Franchising in Canada: providing franchisee references

When an established business starts franchising in Canada, prospective franchisees want to hear from people who already know the model. These conversations help build trust within the franchise community, but a selection of glowing testimonials is no substitute for legally required information. Here is how to provide useful references, even in the early stages of development, without turning a prospective franchisee’s due diligence into a sales pitch.

1. Distinguish commercial references from mandatory disclosure

A commercial reference is someone put forward to share their experience. The franchisee list in the disclosure document, by contrast, fulfils the requirements of the applicable legislation. The two may overlap, but they serve different purposes.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 and Ontario Regulation 581/00, General, govern pre-contractual disclosure. The prescribed information includes contact details for current franchisees and information about former franchisees. The precise scope of the lists, the relevant time periods and the details to be provided must be checked against the applicable provisions.

As a general rule, subject to statutory exceptions, a prospective franchisee must receive the disclosure document at least 14 days before signing a franchise-related agreement or paying any consideration. Meeting franchisees does not replace either the document or the waiting period.

Franchise regulation is a provincial matter, so do not automatically reuse your Ontario list in another province. Have the local requirements checked. In Ontario, the government neither reviews nor approves franchisors or their disclosure documents: a well-presented list is not official certification of the network.

2. Build a reliable register before selecting references

Create a central register as soon as the first franchised outlet opens. Its purpose is to maintain accurate facts, not to rank operators by their enthusiasm for the brand.

For each outlet, record at least:

• the identity of the franchisee entity and the person responsible;
• business contact details and location;
• the opening date and, where applicable, the date it ceased trading;
• transfers or changes of operator;
• the outlet’s status and supporting records that verify it.

Clearly distinguish franchisor-owned outlets from those owned by franchisees. An employee managing your pilot outlet does not have the same experience as an entrepreneur who has invested their own capital and taken on contractual obligations.

Appoint someone to maintain the register and arrange a check whenever a disclosure document is prepared or updated. Outdated contact details or an incorrectly classified closure can undermine the quality of the information provided.

For former franchisees, keep a factual account of the circumstances. Avoid labels such as ‘poor operator’: they are no substitute for the facts that must be disclosed. Have your legal adviser review any disputed situations.

3. Facilitate conversations without controlling the outcome

You can arrange introductions, explain how the network operates and suggest topics for discussion. However, dictating answers or restricting conversations to the most satisfied operators makes the process less useful.

Encourage prospective franchisees to explore practical questions:

• How did the transition from training to opening go?
• Which tasks take more time than expected?
• How are requests for support handled?
• Which aspects of day-to-day operations would have benefited from better preparation?
• Which documents should a prospective franchisee review with their own advisers?

Arrange conversations in line with applicable privacy obligations. Distinguish between the legally required disclosure of contact details and the promotional use of a testimonial, which calls for appropriate permission.

If a franchisee discusses their financial results, do not present their experience as a forecast for the prospective franchisee. Operating conditions may differ. Any financial information the franchisor subsequently uses should be reviewed with its advisers to ensure accuracy and consistency with the disclosure document.

4. Be transparent when the network is new

A business offering its first franchise has no independent franchisees to put forward as references yet. Say so plainly, rather than presenting a manager of a company-owned outlet as a franchisee reference.

Instead, offer a visit to the pilot outlet, conversations with its managers and a review of the methods already tested. Explain what this experience demonstrates, but also its limitation: it does not yet provide feedback from an independent entrepreneur operating under a franchise agreement.

Also encourage prospective franchisees to consult their own legal and financial specialists. That professional review complements conversations with operators; those conversations cannot replace it.

Key takeaway: maintain an accurate register, have the required information checked for the province concerned and let prospective franchisees ask questions freely. Trust is built on verifiable experience, not orchestrated testimonials.