Are you considering buying a franchise in Canada? You’re not alone; thousands of entrepreneurs consider getting involved with a franchise system to replace or supplement their existing career. Franchising has spread rapidly in the North American market, with total franchise sales in the US and Canada exceeding $432 billion in 1984 (Knight, 1986, p. 8) Today, buying a franchise in Canada is considered a smart strategic option for business growth both at home and abroad (Duckett, 2008).
But wait – does the popularity and profitability of franchising make it right for you? Thousands of Canadians make their money working in the oil sands industry, too, but that doesn’t make it the right job for everyone! Before you rush off and buy a franchise, review these 4 facts.
You’re not buying a business – you’re renting it. Though you may own the location, the equipment, and the supplies, buying a franchise in Canada doesn’t give you ownership of the brand – that’s the franchisor’s baby, and you’ve got to respect their wishes. Buying a franchise means acquiring the rights to use a proven system, trademark, and marketing assets, usually for terms of 5 to 10 years depending on the renewal details outlined in the franchise agreement. This should factor into your long-term business planning, as renewal and assignment rights are not automatic; once your 5 or 10-year term is up, it’s over. Granted, most franchise agreements will allow the franchisee to renew for at least one term, but certain conditions and fees may apply. Before you invest your family’s financial security into what could potentially be a temporary venture, be sure to plan for the future!
- Franchise disclosure documents are not all created equally. Provincial policy requires that allfranchisors working out of Alberta, Ontario, Manitoba, New Brunswick, andPEI provide a standardFDD to prospective franchisees at least 2 weeks prior to their signing of any agreements. However, these regulations do not apply everywhere in Canada.
Similarly, certain jurisdictions outline specific material facts that the FDD must contain, but these do not apply nationally. Be sure to read the FDD over carefully – preferably with the help of a nonbiased franchise consultant – and remember that these documents are almost always written for the benefit of the franchisor. If you are buying a franchise in BC, Saskatchewan, Nova Scotia, Newfoundland, or Quebec, there will be no statutory remedies available to you, so be careful!
US franchise agreements rarely adapt well to Canadian laws. Some franchisors based in the United States neglect to modify their agreements to apply within a Canadian context. If you are buying a franchise from an American franchisor, be wary of these oversights, particularly in regards to Canadian withholdings tax.
Territory rights vary from brand to brand. If you’re buying a franchise in one area, it’s important to know what kind of competition to expect. Some franchisors guarantee territory exclusivity, while others prefer not to put a hard limit on their royalty fees’ earning potential. If exclusive territory rights are important to you, the onus is on you to ensure they’re offered.
Four facts not enough to sate your appetite? No problem – we have plenty of free learning resources available at http://www.frannet.ca.
Duckett, B. (2008). Business format franchising: a strategic option for business growth-at home and abroad. Strategic Direction, 24(2), 3-4.
Knight, R. M. (1986). Franchising from the franchisor and franchisee points of view. Journal of small business management, 24, 8.
About FranNet Canada
FranNet is a 29-year-old company with roots in the U.S. Its purpose being to nurture every entrepreneur’s dream of business ownership. We actively employ a specific profiling and consultation method. This method is geared to each investor with a specific business model and based on franchise trends typically found in Toronto, Ontario, Vancouver, British Columbia, or Calgary, Alberta. The most lucrative Canadian franchise opportunities are waiting for you. For more details visit – http://frannet.ca/buy-a-franchise/canada-franchise-buying-process/