How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
As you search for a Canadian franchise, one piece of advice you may have come across many times is to hire an attorney to review the agreement and the brand itself. This is sometimes called a "franchise business review," and it is largely what it sounds like: the attorney will take a deep dive into the franchise before you sign on to help you make an informed choice.
If you decide to engage a law firm to do a review for you, be sure you are working with a firm that has done this before. Although each law firm will have its own process, there are some key areas that most franchise business reviews will cover.
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The level of disclosure
The attorney will review any disclosures you have received from the brand to see how adequate they are. If applicable, the attorney will also evaluate whether those documents meet the disclosure requirements in provinces that have disclosure laws.
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The fees and costs
Costs and fees are important, and you must understand them fully before signing any agreement. You cannot properly prepare to run a business without having a reasonable idea of what your costs will be. Here, the attorney will review the costs and fees and make sure you understand what and how you will pay.
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The potential legal risks
During a review, the attorney will look deeper into the finances of the brand to ensure it is healthy. They will also take a look at potential issues such as trademarks, something that is especially crucial if your franchise is not headquartered in Canada. Buying into a system from another country only to discover you cannot use its familiar logos in Canada is not a situation you want to find yourself in.
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The system growth and size
Your reviewer will take a close look at your franchisor's current system. A franchise doesn't have to be huge when you join; in fact, having too many units in a given area can lead to market saturation. However, you are going to want to see consistent growth in your report. At the same time, adding a lot of units while losing a lot of units at the same time can be a red flag.
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The agreement terms
The review of agreement terms by an attorney is often the reason prospective franchisees decide to contact a law firm. A franchise agreement is a long and complex document, and it may not be easy to understand. Your attorney will review the agreement and explain it to you. They will also be able to answer any questions you have.
