What are Franchise Disclosure Documents?

Franchise Advice - Disclosure Documents

Entrepreneurialism is a dream that a large number of Canadians have. The ability to chart your own course appeals to many, but there are drawbacks if you do not take the time to investigate what it is you are getting into.

For people looking to start franchises in Canada, there are some important documents that one can analyze in order to make a more informed decision about starting up the franchise. Franchise disclosure documents show to potential franchisees a breakdown summary of the franchisor, the executive team makeup and business experience, and the potential franchise agreements, fees and other such financial obligations.

Franchisors are obligated to provide these documents in order to fulfill legal requirements in Ontario, Alberta, New Brunswick and Prince Edward Island, but not in the other provinces. Still, there are a great many franchisors across Canada that will provide prospective franchisees with these disclosure documents anyhow, once the potential franchisee has proven to be serious about the franchise, and qualified to run one. These are not public documents available to just anyone who wants them.

The calibre of different franchises in Canada can be measured against one another by carefully investigating these documents. They detail a large variety of financial factors regarding the franchise, such as the required initial investment, potential growth and estimates of annual operating costs, and also the expected obligations of the franchisee.

Earnings projections are sometimes included, but not always. There is the risk of litigation if financial claims are made by the franchisor and are not achieved by the franchisee. Often, there will be historical financial data included, with careful wording to make no guarantees as to the future earnings of the potential new franchisee.

One should be aware of different licenses needed for the franchise, various policies of the franchise and what territories are available to start up one of the franchises in Canada. The disclosure documents contain all of this information and more.

Be sure to use all the tools at your disposal when researching your Canadian franchise opportunity. Franchise disclosure documents make the difficult task of researching more manageable so give them a thorough review.