5 Franchise Contract Red Flags

So you've found the perfect Canadian franchise and are ready to sign the agreement, which is a legally binding contact, to own a franchise of your own. Before you make this commitment, make sure you haven't encountered any of the following franchise agreement red flags.


Feeling rushed to sign

Your research process into a franchise will probably take at least a month or even two. You'll talk to the franchisor and other people involved with the franchise--such as current franchisees--and look a little deeper into the company. This is to be expected as it's necessary for you to make the right choice. If, at any time, the franchisor or sales rep try to push you into signing right away, it could be the sign of a problem. Proceed at a pace you are comfortable with, and move on if you are still being rushed by the franchisor.


Unusual promos or discounts

A quality franchise will usually spark some stiff competition, so discounts could indicate a lack of quality. If you are offered any discount, investigate the reason for it. If it's being done to make franchisees feel as if they are getting a deal, that's probably fine. But if it's due to a lack of people interested in the brand, you will want to look into that brand's potential more carefully before making any commitment.


Withholding information or documents

The franchise disclosure document you received will include contact information for the brand's executive team, detailed information about any lawsuits filed against the brand and its current financials. If there is information that concerns you in this document, a franchisor may attempt to hold that back so you don't have enough time to review it properly or so they can "explain" when they meet with you. Generally, you don't want to become part of a brand like this.


Franchisee call list

The list of current franchisees you can call is not a red flag--that's actually expected and something you want to take advantage of. However, if the franchisor is discouraging you from speaking with franchisees who do not appear on that list, it's not a good sign. A franchisor should not have anything to hide or try to prevent you from speaking to someone in their organization.


Discouraging the use of an attorney

Some franchisors or their reps may tell you not to bother with an attorney to review the contract since it's not up for negotiation. This is a red flag. Although you can't negotiate it, you still need to understand all of its terms so you can make an informed decision.