Franchising is an established part of Canada’s business landscape, spanning more than 60 industries and including everything from food and retail to health and wellness, home services, business services, automotive, senior care, and more. The Canadian Franchise Association (CFA) currently identifies franchising as the country’s 12th-largest industry and reports that franchised businesses contribute almost $150 billion to the Canadian economy and create jobs for nearly 2 million Canadians.
For entrepreneurs considering business ownership, those numbers demonstrate the scale of the Canadian franchise industry. But the size of the industry doesn’t mean every franchise is the right opportunity for every prospective owner.
Understanding the pros and cons of franchising in Canada will help you determine whether franchise ownership fits your goals, skills, finances, and expectations.
6 Benefits of Franchising in Canada
#1 – An Established Brand and Business Model
One of the primary advantages of buying a franchise is gaining access to an established business model rather than having to develop every component of a business from scratch.
Depending on the franchise, the franchisor may provide an established brand, operating procedures, products or services, marketing strategy, technology, supplier relationships, and other business systems. These resources can give a new franchisee a framework for launching and operating the business.
However, not every franchise system is equally established or proven. A prospective franchisee should research the franchisor’s history, financial performance disclosures, franchisee relationships, growth, closures, litigation, and other information before making an investment.
#2 – Training and Ongoing Support
Franchisees often receive training before opening their business as well as ongoing support after launch.
Depending on the franchise system, training and support may cover:
- Business operations
- Marketing and advertising
- Sales
- Customer service
- Technology
- Hiring and employee management
- Inventory and purchasing
- Financial and administrative processes
- Local marketing
- Continuing education and system updates
A franchise can therefore provide access to knowledge and resources that an independent entrepreneur would have to develop independently.
Support also isn’t limited to the franchisor. Franchisees may have opportunities to learn from other owners within the system who are dealing with many of the same operational challenges.
#3 – Marketing and Brand Resources
Building awareness for a new independent business can take substantial time and resources. Franchisees benefit from marketing infrastructure that has already been developed at the franchise-system level.
Depending on the brand, this could include:
- National or regional advertising
- Brand guidelines
- Creative assets and promotional materials
- A centralized website
- Digital marketing resources
- Social media support
- Search engine optimization
- Customer relationship tools
- Local marketing guidance
Some franchise systems also operate advertising funds to support system-wide marketing efforts. Prospective franchisees should review the franchise disclosure documents and franchise agreement to understand what marketing fees are required and how those funds are administered.
#4 – Purchasing and Supplier Advantages
A franchise system can often negotiate supplier relationships or volume purchasing arrangements on behalf of multiple locations.
Depending on the franchise, this can give franchisees access to established suppliers, standardized products, negotiated pricing, or established purchasing procedures.
However, don’t assume that system purchasing will always result in the lowest possible price. Some franchisors require franchisees to purchase certain products or supplies from designated suppliers to maintain quality and consistency.
#5 – Access to a Franchisee Network
Another unique benefit to franchising is the opportunity to connect with other franchise owners.
Independent business owners often have to build their own professional network from scratch. Franchisees, by contrast, enter an existing network of people who operate within the same system.
Other franchisees may be able to share practical experience about staffing, local marketing, customer service, operations, and other aspects of running the business.
The quality of this network can vary by franchise system, so prospective franchisees should speak directly with current and former franchisees during the research process.
#6 – Defined Territory and Market Structure
Many franchise agreements establish a territory or define the circumstances under which the franchisor can establish additional locations nearby.
Territory protections vary significantly between franchise systems. When meaningful territorial protection is provided, franchisees have greater clarity about the market they are expected to develop.
However, territory rights should never be assumed. Prospective franchisees should carefully review the franchise agreement and FDD to understand:
- The geographic area covered
- Whether the territory is exclusive or protected
- What activities are reserved for the franchisor
- Whether other franchisees can operate within or serve customers in the territory
- How the territory may change
- Whether the franchisor can sell through online or other channels into the territory
Territory structure can be both an advantage and a limitation, depending on the franchise and the owner’s long-term plans.
5 Potential Drawbacks of Franchising in Canada
Franchising isn’t right for everyone. While the model provides structure and support, those same features can create limitations for entrepreneurs who prefer complete independence.
#1 – Initial and Ongoing Costs
Buying a franchise requires an investment, and the initial franchise fee is only one component of the total cost.
Depending on the business, expenses can include:
- Initial franchise fee
- Real estate and lease costs
- Construction or renovations (build out costs)
- Equipment and furnishings
- Inventory
- Technology
- Insurance
- Professional fees
- Initial marketing
- Working capital
- Royalties
- Advertising or marketing contributions
Ongoing royalties and other required payments can affect the economics of the business, so prospective franchisees should understand the complete fee structure before signing a franchise agreement.
#2 – Less Control Over Business Decisions
One of the defining characteristics of franchising is that franchisees agree to operate according to the franchisor’s system.
That structure can be helpful because it provides consistency and reduces the number of decisions a new owner has to develop independently. But it can also be frustrating for entrepreneurs who want complete creative control.
A franchisee may have requirements governing areas such as:
- Branding
- Products and services
- Pricing or pricing guidelines
- Suppliers
- Store or office design
- Marketing
- Technology
- Customer experience
- Operating procedures
Every franchise has different requirements. Before buying, consider whether you are comfortable following an established system rather than having complete freedom to change the business.
#3 – Territorial Restrictions Can Limit Expansion
While a defined territory can protect a franchisee’s market, it can also limit where that franchisee can operate.
If your long-term goal is to expand into multiple locations, you need to understand how additional territories are awarded and whether existing franchisees receive any rights of first refusal or other protections.
#4 – Reputation Risk
A franchisee benefits from being associated with the larger brand, but that relationship works in both directions.
A serious problem involving another location can potentially affect consumer perceptions of the broader franchise system. Similarly, an individual franchisee’s poor customer service or failure to follow system standards can affect the brand.
Before investing, research the franchisor’s reputation and speak with current and former franchisees to understand how the system handles quality control, customer complaints, franchisee disputes, and other reputational issues.
#5 – Long-Term Contractual Obligations
Buying a franchise generally involves signing a detailed franchise agreement that establishes the rights and responsibilities of both the franchisor and franchisee.
The agreement may address:
- Length of the franchise term
- Renewal rights
- Fees and royalties
- Territory
- Operating requirements
- Training
- Advertising
- Transfer and sale of the franchise
- Default and termination
- Non-compete or restrictive covenants
- Dispute resolution
- Exit requirements
These obligations can make leaving a franchise more complicated than simply closing an independent business.
What Makes a “Good” Franchise Opportunity?
Not every franchise is a good opportunity simply because it has been franchised. A franchise system can be evaluated based on various factors such as its business model, financial health, franchisee satisfaction, fees, territory protections, growth strategy, and more.
Ultimately, the right franchise should also match the individual owner. A strong franchise system may still be a poor fit if the franchisee dislikes the required day-to-day responsibilities, lacks the necessary skills, cannot meet the financial requirements, or isn’t comfortable following the system.
Franchise Legislation in Canada
In Canada, franchise law varies by province. Several provinces have franchise-specific legislation that provides protections such as disclosure requirements and rights relating to the franchise relationship.
Because franchise legislation and contractual requirements can be complex, prospective franchisees should obtain independent legal advice before signing an agreement.
Is Franchise Ownership Right for You?
Franchising offers a combination of business ownership and an established operating system that can appeal to many entrepreneurs. Franchise ownership also requires a significant financial and personal commitment. Ultimately, the question isn’t simply whether franchising has more advantages than disadvantages. It’s whether the advantages of a particular franchise outweigh its drawbacks for you.
A FranNet franchise consultant can help you identify franchise concepts that align with your skills, financial considerations, interests, and ownership goals. Schedule a free consultation to start researching your franchise options today!