How do I Evaluate a Franchise Opportunity?

Before entering into any franchise agreement you need to assess the viability and suitability of the business opportunity.

Buying and operating a franchise is different from starting your own business and the evaluation process has some additional steps. When considering a franchise opportunity keep in mind that a franchisee usually:

  • purchases the right to carry on the business of the franchise system and the use of the intellectual property for a limited period of time;
  • has an ongoing relationship with the franchisor;
  • has a relationship with the other franchisees in the system;
  • pays an upfront franchise fee and ongoing fees to the franchisor;
  • follows the franchisor's operations manual; and
  • relies on the franchisor to monitor and evolve the franchise system.

Deciding to buy a franchise is a big decision and before making a commitment you should investigate the franchise system, franchisor, territory and industry.

To gain a broader understanding of evaluating a business, visit the Feasibility of your business idea section of this website.

What documents should I view before I commit to a franchise?

Before entering into a franchise agreement, a franchisor must provide prospective franchisees with a copy of the current disclosure document, Franchising Code of Conduct and the franchise agreement. Be sure to read all of these documents as part of your evaluation and due diligence.

You should note that a franchisee transferring a franchise does not have to provide a copy of the disclosure document to the recipient of the transfer, but the franchisor is required to do so.

You should seek professional advice from your accountant and lawyer before committing to the franchise.

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