How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Having a Canadian franchise of your own can be a rewarding experience, and it's generally easier than starting a business from the ground up alone because you will have the franchisor's support and system behind you. However, this doesn't mean franchise ownership is without challenges, and you'll still have to seriously consider your options before you invest.
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One thing you'll need to be on the lookout for during your franchise search is potential fraud. Unfortunately, there are people offering fraudulent franchise opportunities and/or purposely misleading prospects. While you may feel this could never happen to you, keep in mind that these people have gotten more sophisticated in their deception methods.
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Franchise fraud comes in many forms, including fraudulent and misleading sale practices that are designed to lure people into investing. False earning projections are common, where the franchisor is "guaranteeing" you will earn a certain amount of money or rate of return annually. A franchisor or broker may intentionally make misstatements about aspects of the franchise, such as its nature, support or the uniqueness of the service or product, to convince someone to invest without having all the facts.
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Of course, the idea of fraudulent franchises is certainly scary to a prospective franchisee, but you can protect yourself by keeping an eye out for warning signs and doing your homework. When a franchisor advertises that the opportunity is "easy" or "quick," for example, that's a red flag--a franchise may be easier than going out on your own but it still takes work. Nothing is going to be easy. High pressure sales tactics is another sign. This is a big decision, and you should not be rushed into it. A genuine, high-quality franchise will evaluate you during the sales process as well, since you will be joining the system and, in effect, impacting the brand.
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A misleading franchisor or broker may ask you to verify information with specific existing franchisees, a practice that is known as "shilling." The problem here is that these particular franchisees are being paid to say good things about the franchisor. The franchise disclosure document should have a list of current franchisees, so you should speak to as many as you can for a clearer picture.
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Starting a franchise requires work like any other new business, but it will come with benefits that independent business owners don't have access to. Potential disadvantages like fraud can be avoided when you take a close look at the details and keep an eye out for red flags. Once you find the right opportunity and do your research, you'll be able to make the most informed decision possible about your new venture.
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