The franchise agreement is a long-term legal contract that will govern your professional life for the next 5, 10, or even 20 years. It is almost always written to protect the franchisor, not the franchisee — and that's not necessarily a sign of bad faith; it's simply the nature of the document. Your job as a buyer is to go in with eyes open, armed with the right questions, so you can make an informed decision about whether this particular agreement, with this particular brand, makes sense for your situation.
These seven questions should be answered — in writing, where possible — before you sign anything.
1. What Is the Total Cost to Open, Including Working Capital?
Many franchisors advertise a "minimum investment" figure that covers the franchise fee and build-out but excludes the working capital you'll need to survive the first 12–18 months before you reach breakeven. Ask for the full picture: the high end of the build-out range, 12 months of working capital at your projected burn rate, and any hidden costs like POS licensing, required software subscriptions, or grand opening fees. Then add 15–20% as a contingency buffer — things almost always cost more than expected.
2. What Is the Average Revenue and Profit of Existing Franchisees?
Some franchisors provide "Item 19" financial performance representations in their disclosure documents — data on actual franchisee revenues and, in some cases, profits. If your franchisor provides this, study it carefully. Look at the median, not just the average (a few high performers can skew averages significantly). If no financial performance data is provided, ask the franchisor directly: "Can you share the average gross sales for Ontario locations?" If they refuse, that's worth noting. You should also ask current franchisees directly during your validation calls.
3. Why Do Franchisees Leave the System?
The Franchise Disclosure Document must list all franchisees who have left the system in the past three years, including their contact information. Before signing, call at least five former franchisees and ask them directly: "Why did you leave?" Common and acceptable answers include retirement, family circumstances, or selling for a profit. Concerning answers include inability to make payroll, disputes over territory violations, or feeling deceived about revenue projections. This conversation is the single most important piece of due diligence you can do.
4. What Happens If I Want to Sell?
Every franchise agreement contains transfer provisions — the rules governing how and whether you can sell your franchise to a third party. Key things to confirm: Does the franchisor have a right of first refusal (meaning they can match any offer you receive and buy the business themselves)? What is the transfer fee? What approval process does the buyer need to go through? Are there restrictions on who you can sell to? Some agreements effectively make the business difficult or impossible to sell, which dramatically affects the long-term value of your investment.
5. What Are the Renewal Terms?
Your initial franchise term might be 5 or 10 years — but what happens at renewal? Some franchisors require you to sign the current form of the franchise agreement at renewal, meaning the terms could be materially different from what you originally agreed to. Others charge significant renewal fees. Ask: What is the renewal fee? Will I be required to renovate or upgrade the location? Can the franchisor choose not to renew my agreement, and under what circumstances?
6. What Support Does the Franchisor Actually Provide?
The franchise sales pitch always includes extensive promises of support — training, marketing, field visits, a hotline you can call. The franchise agreement is where reality lives. Ask for specifics: How many days of initial training are included, and where does it take place? How often do field support representatives visit locations? What is the typical response time for operational support requests? Request references from franchisees who have recently opened and ask how the support compared to what was promised.
7. Is the Franchisor's Business Financially Sound?
You are betting your savings on this company's continued existence and ability to support you. Review the franchisor's audited financial statements in the FDD. Look for: positive net income or a clear path to profitability, manageable debt levels, growing royalty revenues (indicating system-wide growth), and no significant litigation that could threaten the company's financial stability. A franchisor that goes bankrupt or is acquired mid-agreement can create enormous complications for franchisees — as many Canadian franchisees learned when their parent companies went through restructuring during economic downturns.
Getting the Help You Need
None of these questions should be answered alone. Hire a franchise lawyer to review the agreement and a chartered accountant to review the financials. The combined cost is typically $3,000–$7,000 — a small fraction of your total investment and one of the highest-ROI steps you can take. Visit our resources section for a list of Ontario franchise lawyers and accountants, or browse available franchises to start your research today. Our franchise fit quiz can also help you think through whether a franchise is the right vehicle for your goals.
