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Frequently Asked Questions

  1. What is the Canadian Franchise Association (CFA)?
  2. Who are CFA members?
  3. What is a franchise?
  4. What are franchise support services?
  5. When did the first franchise begin in Canada?
  6. How many franchise systems are active in Canada?
  7. What is the average number of years of a franchise agreement?
  8. What are some of the benefits of franchising?
  9. Why would I want to franchise my business?
  10. What kinds of businesses or services are suitable for franchising?
  11. Will the franchisor do everything for me?
  12. Why is the term "buying a franchise" incorrect?
  13. As a franchisee, am I really a business owner?
  14. I am in the investigation stage for a franchise. What questions should I be asking franchise systems?
  15. How can I learn about my potential obligations as a franchisee?
  16. Can I choose any franchise I want and invest in it?
  17. Do I own my franchise forever? Are franchise contracts subject to renewal? Could I sell my franchise?
  18. What is the fundamental principal to the success of a franchise?
  19. Do I always have to operate a franchise as the franchisor tells me?
  20. If it doesn't work out, can I just walk away and get my money back?
  21. What makes a franchise system successful?
  22. Why do some franchises costs so much more than others?
  23. What are royalties and how are they paid?
  24. How do I know what it's like to work in a specific franchise system?
  25. How can franchising help me reach my business and personal goals?


Q1: What is the Canadian Franchise Association (CFA)? (back to top)
CFA is the country's only national trade association for franchising with almost 500 corporate members nation-wide, representing many of Canada's best-known brands. As the National Voice for Canadian Franchising, CFA works with all levels of government to ensure the development of industry-made solutions. CFA promotes ethical franchising and educates Canadians about franchising, specific franchise opportunities and proper due diligence through its many events, programs and publications.


Q2: Who are CFA members? (back to top)
CFA has almost 500 corporate members nation-wide, representing many of Canada's best-known brands. 75% of our members are franchise systems and the other 25% are franchise support service providers. Click here for an online directory of CFA Franchise System Members.


Q3: What is a franchise? (back to top)
Franchising is a business relationship where a franchisor (a company or individual who owns the franchise system) grants a licence to a franchisee (a company or person who contracts to use the franchise system) the right to use the franchisor's trademark, brand, operating system and ongoing support for a fee. In return, the franchisee provides a share of the income back to the franchisor.


Q4: What are franchise support services? (back to top)
Franchise support services (FSS) are organizations that provide essential services to the day-to-day operations of franchises. An important component to the success of franchisors and franchisees, FSS are experts who specialize and focus their businesses on the franchise industry.

Some CFA FSS members include banks, lawyers, franchise consultants, advertising and marketing agencies, business solution providers, and others. Click here for an online directory of CFA FSS Members.


Q5: What year was the first franchise in Canada? (back to top)
It can be argued that Martha Matilda Harper's Harper Shop is the first franchise in Canada, with the first store opening in Toronto, ON in 1905. (FranchiseCanada Magazine, Jan/Feb 2008)

Within CFA membership, Royal LePage has been in business since 1913, with Canadian Tire franchising since 1934.


Q6: How many franchise systems are active in Canada? (back to top)
The Canadian Franchise Association (CFA) has over 350 franchise systems in membership, representing more than 400 of Canada's best-known brands including McDonald's, Tim Hortons, Shoppers Drug Mart and Canadian Tire. It is estimated that there are approximately 1,100 franchise systems operating in Canada, and approximately 78,000 franchise units across Canada.


Q7: What is the average number of years of a franchise agreement? (back to top)
The average term of a franchise agreement in Canada is five (5) years. However, franchise agreements come in several fixed periods including 10 and 20 years.


Q8: What are some of the benefits of franchising? (back to top)
But when you invest in a franchise, you align yourself with a brand that may be recognized across the country and perhaps abroad. A franchise also provides you with the security of a proven system. If you work and follow that system, you can reduce the risk of business failure and increase your likelihood of success (when compared to independent business owners). You also do not have to invent the business from the ground up.

Here are more of the benefits of choosing to become a franchisee:
  • Franchising allows you to assume a leadership role in your business, while still having the support of a head office.
  • You will enjoy instant brand recognition. That brings many advantages, including a stronger position if you apply for a business loan.
  • Franchisors supply a manual that fully explains the operating system. You don't have to re-invent the wheels on this bus.
  • There is usually an established supply chain and supplier relationships in place (with preferential pricing and delivery).
  • A network of peers are only an e-mail or phone call away. You always have someone to talk to who has experienced the same challenges in reaching success.
  • You'll have information on business trends, new product development, new ways of marketing, and changing consumer tastes. Tracking these and staying ahead of the market can require a major time investment for independent operators. Franchisees may have input in all of these areas (usually through a franchisee committee), but can focus on the day-to-day operation of their own locations, knowing the franchisor's job is to look for sources of future development and growth.

Q9: Why would I want to franchise my business? (back to top)
Franchising allows smaller companies to effectively compete with much larger competitors and expand their business faster than other business expansion models.
Click here to read more about how to franchise your business.


Q10: What kinds of businesses or services are suitable for franchising? (back to top)
Just about any product or service that can be replicated is a potential candidate for franchising. While many prospective franchisees think of quick service restaurants first, there are hundreds of franchise systems encompassing dozens of products and services.

The range of franchise businesses has been steadily expanding. Currently, some sectors with franchise systems include retail, restaurant, home repair, pet training and obedience, landscaping, home maintenance, business services, office services, printing, training, hospitality, travel, automotive service, automotive retail, home and health care, beauty supply and services, fitness, grocery, real estate, and much more.


Q11: Will the franchisor do everything for me? (back to top)
Most franchisors are ready and willing to provide assistance and support as needed. The franchisor-franchisee relationship is one of mutual benefits. Each system is different: some franchises may offer more support than others. But no matter the degree of assistance provided, no franchisor will do everything.


Q12: Why is the term "buying a franchise" incorrect? (back to top)
In franchising, you do not buy the franchise. Rather, you purchase the rights to run the franchise for a period of time, and you own the assets of the business that you acquire, such as inventory. The rights allow you to use proprietary information (such as a secret recipe or registered trademarks), its methods of doing business (the operating system), its branding, training support and marketing. There are variations depending on the franchise system you invest in and it is important to investigate the franchise agreement to learn what your rights include.


Q13: As a franchisee, am I really a business owner? (back to top)
Franchisees are in every way owners of a business. As a franchisee, you hire and train your staff, look after bookkeeping, advertising and the hundred and one other details required for success. Like any independent business owner, the franchisee is responsible for driving revenue and profitability. The franchisors are there for guidance and advice, but ultimately the success or failure of the business rests on your shoulders.


Q14: I am in the investigation stage for a franchise. What questions should I be asking franchise systems? (back to top)
Investing in a franchise is a major decision. Not every franchise will be right for every individual. Here are a few questions to ask franchisors when investigating if they are right for you:
  • Is the franchisor a member of the Canadian Franchise Association?
  • How many years has the franchisor been operating?
  • How many franchises 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?
  • What are the franchisor's plans for future development?
  • What is the competition for the product?
  • What 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?
A more comprehensive list of questions you should ask franchisors can be found in the CFA Info Kit.


Q15: How can I learn about my potential obligations as a franchisee? (back to top)
As you begin to investigate potential franchise systems, a good idea is to draw up a complete list of obligations for which you will be responsible. Most franchisors are happy to work with you in understanding your obligations if you are serious in your investigation and the franchisor feels you are a viable candidate.


Q16: Can I choose any franchise I want and invest in it? (back to top)
As you are investigating the franchise opportunities available to you, the franchisor is also examining whether or not you would be a good fit for their system. This includes looking at you from a financial perspective, as well as whether you would fit in with the franchise system's work culture. Also, consider location. Your ideal location may or may not be available with your chosen system. Available locations may not always fit with the potential franchisee's plans for his or her future. Potential franchisees need to fully understand the franchise system, themselves and their own professional goals to determine their best franchise fit.


Q17. Do I own my franchise forever? Are franchise contracts subject to renewal? Could I sell my franchise? (back to top)
Almost all franchise agreements are subject to a specified duration with set renewal terms, usually involving a renewal fee. There are no rules regarding how long a franchise agreement should be or what the renewal terms are. And there is no guarantee that a renewal will be granted. There may also be specific terms under which you would be permitted to sell your franchise.

Generally, if both the franchisor and the franchisee are satisfied with the relationship, they will both want to continue working together. Still, it is very important that prospective franchisees understand and feel comfortable with renewal terms before signing the franchise agreement.


Q18: What is the fundamental principal to the success of a franchise? (back to top)
Uniformity is necessary for the success of a franchise. There must be consistency from franchise to franchise within a given business. By having the same product in similar outlets, with consistent levels of service, the franchise is able to build confidence in the mind of the customer and this will people to the brand.

Customers often gravitate to what they know, what is familiar and what they trust. Uniformity is often created through operating standards and procedures that are clearly documented in operation manuals. Franchisees are required to follow an operating system, use approved suppliers of products and take the same training. The system, suppliers and training are all designed to create a consistent experience to the end customer, thereby creating an expectation and impression in the mind of the customer.


Q19: Do I always have to operate a franchise as the franchisor tells me? (back to top)
The entire relationship and terms with which you run your franchise should be clearly outlined in the franchise agreement. Once signed, both parties have to adhere to whatever is spelled out in that agreement. However, many franchisors get their best ideas from the franchisees. They key is, what mechanism is in place for feedback from the franchisees. Many franchisors have advisory councils made up from a cross section of their franchisees. They usually give input on new product development; pricing and how often advertising dollars are spent. A franchise is successful because of the continuity in the system. The franchisor must consider what is best for the whole system not any individual location. The best approach is to sit down face to face and discuss the pros and cons of your issue.


Q20: If it doesn't work out, can I just walk away and get my money back? (back to top)
The conditions under which a franchisee can abandon a franchise licensing agreement will be outlined in the initial franchise agreement document. This being said, it is very improbable that a franchisee would be able to walk away with his or her money. It is important that the franchisee fully understand the obligations of the franchisor, as well as their own responsibilities, as indicated in their agreement. This would include how, when and why the partnership may be terminated. These obligations can vary on a case-by-case basis; so potential franchisees may wish to seek proper legal counsel to assist them in adequately understanding their franchise agreement.


Q21: What makes a franchise system successful? (back to top)
Success is never limited to a finite series of conditions. Some factors for a franchise system's success include:
The selection process: The franchise system follows a system of pre-sale steps to match qualified candidates with the franchise so that the needs of both parties are met.
The disclosure policy: Franchisees receive a disclosure document, which is updated immediately whenever the franchisor makes a significant change.
Information packages: The franchisor provides sufficient documentation for the franchisee to make an informed decision.
The initial and ongoing training: Franchisees undergo a comprehensive training program and receive thorough and up-to-date operating manuals that prepare them for all aspects of business.
The level of support and communication: Formalized support and communication indicate that the franchisor is prepared to address any problems as soon as they arise.


Q22: Why do some franchises costs so much more than others? (back to top)
When comparing two similar franchises, the variation in fees may be a result of a number of things. The type and length of training provided (one company may require you to take two weeks of training compared to six with a competitor), the size and differences in building out the actual store (every business has their "look" and that look can be expensive in some cases), opening cost (decorations, advertising specials, etc.). But there may be hidden or unnecessary cost that should be carefully reviewed. Smaller franchisors rely on various contractors to do the construction of new locations, for this reason the costs may be higher. Large companies have their own in-house design and construction people who can control the jobs and keep costs more closely in check. Don't be afraid to ask franchisors why their start-up costs are higher than their competitors.


Q23: What are royalties and how are they paid? (back to top)
As a franchisee, you will be expected to pay ongoing franchise royalties. These are the currency that keeps the franchise system growing and provides support for the individual franchisee.

As a potential franchisee, do not confuse what is known as the front-end franchise fee with royalties. The front-end franchise fee is paid when the franchise agreement is signed. It is primarily a reimbursement to the franchisor for the costs incurred in setting you up as a franchisee in the system, including selecting a location for your franchise, negotiating its lease, training you for your role as a franchisee, and helping you to open the store or restaurant.

In comparison, royalty fees are ongoing. They are an obligation that any prospective franchisee must take into account when they evaluate whether or not to join a particular franchise system. Royalty fees vary from four per cent to eight per cent of gross sales. They are the lifeblood of any franchise system, and are used to pay for the ongoing support that the franchisee receives from the franchisor. They also form part of the franchisor's profit.


Q24: How do I know what it's like to work in a specific franchise system? (back to top)
Talk to current franchisees. Ask them about their day-to-day activities, what they like about the system, what challenges have arisen, and how they and their franchisor handled problems.

While talking to franchisees will give you an overview of the system, find franchisees in similar businesses. For example, if you're looking at a small-town franchise store, talk to a current small town franchisee. And talk with a mix of franchisees, including some who have been in the system for a long time and relative newcomers.

Once you're really serious about a particular system, some franchisors will allow you to work for a short time in an existing franchise, especially if you and the franchisor are moving toward a formalized agreement.

Often, after an agreement is signed, franchisees in many systems find that part of their training includes working in an existing franchise. That's when they come to appreciate the value of a tried and true business model.


Q25: How can franchising help me reach my business and personal goals? (back to top) 
While it is one of the most important questions to ask, how franchising can help you reach your business and personal goals can ultimately only be answered by you.

People invest in franchises for a variety of reasons. For some people, franchising is a career alternative. For others, it is a retirement investment and an opportunity to stay active in the business community. And for some, franchising allows them to run their own business with the strong support system that franchisors provide.

It is important to ask yourself why you are looking to franchising as a means of achieving your goals, as it may be the crucial answer to what kind of franchise best suits you. If you are looking for more work-life balance, you may find that home-based franchises are the answer. Perhaps your aspiration is to work with animals. If this is the case, a franchise in the pet sector might be your ticket to achieving your goal.

 

 

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