA?

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i. What is the percentage of revenue per sale?

SECTION 6: Questions To Ask Current Franchisees 1. What was your total investment in the franchise?

2. Were there any unexpected costs? If so: i. What were they for and how much were they? ii. Were they unique to that individual, or is it something several franchisees experienced?

3. Are the royalty, advertising, and other fees charged by the franchisor reasonable in comparison to your profits?

4. On a scale from 1 to 10, how good is the quality of the products or services supplied by the franchisor or its designated suppliers? How satisfied are you with the price-quality relationship?

How reliable are these deliveries from the franchisor or its designated suppliers? Are you allowed to use alternative suppliers?

5. On a scale from 1 to 10, how effective was the franchisor’s initial training? How long was the training?

6. What is the franchisor’s initial and ongoing training program? On a scale from 1 to 10, how effective is the: i) initial training? ii) ongoing training? iii) group training calls? iv) mentoring by the franchisor? v) mentoring by other successful franchisees?

7. On a scale from 1 to 10, how effective is the franchisor in responding promptly and helpfully to questions you have or advice you seek?

8. What are the most important things a new franchisee needs to know about business generation (prospecting, digital and traditional advertising, networking and community engagement, etc.)?

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Checklist for Franchisees 9. What type of ongoing support and advice (including advertising, marketing, and promotional assistance) do you receive from your franchisor? On a scale from 1 to 10, how satisfied are you with this support?

10. On a scale from 1 to 10, how profitable is your franchise as compared to initial expectations?

11. How long did it take for revenue to cover operating costs?

12. How long did it take for you to break even?

13. How did the pandemic affect your business? i. If you were affected by mandatory lockdowns and/or capacity limits, how quickly did your business return to relative normal once those restrictions were removed? ii. On a scale from one to 10, how well did the franchisor support and work with the franchisee base to come up with system innovations that helped you get through the pandemic? iii. What were some of those innovations?

14. W hat have you done to make your franchise successful, and would you recommend this franchise?

15. Does the franchisor have a dispute settlement board with both franchisee and franchisor representatives? On a scale from 1 to 10, how effective is it?

16. Have you ever had a serious disagreement with your franchisor?

What was the disagreement about? How was it settled?

17. If you have experienced financial difficulty in operating the franchise, how has the franchisor supported you through the difficult time?

18. W hat is the time investment for the franchisee (high amount of owner involvement, or more self-sufficient operations)?

19. Knowing what you know now, what are the three most important things you Sponsored by:

would tell new franchisees that they must do? And that they must avoid doing?

20. K nowing what you know now, would you do it over again? Why or why not?

21. How effective are the marketing and advertising programs implemented by the franchisor? i. Does the franchisor provide a periodic report on the marketing expenditures? ii. Are you satisfied with how the marketing contributions are spent?

22. Do the corporate outlets contribute to the marketing fund?

23. A re you aware of other franchisees who are not happy with the system or who are struggling with their franchise?

24. How involved is the franchisor with the day-to-day operations of the franchise?

Do you feel that you have the autonomy you require to operate your franchise as you see fit?

SECTION 7: The Franchise Agreement 1. Have you retained a franchise lawyer with expertise in reviewing franchise agreements?

2. Are the franchise, the location, and the territory clearly described in the agreements?

3. If the premises is not identified, by what date are you or the franchisor, as the case may be, required to locate a premises and obtain a lease?

4. Is there an opt-out provision that gives you the right to terminate the franchise agreement if you do not find a suitable premises within a certain period of time?

5. Does the contract clearly describe the duration, type, and cost of the training to be provided by the franchisor?

6. Does the contract clearly describe the support to be provided for the grand opening?

7. Does the contract clearly specify the type, amount, method of payment, and timing of all payments to the www.theupsstore.ca

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Checklist for Franchisees franchisor? This includes the franchise fee; any deposits and the conditions for any refunds; royalty payments based on a percentage of gross sales; local, regional, and/or national advertising contributions; fees of continuing services provided by the franchisor; and any other payments.

8. Does the contract clearly describe the rules around digital marketing and social media?

9. Are you required to purchase supplies from the franchisor or other designated suppliers? i. If so, what and how much? ii. Are there any minimum purchase quotas? iii. If the franchisor receives rebates from the suppliers, are they reasonable in light of the cost of the products or services being purchased?

10. Can you use alternate suppliers (provided the franchisor’s quality standards are maintained) if the franchisor’s supply deliveries are interrupted or for other reasons?

11. Do you have the right to use any innovations developed by the franchisor?

12. A re there sales quotas that you are required to meet? If so, are they attainable and what are the consequences if you fail to meet them?

13. W hat is the length of the contract term? i. Is the term renewable, and on what basis? ii. Are the renewal conditions reasonable?

14. W hat types of records and reports are you required to provide to the franchisor? How cumbersome are the requirements?

15. A re you leasing your location directly with your landlord, or will you enter into a sublease with the franchisor? i. Is the lease for the same period as the franchise contract?

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ii. Can the lease be renewed, and on what terms and for what time period? iii. Can you change locations? If so, on what conditions? iv. Does the landlord have the right to demolish your premises or require you to relocate?

16. A re you required to build, or can you renovate existing franchise premises? i. Will the franchisor provide design and construction specifications, and/or monitor the construction? ii. Can these specifications be changed?

17. Do you choose the location or sales area of the franchise, or does the franchisor?

18. Can you operate more than one franchise in your sales area? Do you have any development rights?

19. Can you sell your interest in the franchise? i. Does this require the franchisor’s consent? ii. What are the conditions of such consent? iii. How is the sale price determined? iv. Is there a pre-determined valuation formula?

20. Can you terminate the contract? i. If so, what are the termination conditions? ii. What are the costs and/or penalties 21. On what basis can the franchisor terminate the contract?

22. If the contract is terminated, will you be compensated for any component of the goodwill that you have built up in the business?

23. Is there a post-term non-competition covenant, and is it a reasonable one?

What is the length of the post-term covenant and what is the geographical boundary?

24. If you violate any provision of the agreement, do you have adequate time to correct the situation?

25. Does the contract provide for arbitration or mediation as a pre-requisite before

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Checklist for Franchisees litigation is commenced? If so, how will the arbitrator be selected? How are the costs of the arbitration/mediation to be divided? Are there any rights of appeal?

26. W hat happens if you suffer a prolonged illness or death? i. Will your survivors, for example, be entitled to operate and maintain ownership of your franchise in such event?

27. Can you engage in any other business enterprise during the term of the contract or are you required to devote your full-time efforts to operating the franchise?

28. A re you required to provide any personal guarantees?

29. Can you enter into the franchise agreement personally, or are you required to incorporate? If required to incorporate, are there any requirements for how your corporation is to be organized?

30. A re you allowed to operate your own website or social media accounts?

31. What is the effective date of the franchise agreement? Have you diarized the expiration of your possible two-year rescission period, during which time you may be able to rescind the agreements if you have not been properly disclosed?

SECTION 8: Disclosure Document 1. For franchisees in provinces where legislation mandates the provision of disclosure documents – currently British Columbia, Alberta, Manitoba, Ontario, New Brunswick, and Prince Edward Island. i. Has the franchisor provided you with a disclosure document that complies with the applicable franchising disclosure statute? In particular, does the disclosure document contain all disclosure required by the relevant franchise disclosure statutes, including the franchise agreement, all other Sponsored by:

agreements, and the franchisor’s financial statements for its most recently completed fiscal year? ii. Was the disclosure document provided as one document at one time and fully up-to-date as of the date of disclosure? iii. Have you retained a franchise lawyer with expertise in reviewing disclosure documents? iv. Have you retained an accountant with expertise in franchising matters to review the franchisor’s financial statements? v. Is the disclosure made by the disclosure document consistent with the terms of the franchise documentation and the representations made by the franchisor’s salespersons? vi. Has the franchisor complied with the disclosure requirements of the relevant disclosure statutes by providing you with at least 14 days in which you could review the documentation before paying the franchisor any monies or before you signed any agreements? vii. Did the franchisor include a signed certificate of disclosure in its disclosure document and if so, was it signed by two officers or directors or an officer and a director, if there are in fact two such persons?

2. For franchisees in provinces without legislation mandating the provision of disclosure documents. i. Has the franchisor provided you with a disclosure document in accordance with the CFA’s Code of Ethics? Please visit www.cfa.ca/ about-cfa-2/code-ethics/ for more information.

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FRANCHISE DUE DILIGENCE CHECKLIST

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hen you invest in a franchise, it’s important to keep in mind that you’re investing more than just money – you’re also investing your time, passion, and hard work. With the resources required to start and maintain your franchise venture, you’ll want to have a complete picture of the franchise opportunity before you sign on the dotted line of the franchise agreement. That’s where due diligence comes in.

“Proper due diligence occurs when a prospective franchisee investigates and evaluates a franchise opportunity, looking at everything from the total cost to the training programs offered to how well he or she fits with the corporate culture of the company,” says Lorraine McLachlan, President and CEO of the Canadian Franchise Association (CFA). “It’s essential that prospective franchisees ensure that the franchise is a good fit for them before making a commitment. A comprehensive investigation and evaluation is an important first step towards franchise success and fulfilment.”

Lyn Little, Senior Manager, Assurance and Accounting with BDO, says the due diligence process also allows prospective franchisees to determine whether they will be investing in a bona fide franchise opportunity, with all legal and financial requirements in order.

“It is important for a prospective franchisee to conduct proper due diligence, as this

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may allow the franchisee to identify potential red flags of the business, or indicators which may suggest that the franchisee should look at an alternate franchise system, or request reductions in the franchise fees, royalties, or other fees to the franchisor,” says Little.

When you’ve checked off every item on the following list, you should be ready to make an informed decision and be prepared to invest in the perfect franchise opportunity for you.

Don’t forget to ask lots of questions, so everything is as clear as possible at every step of the investment process. For questions to ask the different people you’ll meet along the way, consult the Checklist for Franchisees.

1. Research the franchise system.

As outlined in the “How to Find the Right Franchise Fit” article, you should undergo a self-assessment, outlining your skills, assets, and abilities, before looking into specific franchise opportunities. Once you have a good idea of what you can contribute to your franchise business, you can create a short list of franchise systems that you want to research further. These systems should take the aforementioned strengths and abilities into consideration, along with your interests and passions.

You can start by heading online to review the system’s franchise website and any other information about the system available online.

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

Franchise Due Diligence Checklist You can also conduct this research in-person by attending a franchise-specific tradeshow, where you can meet and speak with representatives of the franchise system, and/or by visiting one of the brand’s established franchise locations so you can see firsthand how the franchise operates in its market.

Some key factors to look for when researching franchise systems include franchisee selection, training, communications, marketing, problem-solving, rewards, and corporate culture. You’ll also want to evaluate the market, taking consumer demand, location, resale value, whether it’s an established or new and emerging system (and the pros and cons of each), and whether it’s a resale location into consideration.

2. Submit a completed franchisee application form to the franchise system.

Once you’ve started researching specific franchise systems, you can fill out and submit a franchise application form, which will provide the franchisor with important details about your background and experience, your financial information, and the skills you have to offer.

Keep in mind that as you’re conducting your due diligence, the franchise system will also be carrying out their own research to determine whether, based on their experience, you will be a good fit as a franchisee of their system.

3. Meet with current franchisees of the franchise system.

“You will want to talk to eight to 10 existing franchisees of the franchise concept that you’re most interested in. You will want to learn, from their perspective, what is required to drive success. You will also want to know a lot about their relationship with their franchisor,” advises Gary Prenevost, President of FranNet, Southern Ontario.

These franchisees should have different levels of experience, and should be chosen from franchise locations at different performance levels.

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4. Meet with franchise system representatives (attend a Discovery Day).

You’ll get to this stage if you’re almost ready to make a purchase. You should be prepared to fly to the franchisor’s head office for a Discovery Day, where you will meet with their leadership team and get a final sense of whether the culture will be a good fit.

“Essentially, you are going there to look for reasons to say ‘no’ and hope that you don’t find any. You will not make a purchase decision while you are there, but usually within one to three weeks after you return, you should be ready to sign a franchise contract and pay the initial franchise fee,” explains Prenevost.

Most established franchisors have a franchise review process in place that clearly defines their practices and procedures to help prospective franchisees make informed decisions, so you can follow this process, asking any questions that come up along the way.

5. Build a comprehensive business plan.

A business plan lays out the goals of your franchise business, providing banks, investors, and lenders with an idea of the scope and specifications of the project in which you’re investing. This plan should include cash flow projections for the first three to five years your franchise will be in business, outlining the earning potential of your location and the strategy for achieving these goals.

Your business plan should start with a summary of the franchise you intend to purchase, including essential background information about the franchisor and their track record.

The financial section of the business plan should include your personal financial information, along with financial projections for your franchise. A realistic budget should also be provided, with details about the cash flow projections and profit and loss forecasts. The business plan should also analyze the marketplace, and should contain information about the products and services you will be providing, consumer demand, and the customers who will be looking for these products and/or services. www.theupsstore.ca

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Franchise Due Diligence Checklist 6. Consult with franchise professionals.

As you contemplate your franchise investment decision, you’ll want to enlist the help of franchise professionals, who can provide you with the guidance you need to make the right decision.

• A franchise consultant can help you identify your objectives as you carry out a self-assessment, help you understand the franchisee/franchisor relationship, introduce franchise opportunities that you may not have considered, assist in evaluating and analyzing opportunities, and introduce you to other franchise experts.

• A franchise accountant can help you pinpoint the profitability of the venture, and can also help you calculate the start-up cost, assist you in reviewing documents from the franchisor, advise you on the advantages and disadvantages of a franchise investment opportunity, and help you put together your business plan.

“In preparing to purchase a franchise, the prospective franchisee should look at fixed and variable costs to determine the breakeven sales figure required to turn a profit.

Understanding this figure, and the prospective market the franchisee will operate in, will allow the franchisee to determine whether the franchise location has the potential to generate sufficient revenues to cover costs,” notes Little of BDO. • A representative from the franchising division of a bank can help you determine the financing plan that works best for you and your business, providing financial solutions that are tailored specifically to your franchising situation. A franchise banker can also be an asset when it comes to figuring out your financing requirements so you will be able to sustain your business in the long term.

• It’s also critical for prospective franchisees to enlist the services of a franchise lawyer, who can explain and elaborate on the details of the franchise agreement, and review and explain the disclosure

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document, specifically outlining what each party is expected to provide. A franchise lawyer can also help in negotiating any terms or conditions of the franchise agreement as required.

7. Review the franchise disclosure document.

In addition to speaking with the franchisor, existing franchisees, and franchise professionals, prospective franchisees should receive a franchise disclosure document once they reach a certain point in their investigation. An important part of a proper due diligence process, disclosure documents contain a summary of information on the franchisor, its executive team, and its franchise agreements.

In Canada, franchise systems are required by law to provide a disclosure document to prospective franchisees in provinces where franchise legislation is in place (currently British Columbia, Alberta, Manitoba, Ontario, New Brunswick, and Prince Edward Island). It’s important to fully review the disclosure document with your franchise lawyer and financial advisors to ensure that you understand the information it contains, including your obligations as a franchisee. Turn to the “Navigating Franchise Disclosure” article, which provides more in-depth details about the disclosure process.

8. Trust your own judgment.

Ultimately, you will be the owner-operator of your franchise system, so it’s essential that you be the one to make the final decision before signing the franchise agreement.

“Do not allow yourself to be sold or unsold by anyone else. Rely solely on your own research and make a decision to proceed only when you can justify how and why this business meets your criteria, and why you know you will be successful at running it (or to eliminate the opportunity when you can logically identify why it’s not right for you),” cautions Prenevost.

CFA Guidebook Series: Know Before You Go: Tradeshow Fundamentals

PROTECT YOURSELF AND YOUR INVESTMENT Your guide to ethical franchising

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he Canadian Franchise Association (CFA) has been a pillar of the franchise community in Canada since 1967. Acting as the voice of franchising in Canada, its membership includes nearly 600 franchise brands across the country. CFA member brands sign on to a Code of Ethics, signifying a commitment to ethical franchising and franchisee success.

As an aspiring entrepreneur, you’ve worked hard to raise the capital to start your own small business. As you search for the perfect business investment, it’s important to protect yourself by looking at credible, ethical business opportunities.

The Government of Canada’s Anti-Fraud Centre has warned consumers of increased fraudulent business opportunities promising high returns. Sometimes these frauds may even be incorrectly labelled as franchise opportunities.

What to avoid: • P yramid or ponzi schemes that require investors to recruit other investors to make their money back • “Business opportunities” promising high returns but requiring high upfront costs, including the purchase of specialized equipment (ATM machines, vending machines, POS machines, etc) that may not be delivered as promised Sponsored by:

What to do: •U se LookforaFranchise.ca and the Franchise Canada Directory.

Start your franchise search on LookforaFranchise.ca, the Canadian Franchise Association’s (CFA) online directory of franchise opportunities, or by purchasing a copy of the Franchise Canada Directory, your complete guide to businesses franchising in Canada.

• Invest in a CFA member.

CFA member brands commit to ethical franchising by signing the CFA’s Code of Ethics. Look for the Logo to find a CFA member brand offering a credible franchise opportunity and commitment to excellent, ethical franchising • Do your due diligence.

A franchise lawyer can help as you navigate your franchise investment. Always contact previous and current franchisees of the brand and have your lawyer look through the Franchise Disclosure Document with you.

Visit FranchiseCanada.Online for free resources and articles on conducting due diligence and what steps to follow to make your franchise dream a reality.

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ABOUT THE CFA GUIDEBOOK SERIES The Canadian Franchise Association (CFA) has been advancing and supporting the franchise community since 1967, and acts as the voice of the franchise industry across Canada.

CFA Guidebooks are a resource to help readers dive deep into a franchising related topic, drawing from the expertise of franchisors, franchise support services / suppliers, and industry experts.

Find more entries in the CFA Guidebook series at www.cfa.ca/franchisecanada/fcguidebooks

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FOR T OK H O

LOGO

When you see a CFA member logo, you’re seeing the sign of a brand that has signed on to the CFA’s Code of Ethics, and showcased a commitment to ethical business practices and excellence in franchising. CFA members display their logo on their websites, advertising, print materials, and tradeshow booths, to state this commitment loud and proud!

Visit LookforaFranchise.ca to browse the CFA’s online directory of member brands and find your next franchise opportunity.