How to Start a Franchise Business in Canada
According to International Franchise Association (IFA), the term franchise (or franchising) means “a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.” Therefore, when a person purchases a franchise business, then that usually indicates the individual has gotten into a contractual relationship of receiving a right to use the franchisor’s brands and business models (which includes operations manual) and produce and sell its products and services.
Franchise business is often perceived as a safer business to invest because it usually provides a successful track record of other franchisees making profits across the country (or even globally). Moreover, the franchise businesses commonly have a stronger brand visibility than other private small businesses due to their business operations being across multiple locations and a more aggressive marketing activities conducted by having a pool of larger marketing budget to spend.
As a result, numerous entrepreneurs have got into a franchise business and many more are looking into getting into them, which includes immigrants and prospective immigrants who are planning to come to Canada. If you are considering about setting up a franchise business and leverage this opportunity to immigrate to Canada through entrepreneurship immigration programs, then you can read further to find out general guidelines on how to structure a franchise business in Canada.
SETTING UP A FRANCHISE BUSINESS
Step 1: Identify Franchise Business Investment Opportunities.
The first step to take is to look for potential opportunities where you can invest into a franchise business. These opportunities can be searched by various means such as asking personal connections who’s already running a franchise, attending franchise events, searching online and more. There are several organizations that provide these details as well such as Canadian Franchise Association.
We strongly recommend you invest in a franchise business that aligns with your personal strengths and passion. For instance, if you have an experience working at a restaurant and loves cooking, then you may be a good fit to operate a food & beverage franchise.
Step 2: Contact Franchise Headquarter.
Once you have a list of potential franchise businesses where you can invest and operate, the next step is to contact these franchisors. Normally, every franchise has a separate website page or portal for potential investors can contact and get more information about joining their franchise. You can contact the franchise headquarter and show your interest in investing into their business and operating them.
Step 3: Decide Purchasing an Existing Business vs. Building a New Location.
After selecting a franchisor, then you can decide on whether to purchase an existing location that’s selling or build a new location. There are pros and cons for both options.
Purchasing an existing location means you can simply take over the business without the hassle of constructions. Therefore, you’ll be able to operate the business as soon as you complete all the due diligence required based on your contract. Also, you have a proven financial performance record of how much the business has been earning, so you have a clear expectation on your breakeven points and return on investments (ROIs). You are taking over existing customers as well, so this helps you to jump start faster. However, if this business already has bad review where customers already has a negative perception or the location isn’t ideal for customers to visit, then it may be difficult to turn around the business.
Building a new location indicate you’re involved in almost every step of the business set up starting from the location selection to construction. You will have more choice of selecting the ideal location where you want to setup the business at, and you’ll learn further about how to structure the business from the start. This extra knowledge can guide you to build multiple locations in the future faster and cheaper due to economies of scale. Nevertheless, as this business is new, you’ll have to do effectively promote the business to attract new customers and surviving can be a key issue in the first few years.
If you have decided to buy out an existing location, then you can skip Step 12 and 15 below.
Step 4: Franchise Interview.
Contact the franchisor and let them know whether you’ll be purchasing an existing store or building a new location. Then, your franchisor most likely will request you to send your personal details such as resume and credit history to identify if you’re eligible and a good fit to their company. Once you’re found qualified, then they’ll setup an in-person or virtual interview to learn more about you. Through this process, you can also ask questions to learn more about them to ensure you’re getting into the right investment.
Step 5: Business Incorporation.
The next step is to incorporate a company of your own. Ensure to follow the regulatory requirement set by your province. For instance, Alberta government requires an incorporated company to have a 25% of the total number of directors to be either a Canadian citizen or a permanent resident. Also, make sure to setup a shareholder structure to align with your immigration requirements (which differs based on which entrepreneurship program you’re applying for) if you’re planning to immigrate by setting up a business. You can incorporate a business by visiting or contacting a local registry office, using a third-party service that offers incorporation services (such as law firms), or via government website.
Step 6: Business Bank Account Creation.
You can bring the incorporation documents (certificate of incorporation, articles of incorporation, registration statement) to the bank you prefer to use to create a company bank account. You can create both debit and credit cards for your company. Inject financial capital investment that’s required to start the company into the account. You’ll be mainly using this account for all of your business-related transactions such as paying for franchise training fees.
Step 7: Business Location Selection.
Select a place where the franchise business will be operated. If you are buying out an existing store, then that location will be where you’ll be running your business. If you are building a franchise location from the ground up, then the franchise HQ will usually do this job for you or help you to identify the best location.
Make sure to conduct a thorough research to identify the location where you’ll be setting up your business at. Numerous entrepreneurs have failed in their businesses due to mis-selection of their business location. Acquire necessary information such as nearby neighborhood, your target market’s characteristics and where they are populated, daily traffic, proximity to other businesses and competitors, transportation, noise and other important factors that you need to consider.
Step 8: Franchise Training.
Your franchisor will request you to schedule a time for a mandatory franchise training that lasts a certain period of time. This can be a 1- or 2-weeks training to 2-months to 1-year performance training as an assistant manager or manager depending on the franchise you’re getting into. Schedule a franchise training that’s required by the franchise headquarter. The training fee is usually different for all types of franchises. Pay the fee with the company bank account. Operations manual and other essential information are normally provided at this stage.
Step 9: Franchise Disclosure Agreement (FDA).
Upon the completion of your franchise training or before (before the transaction is completed), your franchisor will send you a legal document called Franchise Disclosure Document (FDD). The document is composed of 23 sections that explains further about the franchisor such as how long the franchisor has been operating, litigations and bankruptcies, franchisee’s obligations, trademarks, patents, public figures, financial statements and more.
Make sure to read the document thoroughly to ensure you’re getting into the right investment.
Step 10: Lease Agreement.
Sign a lease agreement with the landlord. The franchise HQ will usually do this job for you and the franchise partner (who’s investing) will be sub-leasing from the franchise HQ.
Before you sign the agreement, ensure to check the landlord’s reputation and history as well if available. In addition, read the agreement thoroughly before signing as all offers for each lease agreement differs. Check if there are personal guarantees, how long you are bound by the lease agreement, the exit plan at a worst-case scenario where you have to close the business urgently, an option to renew the lease, a lease rental rate change and more.
Step 11: Business License & Other Required Permits and Licenses.
Acquire business license and all other legally required city permits and licenses based on the type of business you are going to run. For instance, a consulting-type of business may not require a business license and Workers Compensation Board (WCB) coverage.
Step 12: Construction & Renovation.
Contact multiple contractors for the construction or renovation of your business to get quotations. Each contractor will highly likely offer different amount with distinctive project budget and schedules. Ensure to articulate what you want to be done (scope) by when (schedule) and by how much (budget). Moreover, keep a note that you may spend more than what you budgeted for depending on various factors such as unexpected delays (ex: city permit delay), material cost increase or project scope changes. Therefore, have a buffer amount of the project budget, so that you can agile in those situations.
This step can be skipped if you’re purchasing an existing location. Nonetheless, your franchisor may request you to do a certain number of upgrades or renovations based on the location you’re taking over. This will increase the amount of money you need to invest, so ensure to check all the requirements.
Step 13: Contact Required Third Party Businesses.
Contact utility (water, heat, electricity), business phone, cable, internet, POS (point-of-sale) system, goods delivery (ex: Gordon Foods Services) and other required 3rd parties to complete the business setup.
Step 14: Purchase Equipment & Supplies.
Purchase required equipment such as office supplies and inventories required to produce and sell the products and services.
Step 15: Finalize Business Exterior & Interior Design.
Finalize the setup of your business by putting up on a business signage, menu boards, open and close signs, warning signs (watch out for snow, etc.) and other necessary components in place.
You may skip this step if you’re buying out an existing location and you think it’s not necessary.
Step 16: Final Review/Check.
Conduct a final check/review of the business to ensure everything is working and in order.
Step 17: Hire Employees.
Post your job position on recruitment websites. Review the resumes you receive and contact the applicants to setup an interview. Create interview questions to identify the right team to help you run your business. Conduct an interview of the applicants and offer them an employment based on your need. Provide them with a job offer letter that clearly articulates their main job duties and responsibilities.
Step 18: Promote Business.
Start promoting your business by using the right marketing channels. This can be word of mouth, using offline advertisements (TV commercials, billboards, etc.), sending mails to nearby neighborhoods, social media marketing, hiring influencers and more.
Step 19: Connect with the Right Team.
Find and connect with right team that can help you with your business; accountants for year-end reports, lawyers that can educate you the legal due diligences (business health requirements, employee standards, etc.), marketing specialists (if needed) and more.
BUYING OUT AN EXISTING BUSINESS
Taking over an existing business can be an excellent idea as you may be able to save large amount of money and time. For instance, purchasing an established franchise location may be ideal because 1) the investor can save time from construction requirement and acquiring other necessary permits, 2) the individual can save money by taking over equipment to product the products and services than buying new and 3) the person may tap into existing clientele, thus saving extra money for marketing.
Purchasing an existing business basically goes through the same procedure above, except you can save time and money from setting up the business such as construction and renovation. As a result, all processes are usually identical from step 1 to 19 with an option to skip step 12 and 15. The existing business should have an operation’s manual that you can take-over as well.
Investing in a franchise business in Canada can be both very exciting and anxious, especially if you are immigrating from another country. Everything is foreign to you. Nevertheless, having a right team with a right knowledge, skills and characters can help you realize your dream of setting up and running your own business in Canada.
If you want to learn deeper about purchasing a franchise business and/or wants to immigrate through any of the qualifying entrepreneurship program, then please don’t hesitate to contact us anytime by using our contact us page or sending us a free assessment.