How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
As a general concept, franchising is a way for a company to expand and distribute services and products. In a traditional model, a manufacturer uses a distribution system to get products to market, while in format franchising, a company sells the rights to use their systems to deliver services or products to the public. Between these franchising models, the main difference is what takes center stage. In traditional, it's the product, while format is focused on the delivery system. When you're looking to open a Canadian franchise, you will likely enter into is a business format franchise. Beyond that, however, there are still deeper relationship options to explore.
Single-unit operators
As a single unit franchisee, you will operate one branded location for a fee. While this remains very popular, it does have downsides for the franchiser. Each location needs support and training, so single unit operators can raise support and training costs while slowing down growth.
Area developers or multi-unit franchisees
Multi-unit franchising, in which franchisees develop more than one location in an area, is becoming more common. These types of franchisees usually develop one geographic region and can speed up the pace of expansion for the franchiser while cutting training costs. In this arrangement, the franchisee signs a development agreement and a separate franchise agreement for each location they open. This means that if they're unable to stick to the development agreement, the franchiser may have the right to cancel it and look for other franchisees for the undeveloped areas. Meanwhile, the multi-unit franchisee is still able to run the locations they were able to develop.
Master franchisee
In a master franchise relationship, the franchisee is essentially becoming a franchiser. A master franchisee still opens a specific number of locations but is also able to recruit new franchisees and make money from those recruits. In general, a master franchisee is acting as a franchiser for a given area. In this relationship, the master franchisee still pays a master franchising free and is able to collect a unit franchise fee from the new owners they bring into the system and a share of the royalties. This arrangement is not as popular as it used to be because it's easier to recruit from a distance these days, but franchisers do still use it in international markets.
The type of relationship you enter into with a franchiser will have an impact on your responsibilities, rights and more. Make sure you fully understand what you are agreeing to before you sign any type of agreement.
