Cuts franchisee David Peate (Darren Brown, OBJ)

Some businesspeople will tell you it's always better to go state-side if you can. Others, however – especially if you're looking to import a single franchise of a relatively obscure company – aren't so sure.

Take the case of David Peate. He owns and operates a franchise location of Cuts Fitness for Men in Gloucester, part of a chain of men-only fitness centres based in New Jersey.

It's been around a year since he first brought the franchise north. Since then, he's noticed a slew of issues surrounding the company's U.S.-centric approach. His was the first Cuts franchise in Canada and, at present, still the only one in Ontario.

"They're return is kind of low (in Canada), so they're going to focus on places where the return is higher," Mr. Peate says of the franchisor. Each state and province has separate legislation concerning franchising operating rules, and locations have to be tailored to each.

"They take their model of New Jersey, and replace New Jersey with Texas, and 98 per cent of their legalities are still there," he says. "To do it to Canada, they've got to do about five times as much effort, so it's lower on their priority."

That's despite the fact that in December 2004 Cuts announced it was expanding into Ontario with 40 franchises in three years, facilitated by Burnett Management as the master franchisor.

But things didn't pan out as planned. Burnett Management disassociated itself with Cuts – for legal reasons, Mr. Peate says. Burnett itself could not be reached for comment.

Mr. Peate's gym in Gloucester was the only one of the 40 that opened. (Another franchise location is operating in Winnipeg). Now, he says, instead of dealing with Burnett as a master franchisor he's a sole Canuck having to deal directly with the U.S. head office.

And while his first year "hasn't gone un-smoothly", he says Cuts' U.S.-centric business model makes his everyday operations something of a hassle. Bilingual support from head office and any kind of advertising presence is nonexistent, he says, electronic funds transfers are more complicated, everything is in U.S. currency and insurance deals – the backbone of a successful gym – are elusive at best.

"They arrange deals with insurance companies, but they're all U.S. suppliers that either don't deal with Canada, so sorry," he says. "If I was just across the border in upstate New York, there's an insurance company that's cut a volume deal, knows exactly what our business is, and underwrites a Cuts Fitness for Men insurance policy.

"In Canada, I had to find the company. They didn't know who the Canadian companies are, because from their perspective they've set up a deal and it covers the whole known universe to them – i.e.. the 48 continuous United States – and so I'm kind of on my own, and then I have to explain the whole concept to these people."

But Richard Cunningham, president and CEO of the Canadian Franchise Association, says Cuts Fitness for Men broke the golden rule of franchising by locating in Ottawa with a single location, regardless of its previous deal with Burnett.

"If you're buying a franchise from a foreign country, regardless of where it is, you have to wonder to yourself how much support you can get if you're the first and only one," he says. Grouping locations is crucial to brand recognition, he says, and potential franchisors and franchisees have to be aware of this before making deals.

"All of the advantages that a franchise provides you, which is ongoing support, training, a ready to go package with some brand recognition, if you're the first one in your country or your province, or for that matter your city, you don't have those advantages," he says, adding that many times franchisors grant a location without considering their grand strategy.

Cuts began in New Jersey in response to the phenomenally popular Curves, a women-only gym that's now become the largest fitness centre franchisor in the world. The men-only chain is cheaper to operate than an average gym as the typical location is around 1,500-2,000 square feet and most don't have perks like showers or saunas (Mr. Peate's location does have a shower).

Cuts has established over 200 franchises (with locations in Ireland and Guatemala as well) and plans on establishing more franchises throughout Europe and the U.K. soon. But Mr. Cunningham says the company should be wary of expanding too soon too fast, to avoid another situation like Mr. Peate's.

"What often happens in these situations is that someone goes to the States and says 'Wow, that's a great concept and I'd like to open that in Canada,'" he says.

"And the franchisor may have had no ambitions, or certainly none at that time, because they're still building in the U.S. And I've had many franchise owners tell me that they get hounded by these people, saying 'I want to take this into Canada, sell me the first one.' And then they do it, and they complain.'"