Franchising in Canada: setting a framework for site selection

A business that is profitable at one location will not necessarily perform equally well elsewhere. Before franchising your business in Canada, turn your property experience into a site selection process. The aim is not to guarantee a location’s success, but to establish the criteria, checks and responsibilities that will guide your franchise network.

1. Separate the strengths of the concept from those of the location

Your existing outlet may benefit from exceptional visibility, free parking or a neighbouring business that attracts your target customers. These advantages do not automatically follow your brand when you open a new outlet.

Start by compiling a profile of your location: where customers come from, access, footfall, neighbouring businesses, competition, usable floor space and delivery constraints. Also note less obvious features, such as a long-established customer base or demand concentrated at particular times of day.

Then divide these characteristics into three categories:

• Essential: without them, the business model struggles or cannot operate as intended.
• Desirable: they improve operating conditions, but their absence can be offset by other factors.
• Specific to the existing site: they account for some of its performance without being a requirement that must be replicated elsewhere.

This distinction avoids the need to find an exact copy of your first location. It also helps identify aspects of the concept that will need adapting before you accept a different outlet format.

2. Allocate responsibilities before the search begins

The agreement and sales discussions should make it clear to prospective franchisees who does what. Will the franchisor look for premises? Will it simply provide criteria? Must the franchisee commission and pay for an independent market study?

Prepare a responsibility matrix covering the search, data collection, commercial assessment, technical checks and final approval. For each task, specify who is responsible, which documents are required and who bears the cost.

Above all, distinguish between three decisions:

• the premises meet the concept’s requirements;
• the project appears financially viable on the assumptions used;
• the franchisee decides, with advice from their advisers, to make the investment.

The franchisor’s approval must not be presented as a guarantee of profitability. However, a contractual disclaimer is no substitute for a thorough assessment and does not cancel out a misleading statement made during the sales process.

Also set out what happens if a site is rejected: the reasons to be given, whether another site can be proposed and the consequences of an unsuccessful search. These rules should be clear before the prospective franchisee incurs significant costs.

3. Compile a comparable file for each site

Use the same assessment template for every potential site. A consistent file makes comparison easier and reduces the risk of decisions driven solely by a prospective franchisee’s enthusiasm or pressure to secure a property opportunity quickly.

It should include, in particular:

• a description of the catchment area and competition;
• observations on access, visibility and patterns of activity;
• a floor plan against which to check the required layout;
• estimated occupancy and fit-out costs, with their sources;
• technical constraints that could alter the project;
• unresolved questions and checks still to be completed.

Date the data and distinguish observations from assumptions. A visit on a Saturday afternoon is not enough to establish footfall patterns for an entire week. Similarly, a fit-out estimate should remain clearly labelled as an estimate until it is substantiated.

Record the approval decision and any conditions attached to it. If essential information is missing, state clearly that the assessment remains incomplete rather than giving general approval subject to vague qualifications.

4. Align the process with legal obligations

In Canada, franchise rules fall under provincial jurisdiction. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 and Ontario Regulation 581/00 govern, among other things, pre-contractual disclosure. Subject to statutory exceptions, the disclosure document must be provided at least 14 days before the signing of a franchise-related agreement or a payment covered by the legislation.

The allocation of site-related responsibilities must be consistent across the disclosure document, the agreement and sales presentations. Any fact about the site that could significantly influence the value of the franchise or the decision to buy should be reviewed with your lawyer to determine whether it must be disclosed.

In Quebec, no specific franchise legislation imposes this same disclosure regime. The Civil Code of Québec, particularly its rules on good faith and consent, still applies. In other provinces, have the provincial requirements checked before putting your process or documents forward.

Key takeaway: before offering your first franchise, prepare a set of site criteria, a responsibility matrix and a standard approval file. Your site selection process will be easier to explain, more consistent and better documented.