Before you commit yourself, here are some items that you should consider
1. What is a franchise?
A franchise involves a franchisee and a franchisor. The franchisor is the company that owns the franchise’s brand. The franchisee is the individual location owner. The franchisor is typically responsible for marketing the brand, developing the overall business strategy, setting standards that each individual franchisee must comply with, providing support and guidance to the franchisees. The franchisees are responsible for the management of their own locations, but must comply with certain rules and standards set by the franchisor. The franchisee typically pays an initial fee to the franchisor and then makes ongoing royalty payments as well as contributions to the franchise’s advertising fund. The relationship between the franchisee and the franchisor is governed by the franchise agreement.
2. How does this differ from a license?
A license grants the right to use intellectual property such as patents or trademarks. Unlike a license however, a franchise grants the right to carry on business under the trade name of the franchisor. Therefore, a franchise agreement involves a much closer relationship between the parties and much more control for the franchisor. In recognition of this, the law gives more protection to franchisees than to licensees. The law that governs the legal relationship between a franchisor and franchisee in Ontario is the Arthur Wishart Act.
3. Is franchising right for you?
Successful franchisees share a certain personality type – they are entrepreneurial, and appreciate having the guidance and direction of the franchisor. By this we mean that franchisees must be willing to take risks and to make a serious personal commitment involving financial outlays, long hours and hard work. However, owning a franchise is significantly less risky than starting a standalone business. A franchisee can rely on the franchisor’s expertise, experience and marketing efforts and will benefit from the franchise’s existing goodwill and reputation. The flip side of this however, is that the franchisee’s control over the business is limited. The franchisee must follow the regulations and meet the standards set by the franchisor. A potential franchisee should consider whether this compromise is right for him or her.