Canada: The Top Eight Errors Made By Many New Franchisors!

Franchising Bulletin
Last Updated: July 1 2019
Article by Jean H. Gagnon

Different studies (conducted primarily in the U.S.) show that about only 25% of new franchisors are still active 15 years after starting up their franchise.

After examining causes leading to the demise of franchise systems that did not pass the 15-year mark, the following eight factors (or mortal sins) were found to be the most common:

Underfunding or Underinvestment

Starting-up a franchise network requires a fairly significant amount of funding, which many new franchisors greatly underestimate.

Most new franchisors will ask how much it will cost to launch a franchising program, but forget to ask the second, and more important, question of how much time and how many franchisees will be needed for the franchise revenues to exceed the costs and investments required to launch and maintain a solid franchise organization.

Deficiencies in Operations as well as in Franchisee Training and Support

One of the direct consequences of a new franchisor's underinvestment or inexperience is a deficiency in its operations tools as well as in franchisee training and support (especially to new franchisees).

These deficiencies and shortcomings often lead to operational difficulties which, in turn, harm the profitability of franchised businesses (while also negatively affecting the income of the franchisor), which lead to a growing dissatisfaction among the franchisees and increasingly significant difficulties in recruiting new franchisees needed to meet the franchisor's financial objectives.

Need to Quickly Recruit Franchisees to Survive

Another consequence of underfunding or underinvesting by the franchisor is the need to quickly recruit a number of new franchisees in order to generate sufficient revenue to cover expenses.

This often leads to the franchisor not properly selecting its new franchisees, to placing franchised locations in sites or territories that are not really appropriate and, sometimes, to selling profitable business locations too quickly to franchisees.

Over time, these decisions negatively affect the franchisor's working capital, not to mention that they may also quickly lead to legal disputes with franchisees who are not achieving the success they expected or were promised.

Lacking Skills in Franchise Network Management

It cannot be repeated enough: a franchise network cannot be managed in the same way as a branch network.

The sound management of the franchisor-franchisee relationship is both a science and an art that managers of any new franchisor must acquire as soon as (or even before) the franchisor launches its franchise network.

Today, there are several training programs, books and advisors available to assist new franchisors and their managers to acquire these skills. It is also beneficial if a new franchisor ensures that some of the executives it recruits already have the necessary experience and skills to manage a franchise network.

Mistaken Impression of Easy Money

Some entrepreneurs venture into franchising for the wrong reasons, such as the mistaken impression that they will be able to make a nice profit from the up-front fees paid by their new franchisees.

As a result, these kinds of franchisors tend to recruit a maximum number of franchisees before even considering developing training and operations methods and tools without any regard for the financial results of their franchisees.

This phenomenon is especially common in the case of franchises that only require a small investment by the franchisees (such as in the service sector).

These types of networks may experience rapid (even spectacular) initial growth during the first few years, followed by a drop that is just as sharp.

Short-Term Planning

It often takes seven to ten years for new franchisors to recover their initial investments, to become truly profitable and to be able to maintain a steady growth rate for their network.

If the franchisor does not properly plan for the investments, resources and efforts needed to achieve this level of growth, the network could perish before even reaching maturity.

Overestimating the Franchise's Appeal

Future franchisees now have a choice between many franchisors in a large number of sectors and at different levels of investment.

As a result, they are more and more selective and tend to choose a franchise that will allow them to attain their personal goals, such as in terms of career, investment, revenue and, sometimes, quality of life.

The proposed franchise must, therefore, have a certain appeal in respect of these different aspects among a sufficient number of qualified individuals so that the franchisor may achieve its growth targets for the network.

If the proposed franchise is not sufficiently unique, profitable, difficult to reproduce and interesting, it is highly likely that the franchisor will have serious problems to recruit enough new franchisees to sustain, in the medium- and long-term, the growth and longevity of the network.

Inadequate Preparation

Lastly, too many new franchisors begin recruiting franchisees before they are truly ready to start doing so.

All too often, they haven't sufficiently tested their franchise concept in different markets, nor properly developed (and tested) their standards and tools with regard to recruiting and selecting franchisees, training, operations, marketing and development.

In fact, based on my experience, many new franchisors rely on only basic material (such as a website and an attractive brochure) to recruit new franchisees and a well-written contract before taking the leap into franchising.

By circumventing the preparation process required to become a franchisor, they put the horse before the carriage and later find themselves having to put a lot of effort into catching up and making adjustments at the expense of their first franchisees, which jeopardizes their relationship with the franchisees as much as it does to the chances of success of their entire network.

Today everything moves fast and news (the bad as much as the good) travels at the speed of light (such as on social media), so a new franchisor who does not properly prepare before even recruiting its first franchisee, exposes itself to extremely serious risks affecting the very survival of its business.

Franchising is, and remains, an attractive and profitable means of growing and managing a business network, but it requires a high degree of preparation, adequate resources, a particular management style, experienced professional advisors and, not to forget or underestimate, significant investments that must be made long before the network becomes truly profitable for the franchisor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions