CFA Guidebook Series: Franchising 101

CFA Guidebook Series

FRANCHISING 101 Premium Sponsor:

Published by the Canadian Franchise Association

CFA Board of Directors BOARD CHAIR Todd Wylie*, Master Mechanic PRESIDENT & CEO Sherry McNeil*, CFE, Canadian Franchise Association 1ST VICE CHAIR Nathan Oxford, Jani-King Canada

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 Brodie Sheahan*, MNP LLP SECRETARY & GENERAL COUNSEL Darrell Jarvis*, Fasken Martineau DuMoulin LLP PAST CHAIR Ryan Picklyk*, CFE, A&W Food Services of Canada CHAIR, LEGAL & LEGISLATIVE COMMITTEE Andraya Frith*, Osler, Hoskin & Harcourt LLP CHAIR, FRANCHISE SUPPORT SERVICES Paul daSilva*, Royal Bank of Canada (RBC) DIRECTORS Andrew Arminen, Metal Supermarkets Cliff Campbell**, CFE, A Buyer’s Choice Home Inspections Jon Domanko, Restaurant Brands International Chuck Farrell, Pizza Pizza Dixie Ho, Mr. Lube + Tires Arno Krug Jr., CEFA Early Learning Scott McCannell, Foodtastic John Prittie, Koala Insulation Angela Rollins**, Great Clips Fiona Styant, CFE, MOLLY MAID Canada Cailin White, Boston Pizza International Inc. Thomas Wong, CFE, Kevito Group *Executive Committee member **Franchisee Representative

CFA Guidebook Series: Franchising 101

TABLE OF CONTENTS What is Franchising? ��������������������������������������������������������������������������������������������������������������������� 6 Sponsored: Building a Franchise System That Works: The Legal Foundations of Successful Franchising ���������������������������������������������������������������������������������������������������������� 10 Sponsored: Strategic Growth: The Legal Infrastructure Behind Canada’s Most Successful Franchise Systems ��������������������������������������������������������������������������������������12 Model Behaviour: What Options Are There? ��������������������������������������������������������������������14 Intro to Franchise Fees ��������������������������������������������������������������������������������������������������������������� 18 Protect Yourself and Your Investment ��������������������������������������������������������������������������������21 8 Steps to Take Before Investing in a Franchise Business �����������������������������������������22 Franchising Legal Fundamentals �����������������������������������������������������������������������������������������26 10 Things to Look for in a Franchisor ���������������������������������������������������������������������������������� 30 Business Plan and Financial Management Basics �������������������������������������������������������34 Your Franchise Starter Pack ����������������������������������������������������������������������������������������������������38 Checklist for Franchisees ��������������������������������������������������������������������������������������������������������� 44 Marketplace �����������������������������������������������������������������������������������������������������������������������������������52

Thank you to the following National Sponsors for their continued support throughout the year.

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CFA Guidebook Series: Franchising 101

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WHAT IS FRANCHISING?

An intro to one of the most popular and enduring models for small business ownership

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ranchising is a business relationship in which an owner (franchisor) gives a license to a third party (franchisee) allowing them the right to use its operating system, name, trademarked materials, products, and marketing techniques.

It’s an extremely popular way of doing business, which means it’s nearly impossible not to have seen one at some time or another.

Fast food chains like Burger King, Subway and Taco Bell often come to mind, but franchises can be found in many other sectors too including retail, automotive, business services, real estate and lodging.

Through the proven business concept and support provided by the franchisor, franchisees are able to be in business for themselves, but with the advantage of the franchise 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

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in a franchise, 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 eliminate all risk, if you work and follow that system, you can reduce the risk of business failure 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 marketing initiatives, and changes in consumer tastes or behaviours. This allows you (and CFA Guidebook Series: Franchising 101

What is Franchising? the other franchisees in the system) to focus on the day-to-day operation of your location, knowing that you have this shared knowledge 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 benefit 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 system 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.

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 franchisor 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 CFA Guidebook Series: Franchising 101

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

While there are many important responsibilities that must be shouldered by the franchisee, 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 franchisor 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 responsibilities 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 development 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 system 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. ww.cfa.ca

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What is Franchising?

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 Association (CFA) members in good standing, and voluntarily agree to adhere to the CFA Code of Ethics. You can peruse CFA member 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 Canadian Franchise Association?

• How many years has the franchisor been operating?

• How many franchisees does the franchisor have?

• Can the franchisor provide a list of all franchisees?

• How does the franchisor choose its franchisees?

• How much is the initial franchise fee?

• W hat are the franchisor’s plans for future development?

• W hat kind of support does the franchisor provide to franchisees?

• Will you be provided with a disclosure document? Does it comply with provincial laws or CFA’s minimum disclosure requirements?

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 representatives. These meetings will serve as mutual interviews, where both you and the franchisor can ask questions, get more information, and better determine if you’ll be a good fit with the system.

From there, you’ll usually receive the company’s disclosure document. Some Canadian provinces mandate the provision of disclosure documents through legislation (British Columbia, Alberta, Manitoba, Ontario, New Brunswick, Prince Edward Island, and Saskatchewan). Review these documents with your lawyer (preferably a franchise specialist; see the Canadian Franchise Association’s supplier directory for a list of law firms) before you sign any contracts or agreements.

This comprehensive summary of information will provide you with background on the company, including its officers, on topics including (but not limited to) estimated working capital and annual operating costs for franchisees, training and support provided, litigation, and, typically, financial statements of the franchisor. The disclosure document should also give you contact information for current and former franchisees of the system. 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.

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 system; company mission statements

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CFA Guidebook Series: Franchising 101

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BUILDING A FRANCHISE SYSTEM THAT WORKS: THE LEGAL FOUNDATIONS OF SUCCESSFUL FRANCHISING CONTRIBUTED BY SOTOS LLP

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very successful franchise system begins with a question that is deceptively simple: is my business ready to be replicated? Many entrepreneurs assume that because their concept is profitable, franchising is a logical next step. In practice, the gap between a successful business and a viable franchise system is substantial and navigating it requires more than optimism.

Over more than four decades advising franchisors, the team at Sotos LLP has observed a consistent pattern: the systems that scale successfully are those that treat legal and structural planning not as an administrative necessity, but as a strategic investment.

Knowing When You Are Ready The decision to franchise is, at its core, a decision to license your business model to others and support their success with your system. Before that can happen, the model

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itself must be proven, documented, and transferable. Franchisors who move too quickly, before their operations are systematized or their unit economics are stable, often find themselves unable to deliver on the promises embedded in their franchise agreements.

A realistic self-assessment should address several questions: Can the business be operated profitably by someone other than the founder? Is the concept differentiated enough to attract franchisees and customers in competitive markets? Is there sufficient capital and management capacity to support a growing network? A candid answer to each of these determines whether the timing is right.

The Disclosure Obligation In Canada, franchising operates within a well-developed legal framework. Several provinces have enacted franchise legislation CFA Guidebook Series: Franchising 101

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that imposes mandatory pre-sale disclosure obligations on franchisors. The franchise disclosure document (FDD) must be provided to prospective franchisees at least fourteen days before any agreement is signed or any payment is made.

The FDD is a legal document of considerable complexity. It must contain audited or reviewed financial statements, material contracts, details of all litigation history, earnings information (if provided), and the biographical information of key officers and directors, among other prescribed content.

Errors or omissions can expose a franchisor to rescission claims: the right of a franchisee to unwind the agreement and recover all monies paid. Courts in Canada have interpreted disclosure obligations broadly, and the consequences of non-compliance can be severe.

For that reason, experienced franchisors place considerable importance on the quality of their disclosure documents. Over decades of franchise practice, Sotos has developed a rigorous approach to disclosure compliance.

To date, franchise disclosure documents prepared by the firm have not been successfully rescinded by a court.

Franchise Agreements and System Architecture The franchise agreement is the legal backbone of a franchise system. It defines the rights and obligations of both parties, establishes the terms of the licence, protects the franchisor’s intellectual property, and governs everything from territory rights to renewal conditions and transfer restrictions. A poorly drafted agreement, or one borrowed from a foreign jurisdiction without adaptation to Canadian law, creates risk at every stage of the relationship.

Intellectual property deserves particular attention at the outset. The trademarks, trade dress, and proprietary systems that form the core of a franchise offering must be properly documented and protected before they are licensed. Canadian trademark law CFA Guidebook Series: Franchising 101

has its own requirements, and a franchisor that has not secured registered rights in Canada is building on an uncertain foundation.

Designing for Scale The strongest franchise systems are designed with growth in mind from the beginning. This means building operations manuals that are genuinely functional, training programs that can be delivered consistently, and technology infrastructure that can support a network rather than a single location.

It also means choosing the right legal architecture. The corporate structure through which a franchise is offered, whether directly or through subsidiaries, area developers, or master franchisees, has significant implications for liability, taxation, and the franchisor’s ability to manage the system effectively as it grows.

The decisions made in the early stages of franchising are difficult and costly to undo.

Franchisors who engage experienced franchise counsel before they begin, rather than after problems emerge, consistently build more resilient systems. The investment in getting the legal foundations right is, invariably, the least expensive investment a new franchisor will make.

For more than 45 years, Sotos LLP has advised franchisors across Canada and internationally.

The firm has worked with hundreds of franchise systems across sectors, including restaurants, retail chains, home services, hotels, telecommunication, grocery, cannabis, automotive services, hospitality, and personal and professional services. Chambers Canada has ranked Sotos in Band 1 for franchising nationwide for the past 10 years — one of only three firms in Canada to hold that distinction, with three of the six lawyers nationally ranked in Band 1 coming from Sotos. sotosllp.com

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STRATEGIC GROWTH: THE LEGAL INFRASTRUCTURE BEHIND CANADA’S MOST SUCCESSFUL FRANCHISE SYSTEMS CONTRIBUTED BY SOTOS LLP

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or a franchise system that has achieved early success, the pressure to grow is constant. Investors want returns, franchisees want protected territories, and competitors are watching. But growth without structure is fragile. The franchise systems that endure and that continue to attract high-quality franchisees are those that have built the legal and operational infrastructure to support scale.

Having guided hundreds of franchise systems over more than four decades, Sotos LLP has seen the full range of growth trajectories. The defining difference between systems that scale sustainably and those that encounter serious problems is not the strength of the concept, but the quality of the legal architecture underlying it.

Multi-Unit Growth and Area Development Multi-unit franchising has become the dominant growth model in Canada. Experienced operators who own several locations generate more predictable royalty revenue, require less franchisor support per location, and often become advocates for the system.

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Structuring multi-unit arrangements correctly requires careful drafting. This may involve area development agreements that grant the right to open a specified number of units, or performance benchmarks that tie territorial rights to growth commitments.

The goal is to balance the franchisee’s incentives with the franchisor’s need for accountability.

Area development and master franchise structures also introduce a layer of legal complexity that first-time multi-unit agreements rarely anticipate. Sub-franchisee relationships, shared fee arrangements, and the allocation of support obligations must be addressed with precision to avoid disputes as the system grows.

Expanding Across Provinces Canada’s franchise disclosure regime is not uniform. Each of the regulated provinces has its own legislation, its own prescribed disclosure content, and its own timing requirements. A franchise system operating only in Ontario faces a different compliance landscape than one expanding into Alberta or British Columbia. Before entering a new CFA Guidebook Series: Franchising 101

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provincial market, a franchisor must assess whether its disclosure documents meet the specific requirements of that jurisdiction and whether its franchise agreement reflects the particular legal provisions that apply there.

Employment law, real estate regulations, and consumer protection legislation also vary by province. A multi-province expansion strategy requires integrated legal advice that considers each of these dimensions, not just disclosure compliance.

due diligence into the health of franchise relationships and the integrity of franchise documentation.

Dispute management is also a reality of any mature franchise system. The goal is not to avoid conflict entirely, but to resolve it efficiently when it arises. Experienced franchise counsel can often identify the structural causes of recurring disputes, whether in agreement terms, disclosure practices, or operational support, and address them before they become systemic.

International Expansion For Canadian franchisors with concepts that travel well, international expansion represents a significant opportunity and a significant legal undertaking. Entry structures range from direct franchising to master franchise arrangements to joint ventures with local partners. Each carries different risk profiles, different levels of operational control, and different implications for intellectual property protection.

Trademark registration in the target country is a threshold requirement, not an afterthought. Many Canadian franchisors have encountered the costly consequence of entering a foreign market only to discover that their name or brand has been registered by a third party. Engaging international franchise counsel early in the process and building a trademark strategy that anticipates expansion, rather than reacts to it, is essential.

Legal Infrastructure as Competitive Advantage The most sophisticated franchisors understand that legal infrastructure is not overhead. It is a competitive advantage. A system with clean disclosure documents, well-drafted agreements, protected intellectual property, and experienced counsel in its corner attracts better franchisees, closes transactions more efficiently, and manages risk more effectively than systems that treat legal work as a cost to be minimized.

Franchise law is a specialized field. The decisions that shape a system’s long-term trajectory, including its corporate structure, multi-unit strategy, and international footprint, deserve the attention of counsel who understand both the legal and commercial dimensions of franchising in depth.

Transactions, Financing, and Dispute Management As franchise systems mature, legal needs expand. Acquisition of competing systems or complementary businesses requires experienced M&A counsel who understands the franchise dimension, including how to value franchise networks, identify disclosure liabilities, and structure post-closing obligations to franchisees. Financing for growth, whether through traditional lenders or private equity, increasingly involves detailed CFA Guidebook Series: Franchising 101

Sotos LLP advises franchisors on the full lifecycle of franchise system development and growth, including franchise agreements and disclosure, corporate structuring, M&A, real estate, employment, intellectual property, and dispute resolution. Sotos LLP has one of the deepest franchise law benches in the country.

Seven Sotos lawyers are individually ranked by Chambers Canada for franchising, and nine are recognized in the Lexology Index, more than any other law firm in Canada. sotosllp.com

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MODEL BEHAVIOUR: WHAT OPTIONS ARE THERE?

A breakdown of the different franchise models and what they mean for franchisees

BY ALYSSA THULMANN

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he franchise industry is unique in how expansive it is, covering nearly every sector and kind of business you can dream of. Once you’ve decided that franchising is the right path to business ownership for you, you have many different models to choose from depending on your interests, lifestyle, and goals.

While finding a brand you resonate with and believe in can be an important aspect of choosing a franchisor, there’s more to consider: the kind of role you want in the system, where you’d like to operate from, and what building blocks you’d like to start with, to name a few. Below you’ll find an introduction to the various models that prospective franchisees have to choose between depending on what kind of experience they desire.

The different franchise agreements The title of “franchisee” is not one-size-fitsall; there are different kinds of franchise agreements one can sign depending on the

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role they’d like to play within their chosen system and the number of franchises they’d like to oversee. Options include single-unit and multi-unit ownership, area development, and master franchising.

One of the most well-known kinds of franchise agreement is the single-unit agreement, in which a franchisee invests in one unit that they’ll then open and operate as an owner. In this case there’s no expectation that they’ll open additional locations in the future, although it’s possible they may choose to do so later on. Multi-unit franchising occurs when an individual signs multiple single-unit franchise agreements, with each location acting as its own unit. These locations may or may not be in the same geographical region.

It’s not uncommon for a franchisee to begin with single-unit ownership before opening more locations down the line once they’ve got their groove. One of franchising’s benefits is that you’re able to grow at your own pace.

CFA Guidebook Series: Franchising 101

Royalty Streams for Canadian Franchisors If you prefer being hands-on and on-site everyday, or if you just don’t have the breadth of experience to expand to more locations, then single-unit ownership may be ideal. And if opening multiple units is what you’d like to do, you can work with your franchisor to ensure you’re growing at a comfortable rate depending on your investment level, the leadership role you’d like to take for each location, and the opportunities available.

Another avenue to consider is an area development agreement (ADA). Under an ADA, the franchisee signs on to open a specific number of franchises in a designated region within a certain time period, receiving exclusive rights to their territory. They’ll have the ability to operate each new unit themselves or they can find independent franchisees to operate a unit instead, though they can’t sub-franchise. This kind of agreement allows a franchisee to establish their presence in the region, and although the investment level is higher, it can increase the profit potential.

For those who like the idea of expanding throughout a specific region, master franchising offers a different kind of opportunity.

A master franchisee operates similarly to a franchisor, growing their territory by opening and granting franchise units to other franchisees. In this case, they can sub-franchise, which involves the franchisee signing an agreement directly with the master franchisee instead of the franchisor themselves.

Master franchisees are responsible for opening at least one location on their own and provide training and support to “their franchisees” as well.

Home base The kind of business a franchisee chooses can have a huge impact on their day-to-day tasks and lifestyle. While one is not inherently better or worse than the other, they do offer different experiences, particularly with where the franchisee works from.

Likely the most obvious is the traditional or brick-and-mortar business. A traditional CFA Guidebook Series: Franchising 101

franchise operates out of a specified, physical storefront or location where customers visit to buy products or services. These can be a standalone store, a kiosk or express location in a mall or airport, or a store-instore location located inside another business, but either way, it runs out of a designated, static space.

A non-traditional franchise, on the other hand, has more freedom with where it functions. Also called a mobile or home-based business, these systems can operate out of a vehicle or a home office and focus more on communicating virtually, coordinating with customers to meet them where they are, or travelling between various secondary spaces.

Franchisees can reconcile their own wants and needs with the daily operations of a traditional versus a non-traditional franchise to see what fits best into their lifestyle.

Blueprints and ingredients When it comes to the nuts and bolts of digging in and actually opening your business, different models provide unique paths to follow. Opening a full turnkey operation is different than handling a build-out, and each one has pros and cons depending on the individual owner.

Most franchises are, to some degree, turnkey. While each system is unique, franchising in general is appealing because it offers a proven, developed system, often alongside initial training and support, operations manuals, brand recognition, checklists, and more. What prospective franchisees have to consider, though, is the degree to which a brand is turnkey.

A full turnkey franchise operates under the idea that all the franchisee needs to do is “turn the key”: unlock the doors and start operating. The franchise agreement and the initial fees paid will cover everything they need from securing a location (if required); renovating and sourcing equipment; training the owner on operations, marketing, sales, and anything else they need to know; setting ww.cfa.ca

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Royalty Streams for Canadian Franchisors up systems and programming; and anything else the business must do to run. A turnkey operation takes a lot off the shoulders of the franchisee, but also gives them less control, and can reflect a higher price point than the alternative.

Franchisors can also offer non-turnkey opportunities wherein the franchisee sees added responsibility for the build-out. In these cases, opening preparation requires more hands-on work and additional investment from the franchisee themselves.

Whereas a turnkey package will include all the physical materials and work needed to open the business, build-outs require the franchisee to invest in their location along the way, overseeing the design and construction process themselves rather than having those aspects already included. This doesn’t mean, however, that the franchisee won’t get insight and support from their franchisor, especially since each brand has preferred suppliers, designs, and requirements to be met by each franchise.

New to you, new to all Franchisors may also offer their franchisees two options between opening a brand new location from scratch or taking over an already existing unit—a new build versus a resale.

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The definition of a new build is found in the name; the franchise is built fresh from the ground up, a brand new location that didn’t exist before. In this case the franchisee will see the franchise physically constructed and designed, handle all staffing and onboarding, and market to a new area.

The other option is buying an existing franchise location, taking over the ownership and operation. Resales can occur between one franchisee and another, a franchisor and a franchisee (in cases of converting corporate stores to franchise locations), and from a franchisee back to a franchisor. In this case the history and the infrastructure is already there, but it’s the new owner’s job to see the franchise through the leadership transition and into the future.

The Canadian franchise industry boasts endless brands to explore across more than 60 sectors, and each of them offer various models and opportunities for consideration.

At the end of the day, it’s not about which one is better, but about which one is better for you.

CFA Guidebook Series: Franchising 101

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INTRO TO FRANCHISE FEES

What are the costs associated with buying a franchise, and why are they important?

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ave you ever wondered why franchisors charge franchise fees? Simply put, these fees ensure the franchisor has a vested interest in your future. But let’s back up a little bit. You’re probably asking yourself, what exactly are franchise fees and why are they important?

Typically, franchise fees are paid by the franchisee for use of the franchisor’s trademark, brand and operating system. There is usually a one-time initial fee, plus an ongoing fee called a royalty.

Depending on the franchise you invest in, the initial franchise fee will range anywhere from $5,000 to $75,000. Higher franchise fees are usually reserved for – you guessed it – more established and recognized brand names. The initial fee has you in mind and covers the cost of the training and support needed to get your new location up and running, including territory analysis, site identification, recruiting, grand opening launch, franchise development, and more!

While the initial fee is designed to help you start your business, the royalty is set

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up to ensure you sustain success. Royalty fees cover the cost of ongoing support and services provided to franchisees. The more involved the franchisor is with business operations, the higher the royalty fee. When no royalty is charged, you can expect these costs to be built into product sales or sale of services in the form of mark-up or rebates on products.

Most franchise companies also charge franchisees a fee for an advertising fund where the advertising dollars of all franchisees are pooled together to share the cost of national and regional advertising conducted by head office. By pooling advertising dollars together, you and your fellow franchise partners benefit from extensive and wide-reaching marketing you wouldn’t be able to afford on your own So, whether the franchisor is collecting the initial franchise fee, ongoing royalty, or additional advertising costs, it’s all for a good cause – to support you. Your success is their success!

CFA Guidebook Series: Franchising 101

Intro to Franchise Fees Deposits But prior to entering some franchise agreements, there’s often a third fee – a deposit.

A deposit (typically a small percentage of the initial fee, so you’re not paying extra) is a payment made by the franchisee to the franchisor at the earliest stage of recruitment.

It’s used to protect the interests of both the franchisor and franchisee.

So, what is the purpose of the deposit?

From the franchisor perspective –

• Differentiates serious candidates from casual inquiries • Provides franchisors initial compensation for preliminary efforts (i.e. reviewing locations or assisting potential franchisees with their business plan) • Provides franchisors some compensation in the event the franchisee doesn’t move forward From the franchisee perspective –

• Demonstrates that they are serious to potential franchisors • A llows the franchisee to put their franchise location on hold • Ensures that their money is prudently spent Before submitting (as a franchisee) or accepting (as a franchisor) a deposit, there should be a Deposit Agreement in place, outlining the terms of the deposit including how, when and if it’s refundable, in addition to addressing any issues of confidentiality.

In the case that a franchisor does not provide a Deposit Agreement, a potential franchisee should create one. To avoid any discrepancies, this agreement should be read carefully by all parties involved and reviewed by a lawyer.

Provincial legislation has put in place certain laws around franchise deposits to protect the public. However, the laws vary according to the region.

For example in Ontario, franchisors cannot require potential franchisees to pay a deposit or sign a deposit agreement until the potential franchisee has had 14 days to CFA Guidebook Series: Franchising 101

review the Disclosure Document. While in Alberta, the franchisor can collect a deposit prior to the review of the disclosure, but the deposit must be refundable and can only be for a maximum of 20 percent of the initial fee.

Ensure that you stay up to date on the legal requirements before you make a deposit.

All about royalty fees Within almost all franchise systems, franchisees are required to pay a royalty fee. This is an ongoing payment that gives franchisees the right to use the franchisor’s trademarks and operating system.

The main reason for royalty fees is that customers tend to trust brands they know.

It’s one of the reasons why the franchise business model remains so popular!

For the franchisee, paying royalties means access to a proven brand and business model – one that customers tend to be more receptive to.

For the franchisor, royalty fees help them create an infrastructure that provides ongoing support to franchisees, including: • Consulting and sharing of best practices • A rranging suppliers to capitalize on purchasing power • Research and development • Operational reviews and ensuring brand consistency • Accounting systems • Computerization • Field support • Initial training programs • Ongoing training programs • How much do I pay in royalty fees?

There is no standard royalty fee payment – business models vary. However, there are two common ways fees are structured: Gross Sales This is a payment by which a franchisor charges a percentage of a franchisees’ monthly or yearly gross sales. Since there is no standard amount, it can range from three percent to 10 percent and more. Within that ww.cfa.ca

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Intro to Franchise Fees there are three different ways this can be calculated: Fixed percentage – Franchisees pay the same percentage of gross sales on a monthly or quarterly basis.

Increasing percentage – The percentage that a franchisee pays varies on a monthly, quarterly or annual basis. This tends to provide motivation for franchisors to help their franchisees increase their sales.

Declining percentage – Some franchisors use this system to reward profitable franchisees. If the franchisee is selling more, they might lower royalty fees as a result.

Flat-fee Rate There is no guesswork with this type of payment. Franchisees pay the same amount (not calculated by percentage) regardless of gross sales. While this system might seem attractive because franchisees know exactly what the expected costs are every month, it can be disadvantageous for franchisees who must pay the same fee during down periods.

It also doesn’t provide franchisors added incentive to help their franchisees increase their sales.

How do I know if I’m paying the right amount?

Low royalty fees, while exciting at first, are not always advantageous for franchisees. It can mean an inability to provide franchisees with the level of support needed for success.

Still, before becoming a franchisee you should do your due diligence. Speaking with current and past franchisees is undoubtedly a great start.

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CFA Guidebook Series: Franchising 101

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 CFA Guidebook Series: Franchising 101

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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8 STEPS TO TAKE BEFORE INVESTING IN A FRANCHISE BUSINESS Follow this step-by-step guide to take you from first consideration to signing on the dotted line

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aking those first steps into becoming a franchisee can be an exciting but daunting experience. There are a variety of items to consider before putting pen to paper and signing the franchise agreement.

Here are eight steps that you should consider before buying your first (or even second or third!) franchise.

STEP #1: SELF ASSESSMENT The biggest challenge when reviewing franchise opportunities is deciding what you want to do. Consider this list of questions you can ask yourself before deciding on a brand to invest with: • What do I enjoy doing? What am I good at?

• W hat am I passionate about? What do I dislike?

• W hat transferrable skills and experience do I have?

• W hat do I want to achieve by starting a business?

• Do I have family support? Am I prepared to work long hours, especially during start up?

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• W hat level of income do I need to maintain my current lifestyle? What income would I like to make down the road?

• W hat is my risk tolerance? How much am I prepared to invest?

STEP #2: CONSULT A FRANCHISE SPECIALIST Reviewing franchise opportunities can take time and throw you into the unfamiliar territory of reviewing documents and writing business plans.

A franchise consultant can help you: • Identify your objectives during self-assessment • Understand the franchisor/franchisee relationship • Introduce opportunities you may not have considered • Clearly evaluate franchise opportunities • Introduce you to franchise lawyers • A ssist with a business plan and arrange financing • Minimize risk by negotiating conditions in the franchise agreement.

CFA Guidebook Series: Franchising 101

8 Steps to Take Before Investing in a Franchise Business STEP #3: MEET WITH THE BANK When it comes to financing, the first step is determining the cost of your investment and all the expenses included in the franchise.

You should: • Consider the startup costs and working capital you need once your business is up and running • K now how much money you need to invest. The franchisor often requires up to 50 per cent of the cost in equity • Learn the difference between the total costs and the cash equity: the amount you’ll need to borrow • Indicate the amount of time it will take to repay the loans, and for the business to cover the operating costs • Account for unforeseen circumstances, such as a delay in opening or a slow ramp up period • Speak with your advisors if you’re unsure about how to calculate costs. Your banker can assist you in determining financing requirements and work with you to ensure you start your business on the right foot.

STEP #4: TALK TO AN ACCOUNTANT As a prospective franchisee, you should know exactly what an investment will cost and how it will be profitable before you sign the franchise agreement.

You should: • Determine the franchise fee and what it includes: pre-opening expenses, operating expenses, and personal expenses • Learn that pre-opening expenses may include real estate, construction, consulting fees and many other expenditures • Have sufficient capital to cover monthly overhead for three months up to a year until the franchise is generating profits • Have sufficient funds to cover personal expenses for one to two years until the business is running • Consult an experienced franchising accountant to reduce financial risks because they can recommend prospects, assist in reviewing documents, and advise CFA Guidebook Series: Franchising 101

on the potential upsides and downsides of the investment to avoid unwelcome surprises. They’ll also help calculate the startup cost and suggest appropriate financing by determining when the franchise will be profitable.

STEP #5: SPEAK WITH FRANCHISORS Once you narrow down a handful of brands that you’re interested in, it’s time to do a deep dive into researching their franchise systems.

During this research, you should: • A sk for a copy of the franchisor’s disclosure document • Speak with existing franchisees • Visit the franchisor’s head office and meet the management and support team you’ll be interacting with • Attend tradeshows, such as the Franchise Canada Show • Follow the franchisor’s system and processes, and ask a lot of questions along the way • Look for a business that you’ll enjoy running which has a franchisor you’ll enjoy working with • Consider brands that are Canadian Franchise Association members [ https://cfa. ca/lookforafranchise/] – they represent a broad range of opportunities, valuable information, and guidance.

STEP #6: CREATE A BUSINESS PLAN With the business plan, you should develop cash flow projections for the first three to five years of your business.

The business plan should: • Describe the services and products that you’re selling, with the demand for the items, and customer base • Point out the franchisor’s strengths and track record with the franchise system • Include a financial section that describes your personal financial situation and financial potential of the business.

Lenders will expect to see realistic budgets that demonstrate your ability to manage ww.cfa.ca

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8 Steps to Take Before Investing in a Franchise Business cash flow. Two key budgeting tools are cash flow projections—which indicate how much cash the franchise will need, when it will be needed, and where it will come from—and profit and loss forecasts, which predict anticipated sales, expenses, and profitability.

An accountant can assist in preparing the appropriate documents for your business plan.

STEP #7: TALK TO A LAWYER It’s important to have proper legal and accounting advice early in the process.

A franchise lawyer can: • E xplain the conditions in a franchise agreement, such as protected territories, non-competition restrictions, and obligations following the termination of a franchise • Advise if the franchise fee, royalty, and other fees are average for the market • E xplain the franchise agreement and outline the legal risks and consequences • Review disclosure documents and provide a snapshot of a franchisor and its activities • A ssist in the negotiation and finalization of the franchise agreement and other documents.

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STEP #8: TAKE ACTION Once you’re sure of the franchise system you’re buying into, it’s time to take a leap of faith and sign the franchise agreement! If you’ve completed the due diligence [https:// cfa.ca/franchisecanada/franchise-due-diligence/] process, you should be well on your way to business success.

It’s important to have confidence in your decision and ability to run your own business, while remembering that the benefit of franchising is the support you have from your franchisor and fellow franchisees every step of the way.

CFA Guidebook Series: Franchising 101

FRANCHISING LEGAL FUNDAMENTALS

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ranchising is often referred to as a mutually rewarding relationship between franchisors and their franchisees. While this is true, the franchise business model is built upon contracts and other documentation, which makes the relationship that much more complex. Luckily, franchise lawyers are there to help prospective franchisees wade through the paperwork, including the franchise agreement and disclosure document, and fully understand the rights and obligations of the franchise relationship that are outlined within.

Franchise Legal Counsel Matters Franchise lawyers are well versed in the ins and outs of the franchise business model.

It’s vital for prospective franchisees to fully understand all documentation involved in their franchise investment, particularly the disclosure document (a comprehensive summary of pertinent information about the franchise system, its officers, finances, etc.) and the franchise agreement. As a potential franchisee about to invest your time, effort, and money, you’ll want to have a complete understanding of the relationship you’re

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about to enter into. This is where an experienced franchise lawyer comes in.

Though there are some common features found in franchise agreements, these agreements can vary from franchise system to franchise system, and from franchisee to franchisee. Today, some provinces have franchise legislation that outlines the information that franchisees must receive before signing on the dotted line. CFA members are required by the CFA Code of Ethics to provide this disclosure regardless of whether provincial legislation is in place. This is just one of the reasons why retaining a lawyer who has experience with the franchise business model is a wise choice.

So where can you find a franchise lawyer?

You can find a lot of the information that you need online, through sites like the CFA’s online directory of franchise support services members (www.cfa.ca/SupportCategories). Although the internet is a great source for some initial inquiries, you should speak and meet with lawyers before you retain one.

When selecting a lawyer, there are a few things you should consider. First, look at the lawyer’s experience – have they dealt with the franchise you’re interested in before?

CFA Guidebook Series: Franchising 101

Franchising Legal Fundamentals How often have they acted for franchisors and franchisees?

Fees are another area that should be examined. You should be comfortable with the costs and timelines, but should also look for quality services and a lawyer who understands your goals and financial situation.

A large part of examining the franchise system is reviewing its disclosure documents and agreements. When meeting with your franchise lawyer, you’re advised to bring in everything you’re being asked to sign, from the franchise agreement itself to any leases or other contracts. Usually these are standard documents, but each should still be examined. It’s also important to look at some documents, such as the franchise agreement and real estate lease, together.

The lawyer will be looking for two main things: franchisee obligations and potential risk. If, upon review, everything is in order, you’ll sign on the dotted line and move forward with establishing your franchise location. But it doesn’t necessarily signal the end for the relationship with your franchise lawyer, as, once a positive working relationship is established, many clients will return with more legal work down the road.

Having an experienced franchise lawyer on your team is an asset both during and after your franchise investigations.

Franchise Document Disclosure Matters As part of a proper due diligence process, you should be collecting pertinent information about franchising and franchise systems. You should also be evaluating this information against your goals, attributes, capabilities, and assets. During due diligence, some of this information (financial capacity, skills, passions) will come from your end, while other details will come from the franchise system. An important piece of this investigation puzzle is the franchise disclosure document. Here’s how you can put these valuable resources to best use and learn as much as possible.

CFA Guidebook Series: Franchising 101

What is a franchise disclosure document?

A franchise disclosure document is a written resource designed to provide you with the vital information that you need in order to make an informed decision about investing in a franchise opportunity.

A typical franchise disclosure document may include information such as: • Background on the franchisor and the key players within the system, including its directors and officers; • A ny history of litigation, civil actions, convictions, bankruptcies, etc. of the franchisor and/or its directors and officers; • A summary of the trademarks and other intellectual property; • A summary of the costs and fees required to start and run the franchise business; • A n outline of the training and ongoing assistance provided by the franchisor; • A list of the current and former franchisees and their contact details; and • Financial statements and other fiscal information.

The disclosure document must meet requirements set out in any provincial franchise legislation. Currently, Alberta, Manitoba, Ontario, New Brunswick, and Prince Edward Island have specific franchise legislation, and franchise legislation is soon to become law in British Columbia. CFA members pledge to provide disclosure documents to serious franchisee candidates in all provinces and territories, regardless of whether they’re required by law to do so.

As a prospective franchisee, you’ll be given a minimum of 14 days to review the document prior to signing on with the franchise.

Will a disclosure document specify how much money I can make as a franchisee?

Franchisors can, but aren’t required to, provide information on projected earnings. As a variety of factors can play into the success of a franchise location, it can sometimes be ww.cfa.ca

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Franchising Legal Fundamentals difficult – and risky – for franchisors to provide earnings claims that apply widely.

The financial information that franchisors will include in the disclosure documents is likely to include the franchisor’s overall fiscal performance during the most recent year (which will show the assets, liabilities, and earnings of the franchisor itself) and/or possibly historical actual gross sales of anonymous individual locations. You’re advised to review all financial statements with an accountant, who can explain the numbers and use them to extrapolate the financial viability of the franchise system, and to help you put together a solid business plan.

No matter how the financial information is presented, though, the franchisor must be able to substantiate and justify the information.

Another way to find out more about earnings potential is to speak with existing franchisees.

When will I receive a franchise disclosure document?

The timing of providing a disclosure document to a prospective franchisee can vary from system to system.

Just as you’ll be evaluating the franchise opportunity, the franchisor will also be assessing whether you would be a good fit for the system. The franchise disclosure document usually comes into play once you’re considered a serious candidate.

The first step is to gain a full understanding of the information it contains, with help from an experienced franchise lawyer.

A franchise lawyer will be able to “translate” all of the essential rights, responsibilities, and obligations that the documents outline pertaining to both sides of the franchise relationship.

The lawyer will also point out anything different or unusual about the information or what the franchisor requires, and can often identify items that may be negotiated with the franchisor (and lead these negotiations when the time comes).

In addition to speaking with a franchise lawyer, there are others you should consult during this time, including an accountant and banker, who may also want to review the disclosure document.

You will also want to put the list of franchisees that the franchisor provides to good use by contacting current and former franchisees for their firsthand knowledge.

Franchise disclosure documents play an important role in your due diligence process. By consulting with franchise professionals, a disclosure document can help you make your investment decision with a better understanding of the franchise opportunity, as well as the rights, responsibilities, and obligations you’ll be undertaking as a franchisee.

What should I do with a franchise disclosure document?

When a disclosure document is provided, you have a minimum of two weeks in which to review the materials. You should not sign any contracts or agreements until this period has passed. The two weeks should go by quickly, though, as there is much to be done.

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CFA Guidebook Series: Franchising 101

YOUR PIZZA PIZZA OPPORTUNITY AWAITS. Join one of Canada’s most recognized Pizza franchises.

With high brand recognition and strong unit-level economics, Pizza Pizza offers a clear path to scalable business ownership.

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10 THINGS TO LOOK FOR IN A FRANCHISOR

The franchisor-franchisee relationship is crucial, and these key considerations can help foster franchise success

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hen you apply for a franchise, you should expect that the franchisor will put your application under a microscope. That’s because good franchisors complete significant due diligence on their candidates to make sure that awarding a franchise would be in the best interest of everyone involved. This helps to ensure prospective franchisees are a good fit and they have the right disposition and finances available to take the leap.

While the franchisor carefully analyzes its prospective franchisees, you should also be performing the same level of due diligence about the franchisor you’re considering. You need to ensure you’re entering a franchise system that meets your specific business goals, aptitudes, and interests. Here are some things you should be on the lookout for as you investigate the franchise opportunity.

1. A reliable franchise concept Franchising is all about consistency. The ability of franchise systems to replicate the success of the concept throughout dozens, hundreds, and even thousands of locations (potentially globally) is one of the biggest strengths of the business model. Here are some key questions franchisees should ask about a franchise’s replicability: • How many locations are there?

• If it’s a start-up franchise system with a

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few locations, can the concept be replicated in new markets?

• W hat kind of market would the franchise be successful in?

• How many locations have failed? Why? • How similar are the existing franchised businesses in the system? Is the brand consistent across locations?

2. A strong franchise brand There are dozens of quick service franchise systems serving hamburgers across Canada, but a solid brand concept and established reputation can help a quick service burger franchise system stand out from the pack.

Here are some key questions to ask about the franchise brand and concept to determine what makes it stand out from the competition, no matter its sector: • Does the franchise have protected trademarks (e.g., brand name, logos)?

• Does it have name recognition?

• W hat’s the reputation/public opinion of the franchise? Is there negative feedback on social media?

• How many corporate stores are there? Can customers tell the difference between a corporate store and a franchised store?

• Is the franchise financially healthy?

• If it’s a newer concept, what is the franchisor doing to differentiate the brand from the competition? Is it enough to stand out?

CFA Guidebook Series: Franchising 101

10 Things to Look for in a Franchisor 3. Consistent franchise operations Franchisors create consistency across all the franchises in a system through the operating standards and procedures documented in the operations manuals. The system, suppliers, and training are all designed to create a consistent experience for customers while setting expectations for franchisees. As a prospective franchisee, you should thoroughly review the franchisor’s operations manuals before signing a franchise agreement. If the franchise doesn’t have an operations manual, or won’t let you to review its contents before signing, this might be a red flag.

review the disclosure document for more information about training and should go over questions such as: • What type of training do franchisees receive (e.g., online, in-person, on-site, etc.)?

• W hat’s covered in the training program and how long is it?

• Who must attend training?

• Is there an additional cost for initial training?

• Who conducts the training?

• W hat happens if the prospect doesn’t successfully complete the program? How often does that occur?

4. A supportive management team Franchises are often backed by a strong corporate management team that provides support to help the business thrive. The franchisor’s management team of professionals should be dedicated to the success of the system— which means supporting franchisee success. Some key questions to ask about the support for franchisees include: • How involved is the franchisor in the dayto-day operations of the franchise?

• W hat support does the franchisee receive?

If the franchisee has questions, how do they get answers (e.g., phone call, email, web portal, etc.)?

• How dependent is the system on its founder?

• W hat are the founder’s long-term plans for the franchise?

• Is there a private equity investor? If so, what is its role in management? And what are its short-term/long-term interests in the system?

6. A smooth site selection process When it comes to brick-and-mortar franchise concepts, location is critical: the location of a franchise can make or break its success.

Each franchisor handles site selection differently. Some franchisors leave it to their franchisees, while others take complete control over the process. Prospective franchisees should ask the franchisor how involved they’ll be in the site selection process. They should also ask key questions regarding territory and development of the location.

You should also find out what kind of lease the franchisor will hold. Is it a head lease? If not, you’ll have to find out how and whether it will exert any other form of land control to ensure it maintains an interest in the location if the franchisee fails.

5. Comprehensive franchisee training Typically, franchisee training occurs at the franchisor’s corporate office or at an existing franchised location. Again, training ensures the franchise’s consistency across all its units. It helps to make sure all franchisees are on the same page and includes key training areas such as site selection, operating standards, recruitment, and marketing. Before signing on the dotted line, franchisees should CFA Guidebook Series: Franchising 101

7. A healthy supply chain A franchise system’s supply chain is what keeps it running. It’s what fills the shelves of a retail store or keeps fresh ingredients in stock to feed hungry customers ordering off a menu. Like site selection, supply chain management within a franchise system varies from franchisor to franchisor. Prospective franchisees should find out what their role will be when it comes to the supply chain. You should ask questions such as: • Is the franchisee required to purchase all equipment, products, and related accessories and supplies from the franchisor? ww.cfa.ca

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10 Things to Look for in a Franchisor • How are the products distributed?

• How long does it take for orders to be filled?

• Does the franchise offer discounts for bulk orders?

8. Marketing programs and support Without basic marketing, consumers won’t learn about a franchise’s products or services. In franchising, the marketing program is often laid out in the franchise brand standards manual and other operational and legal documents. Prospective franchisees will want to understand: • Has the franchisor established a national or regional marketing program?

• Is there a requirement for the franchisor to report on the use of advertising funds generated from the franchisees?

• To what extent do franchisees benefit from the fund compared to one another?

• Is the franchisee required to do local advertising? How does that work?

9. The terms of the franchise agreement The franchise agreement should lay out, in clear terms, the rights and responsibilities of both the franchisor and franchisee. You can’t expect everything to balance in favour of the franchisee, but some agreements are more one-sided than others.

Some key issues franchisees should note: • Are parts of the agreement negotiable?

• What is the initial franchise fee?

• What is the initial term?

• A re there any conditions of renewal (e.g., will the franchisee have to spend a lot in renovations to renew)?

• Does the franchisor retain the right to change the agreement at any point?

• W hat rights has the franchisor reserved for itself while granting this franchise? Is there an exclusive territory?

• Are there minimum performance standards?

• How much will the franchisor receive in ad fund fees, technology fees, additional training fees, and other royalties?

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• Does the agreement have a reasonable process for addressing disputes?

• W hat happens in the event of a default/termination? What are the rights to transfer the business?

10. The lifestyle fit Ultimately, the decision to invest in a franchise is driven by a desire to be one’s own boss while running a business that has a proven track record or serious prospects of success. Not every franchise works with everyone’s preferred lifestyle, so here are some questions to help you decide if the franchise works for you: • W hat does the day-to-day life of owning this franchise look like?

• What type of work will the business require?

Is it physical? Is it customer-facing?

• What are the expected working hours?

• Can you do the job from home, or do you need to go to the location every day?

When franchisees invest in a franchise, they’re not just investing money and taking on financial risk; they’re also investing time, passion, and hard work. With the amount of resources that franchisees devote to a franchised business, they should get a full picture of the franchise opportunity before they sign. Documents like the franchise disclosure document will hopefully answer some of the questions included here, but speaking to existing and former franchisees, reading online reviews, seeking the advice of experienced legal and financial advisors, and even just visiting franchised locations in person will provide a clear picture of the franchise system.

After reviewing all the documents and going through these questions, you should have a pretty good idea of what you’re getting yourself into and the quality of the franchise systems you’re considering. Remember, there are plenty of systems to choose from, so don’t settle for anything less than a great franchise fit.

CFA Guidebook Series: Franchising 101

SUCCESS STARTS WITH BREAKFAST

A closer look at the breakfast and lunch model

START WITH A BUSINESS MODEL YOU CAN LIVE (AND GROW!) WITH!

CHOOSE BRAND STRENGTH YOU CAN FEEL FROM DAY ONE.

A franchise should fit your life, not compete with it. For many people, “restaurant ownership” means late nights, constant firefighting and missing the moments that matter. Cora is built on a different rhythm: breakfast and lunch. That means clearer operating patterns and daytime hours (6 a.m. to 4 p.m.) that are easier to sustain than the dinner-driven grind of traditional sit-down dining. And while the schedule is lighter, the experience isn’t “fast food”: it’s a warm sit-down restaurant where hospitality, connection and becoming part of a neighbourhood routine are the point.

The best business is the one you can run consistently, lead proudly and still have the energy to be present for your team, your community and your family.

Opening day is easier when people already trust what you’re offering and when the brand behind you has proven it can last.

Cora is a Canada-wide brand with almost 40 years of history and nearly 130 restaurants.

It has become a tradition for generations of Canadian families. That kind of longevity isn’t a trend, it’s a sign of a model that’s been tested, refined and built to endure. The result is real momentum: you’re not introducing a brand from scratch; you’re welcoming guests back to something they already love.

MAKE YOUR BUSINESS A SUPPORTED ONE. Behind every great franchise is a system that supports the people running it. The difference between feeling overwhelmed and feeling in control often comes down to one thing: real support—training that builds confidence and protects standards, marketing that brings guests through the door and experienced people who pick up the phone when you need them. Cora is built to help franchisees succeed with clarity, combining a proven playbook with ongoing guidance. But don’t just take it from us, visit our website to hear Prabh’s testimonial about her first months as a Cora franchisee.

Curious about how Cora could match your business goals and personal lifestyle?

Scan the QR code to explore our opportunities.

corafranchise.com franchising@chezcora.com

BUSINESS PLAN AND FINANCIAL MANAGEMENT BASICS One thing that all franchise opportunities have in common is the need to plan for success. But sometimes, especially for those new to business ownership, knowing where to start can be tricky.

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ere’s what should be included in the business plan you provide the financial institutions you hope to borrow from. The simple act of compiling this information will also help put you on the path to success, as these are the steps and elements you will need as you embark on your franchise ownership journey.

Contents of the executive summary The executive summary should: • describe the franchise you intend to purchase, • include the background and track record of the franchisor and other existing franchisees, and • include a background of your products and services, while identifying your core market.

If you’re looking to join an established franchise, you’ll likely want to focus on that facet. If it’s a newer franchise system, you should focus on the market trends and opportunities available.

Profiles of the management team For many lenders, this is the most important part of the business plan. The management team profile should: • describe your skills and experience, • explain why you’re suited to own and operate this franchise, and • include the same information for any other members of your management team.

This is the place to highlight any attributes that make you particularly suited for

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this franchise, and to share any details about any previous business success. The more the lender believes in you, the more likely they are to provide the financing you need.

Description of products and services The description of your products or services should include: • featured benefits, • a n explanation of how your product or service differs from those of your competitors, and • a n outline on how you will deliver these products and services at the ground level.

You should provide specific details about your offerings or services (e.g., coffee, car repairs, etc.), along with what sets it apart from others in the market.

Core market information This section should: • describe your core market sector, • outline your current competitors and future prospects, • itemize strengths and how you’ll use them, • itemize weaknesses and how you’ll address and improve them, • estimate your projected market share, and • describe your existing customer base.

Not only will banks and lenders want this information, it’s also important for you to have the answers to the following questions: - Who’s your competition?

- What do they do well?

- What do they not do well?

CFA Guidebook Series: Franchising 101

Business Plan and Financial Management Basics - How are you going to stand out?

- Is your market trending up or down?

Description of operations The description of operations should: • describe the area and premises where the business will operate, • explain how you will produce your products or services, and • refer to location, property, facilities, leases, employees, insurance, technology, equipment, and suppliers.

These crucial details should be determined before you get started. Location can be a particularly important one. You should provide as many details as you can about your location and the role it will play in your success.

Other supporting documents There are other elements that would serve you well to include within this package.

These include: • Your resume and the resumes of key members of your management team • Job descriptions • Credit reports • Letters of reference • Letters of intent • Leases/contracts and other legal documents, as they pertain to the franchise you are purchasing The bottom line Ultimately, your business plan should assure investors: • there’s a market for your products and services, • you and your management team are capable, • you have the necessary physical and financial resources, • you know the steps you need to take to ensure your success, • you’re able to provide appropriate security, and most importantly, • the franchise you’re buying is financially viable and that you can repay any money lent to you.

CFA Guidebook Series: Franchising 101

Franchise fees After completing a business plan, you should be ready to join the myriad of Canadians who made their business ownership dreams a reality. But remember: franchising isn’t free.

After finding a franchise opportunity that works for you, you must pay two types of fees.

• Initial fee: Think of this as a buy-in to the franchise family. An investment shows the franchisor that you’re committed to pursuing this relationship. CFA members’ initial fees range from $10,000 to upwards of $1 million.

• Royalty fee: This is an ongoing payment that’s usually a percentage of the franchisee’s yearly sales, either on a monthly, quarterly, or annual basis.

The initial fee covers the cost of training and the support needed to get a new location up and running. The funds can go toward territory analysis, location scouting, recruiting and training staff, and more.

The royalty fee, on the other hand, covers the costs of ongoing support and services for franchisees. These can include shipping costs, an advertising fund, technology upgrades and maintenance, or even salaries.

These fees all go toward supporting your success and the success of the brand overall.

It’s a symbiotic relationship.

But just because you buy in doesn’t mean you’re ready to start your journey of success just yet. There’s also some additional signing a prospective franchisee must take care of before they officially become an owner, and that’s on the franchise agreement and the franchise disclosure document.

The franchise agreement The franchise agreement is a special contract that describes the relationship between the franchisor and the franchisee. It grants the franchisee the rights to operate the business and distribute goods and materials associated with the trademark. It also outlines the fees the franchisees must pay in exchange for those rights. ww.cfa.ca

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Business Plan and Financial Management Basics Some key features of franchise agreements include, but are not limited to: • Location, leases, and protected territory: The franchisor must assign or approve the new franchise location, along with the approved lease for the location. The franchisor will usually provide a protected territory clause—agreeing to not grant another similar franchise in a competing area. The terms of the lease must match those of the franchise agreement.

• Tenure: The agreement contains a fixed and renewal term—often 10 years each. A franchisor may want a shorter term so it may impose renewal conditions (see below) sooner, whereas a franchisee may want the longer term for the opposite reason.

• Renewal conditions: Upon renewal, the franchisee will be required to pay a renewal fee, sign a current franchise agreement, and make renovations to the franchise location so it complies with changing expectations for new franchisees.

The franchise disclosure document The franchisor will give prospective franchisees a franchise disclosure document (FDD) to help them better understand the franchise concept and make a fully informed business decision. These documents contain a summary of the franchise business and the franchisor. In Canadian provinces with franchise legislation (Ontario, British Columbia, Alberta, Manitoba, New Brunswick, and P.E.I., at the time of publication), the franchisor must provide the FDD before any sale of a franchise to a prospective owner. The FDD contains financial statements and all proposed agreements and will help the potential owner determine whether they want to invest in the franchise. The franchisee has 14 days to review the FDD upon receipt.

A typical FDD should include: • Information on the franchisor, such as the history of the company, what it offers and how it’s operated, how long it has been in operation, how many units/franchises it has, and other brands it operates

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• Background information on the key players within the system, such as its directors, officers, and anyone else franchisees would deal with • A ny history of litigation, civil actions, convictions, bankruptcies, or other legal dealings of the franchisor and/or its directors and officers • A summary of the trademarks and other intellectual property that are licensed under the franchise agreement • A summary of the costs and fees required to start and run the franchise business • A n outline of the training and ongoing assistance provided by the franchisor • A list of current and former franchisees and their contact details • Financial statements and other fiscal information Additional attachments to the FDD can include: • The franchise agreement • The table of contents of the operations manual • The franchisor’s certificate signed by an officer of the company stating all material facts have been provided and all information is true • A receipt to be signed and dated by the franchisee acknowledging receipt of the FDD When pursuing a franchise opportunity outside of the provinces in which there is franchise legislation, many franchisors will provide these documents to potential owners in good faith to help them learn more about the opportunity.

If a franchisor fails to provide a prospective franchisee with proper disclosure when legally required, the franchise agreement can be rescinded for up to two years from when the franchise was granted. If your agreement is rescinded, you may also be compensated for losses sustained in acquiring, setting up, and operating the franchise business.

CFA Guidebook Series: Franchising 101

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YOUR FRANCHISE STARTER PACK

If you’re not sure where to start in your franchising journey, you’ve come to the right place. Learn about some of the most important stages of the process, from determining the right brand to invest in to what you need to know about a system’s financial statements.

STEP 1: THE “BIG DECISION” Franchising is an excellent way to start a business, providing you with a proven system, a well-recognized name, and the infrastructure necessary to succeed and scale up efficiently. The blueprint has been tried and tested—all you need to do is follow it!

If you are still on the fence as to whether to pursue small business ownership through franchising, ask yourself the following questions:  Does the thought of being a part of a larger, successful organization excite you? If the answer is yes, you will thrive within a franchise system.  A re you a person who is looking to innovate, or are you comfortable following a methodology? Those who want to reinvent the wheel are likely not suited for the franchise industry.  A re you interested in working alongside those who have the same goals and passions? As a franchisee, you have access to a network of other business owners who have the same drive and purpose— and they will be there to support you along the way.

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 A re you prepared to devote yourself to odd and long hours to achieve your dreams? Being a franchisee often means spending evenings and weekends setting up your business, being on-call to fix problems, and rolling up your sleeves to help, no matter the job. If this doesn’t sound appealing, other opportunities may better suit you.

If you still aren’t sure, talk to current franchisees, whether from your ideal brand or from other sectors. They will share the firsthand benefits of being a part of a franchise system, such as: • Access to products and services through your franchisor • Cost efficiency, both for you and your customers • Upfront and ongoing support from head office And if you still aren’t sure, check “The Pre-Franchisee Checklist” at right for another tool you can use to gauge the feasibility of the franchise model for you and your lifestyle.

Above all, it’s your money and your life—take your time and make an informed decision.

CFA Guidebook Series: Franchising 101

Your Franchise Starter Pack

The Pre-Franchisee Checklist A comprehensive how-to to prepare yourself for entry into the franchise industry  Evaluate your skill set, interests, and personal goals  Assess how your lifestyle would fit into the system and what changes you would need to make for it to work  Research and assess the different types of franchises, not just the brands themselves  Assess the risks and rewards, and understand the associated costs  Investigate the success of the franchise—talk to current and former franchisees  Reach out to franchise, legal, and financial experts for guidance  Thoroughly review your books to ensure you can handle the financial strain  Learn how a franchise agreement works  Determine what fees are associated with the opportunity  Perform a market analysis—will this business have long-term staying power?  Attend an industry tradeshow, seminar, or other event, like those held by the Canadian Franchise Association

STEP 2: ASSESS YOUR OPTIONS Congrats on your decision to purchase a franchise! Now that you’ve determined purchasing a franchise is right for you, it’s time to whittle down your options.

There are many types of business models, within many different sectors. And keep in mind that just because you love a certain type of service or product, it doesn’t necessarily mean that you will be happy and successful as a business owner within that sector.

Here are some areas you should consider when weighing a specific franchise model.

The cost This is obviously an important one, and likely the most important for the majority of people investigating a franchise system. The required investment can vary widely between franchise brands, and within brands themselves. It can depend on many factors, including location, equipment needs, and upfront materials and inventory costs, if applicable, not to mention wages for employees.

Check out the franchisor’s website to see if they list the average initial investment— LookforaFranchise.ca is also another fantastic CFA Guidebook Series: Franchising 101

resource for this information—as well as the brand’s net worth and liquidity requirements.

It’s also in your best interest to be upfront about your financial situation and how much you are willing, or have available, to invest.

If a franchisor doesn’t ask you about your finances early in your talks, consider it a red flag—they should want to know whether you will meet their qualifications and be “in it” for the long haul.

The brand value In some industries, like fitness and foodservice, a passion for the product can certainly help franchisees stay connected and drive them to success. But it’s not always the case.

In fact, some franchise systems that may seem “unsexy” provide a fantastic opportunity to grow. (Think cleaning or restoration services.)

Still, a connection to the company should be apparent from the moment you hear about what it has to offer. Do you admire its brand image and relationship with its customers? Do you align with its values? If there isn’t a flicker of familiarity or esteem for the company and how it portrays itself at this stage, it likely will not develop over time. ww.cfa.ca

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Your Franchise Starter Pack The future Through franchising, people can often grow a business more quickly than they would be able to on their own. Having a path set for them, and a series of supports at the ready from a team who has been in their shoes, can help business owners settle into a rhythm and provide a faster return on investment.

But there are still steps that you will need to take as the business owner. Make sure you have a handle on the ramp-up timeline, the working capital you would need to get to a break-even point, operating expenses, and whether there is an expectation to reinvest earnings to ensure the business continues to thrive. Look at the investment opportunity not just in the short term but as a potentially decades-long commitment.

The WOW factor Before signing a franchise agreement, you should understand how the franchisor is unique amongst their competitors in the market, both locally and at the brand level.

With a few exceptions, franchise systems are usually one in a pool of many similar businesses—which isn’t necessarily a bad thing, if they have a standout brand identity, services, and processes in place. You technically aren’t buying the products and services you will be selling; you are buying how the company manages its customer journey and how effective it is at retaining customers while plying new ones. A company’s unique value proposition isn’t always apparent, which is why you should speak with a knowledgeable representative from the brand who can speak to the minutiae of their approach.

The pivot point Though we always want to have high hopes for the future, there may come a point when you need to excuse yourself from business ownership. It’s a potential outcome that you should plan for, especially in the early stages of considering a franchise brand.

For instance, if you don’t have family who will be willing to step in and take the reins,

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is the system set up to easily transition to a new owner and still maintain the same rate of success? Begin with the end in mind and determine if the business, if properly managed, will be sellable if you want to try a new opportunity or retire.

STEP 3: UNDERSTAND THE FINANCES With files from Cassandra Da Re, partner at Dale & Lessmann LLP

In provinces with disclosure legislation (Alberta, British Columbia, Manitoba, New Brunswick, Ontario, and Price Edward Island, as of publication), a franchise disclosure document (FDD) must always contain a copy of the franchisor’s financial statement.

It’s important that prospective franchisees have a complete financial picture of the franchisor’s business in order to make an informed investment decision.

When you receive the FDD and the required financial statement, go over it with a fine-tooth comb (preferably with a certified professional) and determine whether it meets the minimum standard requirements by asking the five Ws. Who? - I t must be the financial statement of the franchisor company, which is the entity that will enter into the franchise agreement with you, the prospective franchisee.

- I t cannot be the financial statement of another company, whether it be the parent company, an affiliate, a subsidiary, the owner of a corporate store, or the trademark owner.

- I t should be identified within the FDD. -N ote that some large franchisors may be exempt from including this statement if they meet certain criteria.

What?

-T he financial statement must meet the prescribed review standards; note that these differ slightly depending on the province.

CFA Guidebook Series: Franchising 101

Your Franchise Starter Pack - In general, it must be prepared in accordance with an audit or the review engagement standards, as laid out in the CPA Canada Handbook – Accounting or an equivalent standard.

- I t must contain all information necessary for disclosure. Failure to disclose the notes to the financial statement, for example, can render the statement incomplete and therefore a material deficiency of the FDD. - Franchisors that have been in operation for less than one fiscal year may disclose a balance sheet that is not subject to such review standards (unless the franchise location will be in British Columbia).

When?

- It must reflect the most recently completed fiscal year.

- However, the previous year’s financial statement may be used before the most recent financial statement is available as long as it is 180 days from the franchisor’s fiscal year end. For instance, if a franchisor’s year end is December 31, the previous fiscal year’s financial statement can be used until June 28 of the next year.

Where?

- It must be disclosed as part of the FDD— “as one document at one time.”

- The exception: if the most recent financial statements are made available between the time an FDD is delivered and any agreement is made or compensation is paid, then the franchisor may deliver the updated statement by way of a statement of material change.

- A n example of non-compliance would be if a franchisor emails a standalone copy of the financial statement before or after the FDD is delivered.

The Ins and Outs of a Financial Statement A rundown of several important elements you’ll encounter in a financial statement Balance sheet: Pay particular attention to this facet of the report, as it will tell you if the company has enough cash and assets to meet its financial obligations. This is important, because if a franchisee wishes to exercise its right of rescission but the franchisor has insufficient assets, the franchisee will be left in a difficult position.

Current assets and liabilities: This will help you understand the franchisor’s liquidity position. (i.e., is there enough cash to pay off any debts that may arise?)

Working capital: This speaks to the franchisor’s ability to respond to claims. These can include trademark infringement, creditor claims, and other disputes. It also gives an indication as to how well the franchisor can manage day-to-day operations.

The notes: Whatever you do, don’t skip over these! The notes can provide valuable information and details beyond the numbers that will help you better understand the overall financial health of the franchisor and any uncertainties that may lie ahead; for example, potential future liabilities, such as lawsuits and warranty claims.

Why? - A financial statement is a formal record of a corporation’s financial activities and can inform a franchisee of the health of a CFA Guidebook Series: Franchising 101

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Your Franchise Starter Pack franchisor to help them determine whether they should invest.

- If a franchisee is deprived of the financial statement or another “foundational part of disclosure,” the FDD is rendered null and void and the franchisee can rescind from the contract.

STEP 4: SET YOURSELF UP FOR SUCCESS You’ve signed your agreement, and you’re excited about what the future holds—great!

But for many new small business owners, this is when a new challenge rears its ugly head: how to find balance amongst the daily hubbub of being your own boss.

Achieving your dream of business ownership through franchising is something worth celebrating. But there will be days where your “new normal” can be more of a stressor than fulfilling. Follow these tips—the “three Rs” and the “three Bs”—to help you prepare for and overcome potential inconveniences.

The Three Rs Rules: Creating a set of rules for yourself can aid in decision making and the prioritization of tasks. Analyze what you are willing to compromise on and what areas of your life and business you simply won’t. This can be applied to your work and business relationships: how do you want others to show up for you, and how will you do the same for them?

This will help you figure out whether employees, business partners, clients, or suppliers will mesh well with you and your business.

Rituals: Having practices to help you hone your physical, mental, and emotional strength is key in your business ownership journey and are unique to each person. The good news is that as you strengthen one area, the others will follow. Think about exercise. Not only does it work your muscles and cardiovascular system, it also improves your mental and emotional well-being.

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Routines: An organized schedule that prioritizes what’s important to you can help alleviate stress and maximize output. Block time off time in your agenda each day for challenging work—the type that you usually try to avoid with all your might—and set meetings in the morning for when you are fresh and ready to face the day.

The Three Bs Boundaries: Boundaries are limits we set for ourselves, both in regard to what we will do and what we will tolerate from others. If you’ve already set your rules, you are well on your way—your boundaries should naturally come from your rules. Once you have set your boundaries, practice identifying where they aren’t being respected in your life and using calm assertion to enforce them.

Bounce back: Resiliency is important when it comes to facing difficult situations, and your rituals can help improve how resilient you are to stressors and opposition. After time, challenges won’t feel as insurmountable, and you’ll find you have better emotional regulation and productivity—both important to being a good boss and effective business owner.

Bandwidth: You know when you feel as though you can’t possibly take on any more, let alone deal with what you already have on your plate? That’s how you know your bandwidth is full, which can lead to irritation, overreaction, and doing and saying things you may regret. Luckily, setting routines will help you recognize when you are nearing the tipping point and avoid maxing out your mental and emotional capacity.

CFA Guidebook Series: Franchising 101

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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: Franchising 101

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?

CFA Guidebook Series: Franchising 101

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? ww.cfa.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: Franchising 101

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?

CFA Guidebook Series: Franchising 101

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? ww.cfa.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: Franchising 101

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 CFA Guidebook Series: Franchising 101

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 ww.cfa.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: Franchising 101

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 CFA Guidebook Series: Franchising 101

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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Marketplace

911 RESTORATION Most entrepreneurs spend years, even decades, trying to build the right environment around themselves — the right peers, mentors, coaches, structure, and business model. At 911 Restoration, you start day one with it all in place.

You’re not doing this alone. You’re joining a curated network of highperforming owners who want you to win. That environment is worth more than any mastermind. It’s not just guidance — it’s a path.

Franchise units in Canada & US: 342 In business since: 2003 Franchising since: 2009 Franchise fee: $46.9K Start-up capital required: $200K Investment required: Inquire Training: 2 weeks (1 week virtual and 1 week in person) Available territories: All of Canada CFA member since: 2021 Phone: (818) 674-9889 Web: www.911restorationfranchise.com Contact: Miri Offir, CEO

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AMERICAN EXPRESS CANADA American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success. We work with millions of merchants around the world that accept American Express and serve as an acquirer, processor and marketing partner for merchants of all sizes, including small, regional and global businesses. American Express offers an array of services that help merchants more effectively run their businesses.

Amex Bank of Canada 100-2225 Sheppard Ave E Toronto, ON M2J 5C2 Phone: (519) 756-8027 Web: www.americanexpress.com/ en-ca/merchant/accept-the-card/ accept-direct/?intlink=en-atcgatewaypage-acceptdirect Email: eddie.todd@aexp.com Contact: Eddie Todd In business since: 1850 CFA member since: 2017

CFA Guidebook Series: Franchising 101

Marketplace

ANGUS VALLEY MONTESSORI SCHOOLS Learn. Grow. Achieve™

Angus Valley Montessori Schools Inc. addresses the growing desire for premium early-learning and safe, secure childcare for infants and pre-school ages. Proven Montessori curriculum, customdesigned buildings, chef-created nutritional menus, and tried-andtested operations. Through strong relationships with land developers, we secure prime locations with high demand opportunities. Franchisees are supported by a team with extensive business and operational expertise.

Franchise units in Canada: 8 Franchise fee: $75K; royalty: 6% to corporate; 2% to advertising support Start-up capital required: $500K-$1.2M (building size 6,500 sq ft-10,000 sq ft) Investment required: $900K-$2.2M Training: Initial training is provided Available territories: BC, AB, ON, US In business since: 2018 CFA member since: 2019 1-90 Gough Rd, 2nd Fl Markham, ON L3R 5V5 Phone: (905) 431-5566, (833) 819-AVMS (2867) Web: www.avmschoolsfranchise.com Email: info@avmschools.com Contact: Murtaza Hasan Founding Partner and Sunil Bhardwaj, Partner, President

CFA Guidebook Series: Franchising 101

CORA BREAKFAST AND LUNCH Cora Tsouflidou opened her first restaurant in 1987, in Montreal. As a single mother, Cora needed to find a way to provide for her family and be there for them each day.

The daytime operating hours of a breakfast and lunch concept allowed her to do both. Today, Cora Breakfast and Lunch operates over 125 locations coast to coast and holds true to these same values.

Cora is the pioneer of breakfast dining in Canada. The menu ranges from healthy to indulgent, with something for everyone, and always with a focus on fresh fruit. It’s a full-service restaurant model that brings people together and joy to communities. A Cora franchise is the perfect opportunity to own your own piece of sunshine. The journey to becoming a franchisee is a simple 5-step process that sets you up for success. Already Canada’s largest full-service breakfast chain, Cora is expanding in markets across Canada. The ideal franchisee has a passion for hospitality, regardless of prior professional experience, and a drive to own their own opportunity.

It’s a balanced approach to business and all that’s missing is you!

Franchise units in Canada: 130 Franchise fee: $35K Start-up capital required: $300K+ Investment required: $750K-$1M Training: 5 weeks Available territories: All of Canada In business since: 1987 CFA member since: 1999

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Marketplace

PIZZA PIZZA

SOTOS LLP

As a leader and innovator in the quick service restaurant industry since 1967, Pizza Pizza is committed to quality, service excellence and customer satisfaction. With a brand known across the country, our franchisees are set up for success. Achieve financial stability and build equity for you and your family. Comprehensive training and operational support included. Your Business. Your Success. Your Pizza Pizza.

As Canada’s leading franchising, licensing, and distribution law firm, with over 20 legal professionals dedicated to the industry, we provide a comprehensive range of franchise law, corporate, commercial, private equity financing, litigation, trademarks, intellectual property, employment, and real estate services to franchisors. For over 40 years, we have been working with regional, national, and international franchisors in every sector of the franchise industry from launch to exit, including with their international expansion.

“Always the best food, made especially for you!”

Franchise units in Canada: 484, Other: 3 Corporate units in Canada: 10 In business since: 1967 Franchising since: 1967 Franchise fee: $30K Start-up capital required: $150K Investment required: $495K Training: 8 weeks Available territories: BC, SK, MB, ON, QC, NB, NS, PE, NL CFA member since: 2002 500 Kipling Ave Toronto, ON M8Z 5E5 Phone: (416) 917-8646 Web: www.pizzapizza.ca Email: franchise@pizzapizza.ca Contact: Gwenlyn Mandaliya, Franchise Manager

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Canada’s Leading Franchise Law Firm

In business since: 1980 CFA member since: 1989 600-55 University Ave Toronto, ON M5J 2H7 Phone: (416) 977-0007 Web: www.sotosllp.com Email: mfareen@sotos.ca Contact: Mahshaz Fareen, Chief Marketing Officer

CFA Guidebook Series: Franchising 101

Marketplace

WING’N IT RESTAURANTS Wing’n It has carved out a unique niche in the casual dining world. Our commitment to fresh ingredients, a diverse menu, and a fun, inviting atmosphere keeps customers coming back. If you’re passionate about great food, exceptional service, and want to be part of a franchise that’s taking the restaurant scene by storm, Wing’n It is the perfect fit. Take the first step towards owning a thriving business with the backing of a brand that knows how to win.

Franchise units in Canada: 25 In business since: 2011 Franchising since: 2011 Franchise fee: $35K Start-up capital required: $50K Investment required: Min. $450K+ Training: Yes ($10K training fee) Available territories: All of Canada, Int CFA member since: 2016 B-983 Torbay Rd Torbay, NL A1K 1A3 Phone: (709) 237-9465 Web: www.wingnit.ca Email: kim@wingnit.ca Contact: Kim McFarlane, Director of Franchises

CFA Guidebook Series: Franchising 101

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FEATURED IN THIS GUIDEBOOK

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