In November 2015, the
BC Franchise Act was passed and since then, lawmakers have worked hard to define what that act looks like for the future of the BC franchising industry. The biggest change to come out of the new law is the mandatory disclosure by franchisors to franchisees.The Franchise Disclosure Document
The Franchise Disclosure Document (FDD) is that document that provides essential information needed to make a decision about whether or not a franchise is a smart investment for a potential franchisee. It has been offered by some franchisors voluntarily, but on February 1, 2017, it will be a requirement.
The BC Franchise Act states that franchisors must provide potential franchisees with all material facts relating to the business. This was done to ensure franchisees had enough information to make an informed decision when buying their new business.
Since passing this law, lawmakers have created regulations to specify what the FDD must look like. Some of the required components of the FDD will include:
- A business description;
- All fees and costs a franchisee must pay to acquire the business;
- Any litigation involving the franchise or its affiliates;
- A territory description (if granted);
- Audited (or reviewed) financial statements;
- Contracts.
The Burden on Franchisors
Many businesses fear new regulations coming into effect because it means old systems and procedures must be uprooted and revised. However, the FDD regulations are designed to minimize any inconvenience to franchisors. If a franchisor currently operates in Alberta, Manitoba, Ontario, PEI, or New Brunswick, the changes to the BC version will be minor.
In other words, the new BC regulations were designed to both protect future franchisees and limit burdens on franchisors.
To further emphasize the importance of making processes easy for franchisors, lawmakers decided that if a substantial part of the FDD is compliant and all of the necessary information is included, technical errors will not lead to punishment.
The Biggest Beneficiaries of the New Law
Without question, the people who will benefit the most from the new regulations are the potential franchisees. Until now, franchisees based in BC have not had access to the critical data needed to make an informed decision about buying a franchise, unless the franchisor volunteered it on their own accord.
Because of the lack of information provided up front by franchisors, many franchisees have been limited to how much legal recourse they had as a result of misinformation or a lack of decision making materials.
That will all change with the new law.
Why Is This Important?
What the new regulations come down to is giving Canadians who want to own a small business in Canada more information to successfully fulfill their goals. With the additional decision making materials in the FDD, future franchisees are able to make smarter decisions. This, in turn, will help the franchise market in BC by fostering healthier franchise operations as a whole.
Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.