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Franchising is the leasing of a name, concept, and management system for a percentage of sales. Many people consider franchising an easier and less risky means by which to enter an arena as fraught with pitfalls as the restaurant business. And indeed, in some ways it is. New franchisees, especially in national or international companies, do have a much higher success rate on average than independent, first-time restaurateurs.

We will touch on franchises here only insomuch as they fail to meet one of the fundamental premises of this book: a franchise, no matter how successful or financially viable, is not your dream; it is someone else’s dream! Franchising is an excellent method for the franchisor to expand his or her dream using other people’s (new franchisees’) capital. But as a franchisee, you will pay, by way of royalties and other fees, to help the growth of someone else’s dream, long after you have become a seasoned restaurateur with little more to learn from your franchisor “partner.”

This is not to say that a franchise, especially with a nationally known company, is not an excellent business opportunity. Many franchisees are happy with their corporate partners and line up to open new units (which are usually quite expensive). Franchises work best at the fast-food end of the food-service continuum. Fast-food franchise restaurants are selling sameness. The customer knows what to expect, and chooses to go to a

McDonald’s, for example, because it will be just like the last McDonald’s he or she went to. And that is precisely why very little leeway is allowed in franchises for the creative ideas of the individual franchisee. In our experience, the dream of most new restaurant entrepreneurs is to establish their own concepts to reflect their own personalities and what they think they have to offer the public. The very elements that make your restaurant unique are often at odds with the basic franchise precept: the duplication of someone else’s already-developed dream. We have found that the people who are attracted to the idea of opening their own restaurant usually find the tightly controlled climate of the franchise experience too restrictive, and often, after a few years they want to break out on their own.

If you do opt for franchising, however, there are several things you would do well to keep in mind. Carefully check out the particular franchise that interests you. Try to find answers to as many of these questions as you can:

• How well known is the franchise in which you are interested? (Remember, you will be paying a substantial amount of money, in part because the product you will be selling is supposed to have a certain amount of market penetration already established by the franchisor. If it doesn’t, what exactly are you paying for?)

• How long has the franchise operation been operating?

• Is it financially stable?

• Are new locations being opened regularly?

• Have locations failed? If so, why?

• Contact other franchisees. Do they have complaints?

• Is your proposed territory clearly defined? Do you have guaranteed exclusivity?

• Can you select your own location?

• Are there standards to be met for the location? How flexible are they?

• Are the various kinds of equipment and fixtures specified? Must you purchase them from the franchisor?

• Are there training programs in place for you and your staff? Who pays for these? You or the franchisor?

• Are the prices set? Are you allowed to offer sales incentives in your store alone if business becomes sluggish?

• Is there a minimum amount of product that must be purchased from the franchisor?

• How much input do you have in franchise-wide advertising campaigns?

• Does the franchisor have bank-financing programs available for you?

Some other questions about the franchise agreement itself you should consider are:

• What is the duration of the agreement?

• Under what conditions can the agreement be terminated?

• Can you resell the franchise? What conditions apply?

• What happens if you die? Will your heirs be allowed to continue the business?

For more information on business structures, see Canadian Legal Guide for Small Business, a title in the Self-Counsel Legal Series.

These questions and others, especially regarding bankruptcy or the agreement’s termination, renewal, transfer, or sale, are critical decision points when considering the purchase of any franchise.

For further information, contact:

American Franchisee Association

Phone: 312-431-0545

www.infonews.com/afa

Canadian Franchise Association

Phone: 905-625-2896

Toll free: 1-800-665-4232

www.cfa.ca

There are any number of franchise information websites. Try:

Franchise Info Mall

Phone: 310-891-2865

Toll free: 1-877-463-6625

www.franchiseinfomall.com

Or speak with the franchising section of most Canadian Banks. The Business Development Bank of Canada also has general franchising information:

Phone: 1-877-232-2269

www.bdc.ca

KEY POINT

The key to all these questions and many others is the franchise agreement itself. If ever there is an important time to get good legal advice, it is before you sign probably one of the most important (and usually the longest) legal contract of your life. Take the contract to a well-recommended lawyer who has experience in restaurant franchises. The advice of a lawyer with very specific knowledge and experience in this specialized area is worth a sometimes exorbitant fee for a few hours’ time.