Apply Due Time to Your Due Diligence
When you decide to join a franchise to pursue your entrepreneurial dreams, you will likely make contact with a number of potential franchisors to learn more about their business and whether it suits your skills, experience and availability. Although a pushy franchisor may seem highly invested in you, you must take the time to consider whether they are merely enthusiastic or employing a high-pressure sales tactic.
Joining a franchise, as with starting any business, requires an investment of capital. If you will be using personal or borrowed funds to establish your new business, you must make rational and well considered decisions regarding how you spend that money. Do not be rushed into signing on the dotted line without performing due diligence as you could end up facing financial or legal difficulties in the future.
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Let's Look at the Law
In Canada, disclosure documents are mandatory only in provinces with franchise legislation: Ontario, Alberta, Manitoba, BC, New Brunswick and PEI.
In these provinces, franchisors must provide a disclosure document at least 14 days before a franchisee signs an agreement or pays any money. This allows time to review the information without pressure from the franchisor.
In provinces and territories without franchise laws (Quebec, Saskatchewan, Nova Scotia, Newfoundland and Labrador, Yukon, NWT, Nunavut), franchisors are not legally required to provide a disclosure document—but credible franchisors still do, and leave you time for due diligence, as a best practice. You should never feel pressured.
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Red Flags
Here are some red flags to look out for when initiating contact with potential franchisors:
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Guarantees of success
If a franchisor tries to convince you that their franchise is guaranteed to make you rich, be very wary. Franchising, as with all business ventures, requires dedication, commitment and most of all, effort. It is impossible for any franchisor to guarantee that you will be successful; even when following their proven methodology and selling their well-known and reputable goods and services, you may be unable to replicate their success.
Ask to see financial records and take the time to discuss financial outcomes with an accountant, franchise attorney and even other established franchisees to determine the reality of being part of that particular franchise.
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No time to think
If a franchisor tries to convince you that the opportunity to join their franchise will expire if you do not act quickly, walk away. It is essential that you are comfortable holding a two-way discussion with the franchisor and that they give you time to think and consider their offering to ensure that the opportunity suits your needs and that your values align.
If you have any doubts that cannot be easily rationalized with time, you are unlikely to regret the decision to let the opportunity pass you by while you pursue businesses that may be a better fit.
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Guided introductions
If the franchisor makes guided introductions on your behalf instead of allowing you to approach your chosen franchisees of your own accord, be wary of their intentions. It may be that they believe their chosen franchisees will be best able to allay any concerns that you have or provide you with high-quality responses to your questions, but they may be trying to steer you toward franchisees who they know will influence your decision in the manner that they are hoping for.
While guided introductions do have their place, if a franchisor does not allow you to initiate contact with franchisees of your choosing, always question why. If you are dissatisfied with their answer, move on to the next franchise on your prospects list.
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By watching out for these red flags, you will be well positioned to gain useful information about potential franchises and make an informed decision regarding how to proceed with your new business venture.