If you’ve got funds at your disposal or your savings are enough to make a significant investment, and you’re looking for a business opportunity, why not try purchasing a franchise business?
A franchise business has a lot of benefits compared to starting up your own company because the business itself has passed through the tough initial stages and is now expanding. However, you’ll need more than just funds if you plan on purchasing a franchise. Let’s take a look at why working with a business lawyer is necessary if you plan to purchase a franchise business in Canada.
What is a Franchise Business?
A franchise business is when a business owner has an established brand name or a business and lets you use their company’s name, processes, and techniques. The person allowing you to use their brand name is the franchisor, while in this case, you’ll be the franchisee.
A franchisee usually pays an amount upfront for purchasing the rights to use another business’ name and processes. Apart from this, the franchisee pays a royalty fee on the monthly sales it generates. Franchising is very common in the retail sector or restaurants. However, it can be found in the majority of industries.
Benefits of Running a Franchise Instead of your Own Company
A lot of people may argue that starting your own company can be more valuable in the long run, which can be true. However, franchising has a higher rate of success and has a lot of benefits. Let’s take a look at them here:
Already Established Brand Name
Businesses struggle the most in the initial stages when they have to build a customer base and establish their brand value.
A franchise has an established brand name that you’ll be using, so you won’t need to spend big bucks on your marketing and promotions. The brand must also have its customer base and a place in the industry, which is a big plus and saves you a lot of hassle. You know who your target audience is, and all you need to do is continue what’s already being done by the franchisor.
Moreover, it’s easier to hire employees for a franchise because it already has a name and attracts people willing to work there.
No Relevant Experience Required
Opening a franchise doesn’t necessarily mean you need to have relevant industry experience (although it’s preferred if you do). This is because the franchisor will provide you with the important knowledge you need and train you accordingly.
Buying a franchise instead of putting your money into a new business has significantly lesser risk. According to statistics, 20 percent of start-ups in Canada close down within a year, while 60 percent of them close down within three years. That leaves a 20 percent chance of successfully building a company, which isn’t easy and smooth.
With a franchise, you play a safe game running the name and processes of a company that has already established itself and knows the processes work.
When a franchisor decides to give out their business as a franchise, they want to expand their business without putting in their own money. However, they wouldn’t want their brand name tarnished if someone fails to run the franchise properly.
A franchisor will always be there to support you if they choose you to run the franchise. You can ask for help with the processes, marketing strategies, employee efficiency, and anything else you need help with. This isn’t the case with most start-ups, as they have several competitors who want to do better than the other.
Things to Consider Before Buying a Business Franchise
There are many things to consider before you finalize your decision to buy a business franchise. Let’s take a look at them here:
Performing Adequate Due Diligence
Many people make the mistake of not performing adequate due diligence before getting a franchise simply because the business they’re taking a franchise from is either a market leader in their industry, has a big customer base, or is a well-established brand. None of these things guarantees that the business will work out for you in the form of a franchise or whether the business is sustainable in the future. Moreover, you can never set the right value for purchasing the franchise without proper due diligence.
No matter what business category it is and what industry it is, it’s always necessary that you perform your due diligence before signing the agreement papers. Working with a business lawyer can help you significantly in this regard.
A franchise agreement is a copy of the agreements between the franchisor and the franchisee. It’s also referred to as a draft agreement because it’s a standard agreement that can be edited according to specific details depending on the agreement between two parties.
There’s a window of 14 days where both parties can assess the agreement terms and discuss anything they don’t agree with. Having a business lawyer work with you during this period can help you safeguard your interests and your legal rights.
The agreement’s contents include the rate of the royalty fee, the structure of the royalty fee, the upfront cost, the franchise fee, product pricing from the franchisor, market rates, and other terms and conditions of the deal.
The government of Canada passed legislation in 2000, making it mandatory for franchisors to provide their franchisees with a disclosure document before signing the franchise agreement or receiving payment.
The disclosure document is an insider document that provides a potential franchisee with all the details regarding the business. This includes all costs, finances, procedures, legal matters, and more. This document can be vital for the potential franchisee and allow them to conduct thorough due diligence before finalizing a deal.
However, you’ll need a business lawyer to determine whether the disclosure document has all the necessary things listed and whether the information provided is true. This can save a potential franchisee from monetary losses, legal and compliance issues, and other problems in the future.
Benefits of Working with a Business Lawyer When Buying a Franchise
A business lawyer with experience working with clients and helping them buy a franchise can offer you many things because of their knowledge of the laws and the legal system. They are up-to-date with all the changes in laws and can save you from potential mistakes that could even have legal implications. Here are some benefits of working with business lawyers:
Help You with the Due Diligence
An experienced business lawyer can help you with the due diligence process by verifying every detail and finding any potential loopholes. They can also help you set a fair value to pay for the franchise by offering you an unbiased opinion regarding the franchise deal.
Moreover, business lawyers can also analyze and evaluate if the disclosure documents have all the necessary things listed, whether the information provided is accurate, and if any legal issues mentioned in the disclosure document can become a problem in the future.
Help You Understand and Negotiate Franchise Agreement
Your business lawyer can help you reach a business agreement and protect your legal interest. They can update you about location-specific laws, help you negotiate a fair value and future implications of certain decisions or terms, and make necessary changes that favour you.
Moreover, even if the franchise agreement is non-negotiable, a good business lawyer will help you understand the agreement thoroughly to give you a clear image of what to expect if the purchase goes through.
Help You Negotiate a Commercial Lease
If you plan to buy a franchise for a business that needs a physical location, for example, a retail clothing store, a restaurant, etc., you’ll need a commercially leased property. The franchisor won’t help you find or negotiate the property, but your business lawyer will.
A commercial lease is a complicated document. It’s best to let your business lawyer handle it.
Hire a Business Lawyer in Canada
If you’re looking for an experienced business lawyer in Toronto, Mississauga, or Brampton, Nanda & Associate Lawyers can help you.
We have a team of experienced business lawyers with years of experience helping businessmen with franchise business purchases. Moreover, we also have qualified immigration lawyers, civil litigation lawyers, personal injury lawyers, wills and estate lawyers, and more.
Book a meeting with us today to hire our services.
Disclaimer: This article is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.