Buying a franchise in Canada

Starting a new business can provide great opportunities for immigrants in Canada. However, without enough experience in a new market, launching a business and a brand in a foreign country can be challenging and risky. This is where buying a franchise in Canada can be an attractive and lower-risk option.

If you belong to one of the following groups, you can apply to buy a franchise in Canada:

Canadian citizens or permanent residents

International students

Individuals with a work visa accompanying an international student

Individuals with a tourist visa (after purchasing the franchise, you’ll need to convert your tourist visa to a work visa)

Foreigners outside Canada

Reading this article will be very helpful for you to understand the details of buying a franchise in Canada.

What is a franchise?

A franchise is a method of business development where the owner of a business, called the franchiser, grants investors, known as franchisees, the right to operate a business, typically in a way that has already been established by that company and under its brand name.

Usually, when we talk about franchises, the most common example that comes to mind is “McDonald’s,” which has numerous branches around the world. But franchising isn’t limited to fast-food businesses like McDonald’s; it exists everywhere and in almost every industry.

Franchising is a comprehensive business relationship, not just a buyer-seller relationship. This relationship is established through a “contract” that is set for a specific period, usually from 5 to 20 years, and can be renewed.

During the contract period, the franchisee typically pays certain fees to the franchiser for continued access to the business system, training, and marketing support from the central company.

In this business model:

Franchiser:

Grants the franchise holder the right to operate a business based on the rules and guidelines of the head office.

Supports the franchisee in various ways to run the business.

In return,

Franchisee:

Commits to respecting the rules of the head office.

Startup costs for a franchise, including the franchise fee, royalty fee, and marketing fee, are paid to the franchisor (the head office).

Do you want to be your own boss and start your own business, but are unsure where to begin? Or don’t know what resources you need? How do you market your products or services? Or how do you hire and train employees?

One solution for such issues is to buy a franchise in Canada.

Advantages and Disadvantages of Buying a Franchise in Canada

Advantages

The opportunity for growth and a higher chance of success

Franchises offer growth opportunities in that specific industry because there’s already a market demand for their services or products, and this demand can increase.

Low risk and high operational security

Both the original business owner and the franchisee have assessed potential risks to ensure that the brand expansion is sustainable from the start. In the franchise purchasing model in Canada, there’s a good amount of risk management because the main brand owners will provide processes and resources to help reduce employee and company challenges.

Lower costs

Although franchises need to have the budget to cover personal contributions and necessary investments, the costs related to opening a new location and starting the business fall on the brand owner. Therefore, the cost of working with franchise businesses is lower than starting a business from scratch.

Ready-made infrastructure and internal processes according to standards

The main business owner has already hired staff to manage daily operations, established the infrastructure, and standardized internal processes and employee training. Thus, those using this brand’s franchise won’t need to develop such things.

Brand recognition and no need for branding

Small businesses that are starting out need to have the time, energy, and capital necessary for branding and attracting customers; however, franchises do not face this problem as they operate under an established brand from the beginning and already have their customers.

Easier market penetration

One of the biggest advantages of franchising a business is the established popularity of trademarked brands. Opening a new location in any area of the market is easier because people are already familiar with that brand name.

Higher profitability

Franchises tend to have more profit and benefits at startup due to having a recognized brand and easier market penetration. In contrast, new and freshly established businesses take years to turn a profit.

Disadvantages

Limited creativity in business

According to the contract signed between the original business owner and the franchise buyer, the way to run the business must adhere to the principles and business model of the parent company.

Restrictions on location selection, product sales, and suppliers

Typically, the original business owner determines where the branch of the company is established, which products are sold, and which suppliers are used.

Damage to your franchise’s reputation due to poor performance from other branches

If some franchises do not perform well or provide unsatisfactory services or products, this will negatively impact the reputation of your franchise as well.

Sharing business profits with the original business owner

Buying a franchise and obtaining the rights to a brand means that you will have to pay a percentage of the revenue from sales to the franchisor or the brand owner.

Possibility of non-renewal of the contract

At the end of the contract term between the franchisor and the franchisee, the original business owner may not be willing to renew that contract.

Conditions for buying a franchise in Canada

Having enough capital to buy and set up a franchise in Canada (the amount varies depending on the type of business)

High managerial experience and skills in the relevant field

Ownership of over 50% of the purchased business

Submission of a business plan

Having good health and a clean criminal record

No need for a language test (but you need to convince the brand owner you want to buy the franchise from that you have the necessary language skills to communicate with employees and understand complex job topics, and that you can set up the business.)

Costs needed to establish franchise businesses in Canada

The average capital required to purchase a franchise in Canada ranges from $50,000 to $500,000, with the exact amount depending on the industry of the franchise and its size.

If you plan to start a franchise business in Canada, it’s essential to consider the main costs. Part of these expenses goes to the brand owner; such as fees for using the brand trademark, training costs, marketing support fees, and a percentage of sales revenue.

Another portion of these costs pertains to investments for starting the business, such as costs for raw materials, purchasing supplies and equipment, insurance, legal and accounting services, and also hiring and training staff.

We’ll discuss these costs in more detail later in the article.

Franchise Fee

Typically, the headquarters or franchisor charges a fixed fee for the right to use its brand from the franchisee. This amount can range from a few thousand dollars to over $75,000, depending on various factors such as the franchise industry, the size of the business, the brand, the location of the franchise office, and the franchisor’s goals for business development.

The more well-known and reputable the brand you’re working under is, the more you’ll have to pay for its brand value. For example, the Franchise fee for a globally recognized brand like Taco Bell is one and a half times more than what you’d pay for a brand that is only known in Canada, like Tim Hortons.

Franchise Fee can also include other costs such as expenses related to attracting, selecting, and training investors who are going to open franchises for the representative office.

Royalty Fee

Franchises are required to pay a percentage of their gross sales (between 4 to 8 percent) to the head office on a weekly, monthly, or quarterly basis. This percentage varies depending on the nature of the business. Typically, the Royalty fee for service franchises is higher than for retail businesses. Sometimes, instead of a percentage, a fixed fee is paid to the franchisor.

In businesses where franchises must buy most or all of their supplies and materials from the head office, franchisors add a markup on product costs, which is referred to as Product Pricing.

Advertising Fund

Advertising for franchise businesses is done on two levels:

1. For the main brand as a whole

2. For the franchises as separate units

In the first case, advertising is done with the involvement of the head office and the franchise office, using funds that are provided partly by the franchisor and partly by the franchisee or the franchise office. The advertising cost that the franchise office pays is usually calculated as a percentage of its gross sales (between 2 to 4 percent).

In the second case, franchises must independently advertise for their franchise. In the contract established between the head office and the franchise office, it is usually stipulated that the franchisee must allocate a certain amount each month for advertising.

Initial Investment

The main business owners, or franchisors, typically require investors who intend to establish a franchise under their brand to invest a certain amount to set up their business.

It may be requested that part of this initial investment be in the form of liquid assets like cash and short-term bonds. Therefore, it’s very important that you don’t get too caught up in loans and debts when buying a franchise in Canada.

Among the other costs you need to invest in are rent for the business location, property renovations, purchasing equipment and supplies, labor costs, insurance costs, legal services, and other expenses.

An example of franchise purchasing costs in Canada

In this example, we break down the costs of starting a laser hair removal center, operating as a franchise of an existing Canadian company, so you can get familiar with the detailed expenses.

Are you planning to start another franchise? These costs vary depending on each franchise and this example is provided just for illustration.

Investment Areas	Minimum Amount (in Canadian dollars)	Maximum Amount (in Canadian dollars)
Utilities and gas and rent advance	$7000	$20000
Property renovation	$80000	$200000
Architectural design and decoration	$3250	$10000
Furniture & equipment & and supplies	$13900	$27000
Computer systems	$3900	$7000
Insurance	$1200	$3500
Branding	$3500	$10000
Office expenses	$900	$1500
Inventory list/goods	$4300	$11000
Certificates and licenses	$1000	$2000
Duties and subscriptions	$50	$250
Specialized business costs	$3000	$7000
Laser machine rental	$2100	$3500
Training and living expenses during training	$2000	$5000
Initial training	$15000	$15000
Grand opening advertising	$10000	$10000
Brand royalty fee	$40000	$40000
Total Amount	$191100	$372750

Ongoing franchise costs:

Percentage of gross sales revenue (Royalty Fee): 6%

Advertising cost (Advertising Fund): 2% of sales revenue

5 essential tips for buying a franchise in Canada

If you plan to buy a franchise business in Canada and take on the representation of one of the brands, it’s important to thoroughly research that brand and its owners first.

Considering the following points before purchasing a franchise will give you a better perspective for making your decision.

1. Evaluate the desired franchise system

When evaluating the structure of the main system, always check these four things:

Products/Services: What is being sold to the customer? How does the customer perceive the quality of that product or service? Is the product or service offered unique in the market? Is it protected by copyright or patent laws?

Pricing: Are the products or services priced well considering their value?

Location: Are the products or services being sold in profitable locations?

Advertising: Is the product well advertised and recognized by consumers?

2. Recognizing owners of strong brands

Personality: Is the brand owner or franchisor known for something? Are they good members of relevant industry and business associations, like the Franchise Association of Canada?

Track record and quality of relationships: Are the company’s current franchises successful? Have any of the franchises ever left the system? What caused them to leave? Were the exit conditions satisfactory for both parties?

Financial strength: How financially strong is the brand owner? Can you review relevant financial information about them? Is this information audited or sourced externally?

Management: Considering the owner’s tenure, expertise, and experience, how strong are they in management? Do they have proven skills and abilities to offer?

3. Considering key success factors in the franchise system

Careful selection of franchises: Does the central office have a specific process for selecting its franchises? Do the franchises remain within the system? Have the company’s franchises had unusual financial turnover? Have the franchises achieved acceptable returns on their investments, and are they satisfied with their investment?

Careful oversight and control of the system: Does the central system have the financial and managerial controls necessary to identify warning signs in its overall business and in the activities of individual franchises? Does it work effectively and efficiently with its franchises to ensure they can act correctly when issues and challenges arise?

System’s work history: Has the franchise system in question been successful to date? Have the franchises been profitable? What is the failure rate in this system? What is the failure rate in businesses related and unrelated to franchises? How is the quality of the system’s connection with key service providers like suppliers or banks?

4. Assessing your overall investment

How much is your total investment cost? How much equity is required?

What are the current financial commitments including the cost of using the brand’s franchise, renovation plans, or amounts and minimum purchase equity?

When does the business become profitable? What is the business’s potential for profitability?

Does the franchise system have a financial service package for agencies?

5. Reviewing the franchise purchase agreement

Does the contract protect your rights and those of the brand owner? Are the rights and obligations of both parties clearly stated?

Does the contract cover all the brand owner’s verbal commitments in detail?

What are the conditions for renewing the contract? Are there regulations for negotiation? Does it cover termination conditions?

Does it cover the conditions for purchasing materials from the headquarters and outside parties?

Are the details regarding setup, training, and cooperation expressed sufficiently?

How to buy a franchise in Canada

If you’ve concluded that becoming a franchise business owner is the right choice for you, follow these steps to purchase it:

Step one: Be sure about your reasons for wanting to be a franchise owner

Becoming a franchise owner is a significant responsibility and commitment. Before you move forward with purchasing a franchise, reflect on your reasons for wanting to do this. If you think being a franchise owner is easier than owning other types of businesses, you should know that every business has its challenges. So, proceed with solid and well-thought-out reasons for buying a franchise in Canada.

Step two: Research what type of franchise is right for you

Just because a franchise is popular doesn’t necessarily mean it’s a good fit for you. Carefully conduct your research about franchises and dedicate at least a few weeks for this purpose, looking for the following criteria:

Strong sales history: It is recommended to choose a franchise where profitability can be proven.

Growing market: For success, the franchise you choose should be in a growing market.

Social Responsibility: People tend to do business with companies that are socially responsible. Research what the franchises you are interested in are doing in this regard.

Local Competition: Low competition can be good, but too much competition in a nearby area can ruin your business.

Opportunities to Boost Sales of Products and Services: McDonald’s is a great example of a company that excels at increasing sales through options available in its business, like adding fries to its burgers.

Getting Support and Backing: Make sure you’ll get good support and marketing services from the headquarters.

Step Three: Start Your Application Process

When it’s time to submit your application to buy a franchise and start a new branch of the main business, having an experienced lawyer can be really helpful. At this stage, the franchisor or brand owner will review your situation in the following areas:

– They will check your financial status to ensure you have enough capital to start the branch.

– They will look over your educational and work history and your reasoning for starting the business.

– They will check the location where you plan to set up the franchise.

You need to answer the question of why you are interested in their franchise and how much you currently know about it.

Step Four: Interview with the Desired Brand Owner

After initial evaluations are done by both sides, as a party in the transaction, you should have an in-person or sometimes virtual meeting with the franchisor known as “Discovery Day.”

In this meeting, both parties can get to know each other better and you can ask any questions you have before committing to buy the franchise.

Step Five: Seek Financing for Your Business

If you don’t have enough capital to buy a franchise in Canada, you can seek financing from sources like banks, the federal government, and other related entities to apply for a loan.

Step Six: Sign a Contract and Review Its Terms Carefully.

The content of contracts is usually long and confusing. To avoid any potential mistakes, it’s best to consult with an experienced lawyer about this before signing a contract.

Step Seven: Rent or Purchase a Location

You’ve already chosen the city for your business, so at this stage, you need to rent or buy a location in that city and set up the franchise there.

Step Eight: Get the Necessary Training and Support

You’re entering a reputable brand that has a logo, guidelines, and products. It’s essential to receive training from the headquarters in the following areas:

Branding

How to sell and where to buy products and services

Product placement and point-of-sale displays

Payment technology like credit card processing

Sales tactics for this specific type of business model

How to finance franchises in Canada

Bank loans

Canadian commercial banks provide loans to many franchise businesses. However, these banks are generally more willing to finance franchises that operate under successful brands with a solid financial history.

Funding programs for Canadian small businesses

The Innovation, Science and Economic Development Canada (ISED) provides loans to franchise business owners through the Canadian Small Business Financing Program with the help of participating lenders.

Though the amount from this loan cannot be used for the Franchise Fee, it can be used for other expenses like purchasing land for the business, buying supplies and equipment, renting a location, and other necessary costs.

Funding from the Canadian government

The Canadian government offers various financial resources in the form of loans or grants and other types of financial assistance. Some funding is set aside for specific demographic groups and industrial sectors, while others are more widely available.

The best way to find what is suitable for you and your new business is to search through the comprehensive list of government funding options available on the Canada Business Network.

Funding from headquarters

Many brand owners offer financing options to their franchisees or seek help from affiliated companies.

At least 14 days before purchasing a franchise, the franchisor must provide the franchisee with the Franchise Disclosure Document (FDD), which is mandated by the federal government. This document contains information about the loans offered by the franchisor.

Funding from angel investors

Angel investors are individuals who invest their own money into businesses, usually in exchange for equity in the company.

Angel investors aim to make a difference in the local economy by investing in small local businesses like franchises.

SBA loans

Loans guaranteed by the Small Business Administration (SBA) offer attractive rates and repayment terms. In fact, the SBA does not lend money but partners with financial institutions to guarantee a substantial portion of the loan in case the borrower fails to repay it.

There are various types of SBA loans. The SBA 7(a) loan program is one of the most popular options for financing franchises. This program typically offers loans up to $5 million with a 10-year repayment period. However, the repayment period for equipment loans and real estate loans may extend up to 25 years.

If you intend to purchase a franchise in Canada but lack sufficient capital to start it, there are various ways to finance your business:

Franchise Suitable Businesses in Canada

While many people might think of franchises as limited to “fast food,” franchise businesses can be found across all sectors and industries, such as the automotive industry, travel and tourism companies, home care, education, or health and fitness.

A business suitable for franchise purchasing should have a proven track record in that business, regardless of the type of products or services it offers, along with a tested system and formula that allows the franchise buyer to experience success in the new location.

10 Top Franchises in Canada

Tim Hortons

This brand is one of the most famous Canadian brands in the world and also the largest franchise in Canada, established in 1964 by hockey player Tim Horton. This coffee shop giant is one of the most profitable franchises in Canada.

To get a franchise for this brand, you need a net worth of $500,000 and $100,000 for investment.

Canada Bread

The brand Canada Bread manages the largest bakery operations in Canada. This brand was acquired in 2014 by the commercial baking giant Grupo Bimbo, which operates in 32 countries worldwide. To franchise with this brand, you need to work through the Canadian branch called Bimbo Canada.

Starting a franchise for this brand requires a minimum of $30,000 in cash, which can go up to $300,000 depending on the business location.

Pizza Pizza

Pizza Pizza has been making delicious pizzas in Canada since its establishment in 1967. Now, this popular pizza company has over 750 franchises across the country.

To open a franchise under this brand, you need at least $100,000 in cash. This amount may be higher depending on the franchise location.

Marlin Travel

Marlin Travel was first established in 1987 but was acquired by Transat Distribution Canada in 2006.

This company is one of the top travel franchises in Canada. To start a franchise under this brand, an initial investment of $100,000 to $150,000 is required. Additionally, the franchise fee for this brand is $3,000, with a 3% royalty on sales revenue.

Mr.Lube Canada

One of the best franchises in Canada that operates in the automotive industry. Founded in 1976, this Canadian brand now has over 480 franchises across the country.

To acquire a franchise for this company, the franchisee must have a cash stake of over $800,000.

Booster Juice

Since 1999, Booster Juice has been crafting delicious and healthy smoothies for its Canadian customers. While this company is relatively new compared to other franchises in Canada, it boasts over 400 locations across the country.

To open a franchise under the Booster Juice brand, you need to have a minimum net worth of $375,000.

Boston Pizza

The first Boston Pizza opened in 1964, and since then, this Canadian franchise has established over 390 locations throughout Canada. This popular restaurant and bar is the number one casual dining brand in the country.

Boston Pizza is one of the most profitable franchises in Canada, with average gross sales at its locations topping over $2.8 million.

Canadian Tire Gas+

Gas Plus operates under the Canadian Tire brand but offers separate franchises. This auto industry company has over 290 locations across the country.

The initial investment to launch a franchise with this company ranges from $30,000 to $70,000, but you must first establish a separate company in your name as part of the legal agreement with Canadian Tire.

Pet Valu

Pet Valu is one of the most profitable franchises in Canada in the pet industry. Founded in 1976, this Canadian franchise has over 360 locations in the country.

To acquire a franchise with this company, you need to have between $300,000 to $600,000 in capital depending on the business location. For this reason, qualifying franchises are expected to have a minimum net worth of $400,000 and cash assets of $150,000 to be considered for partnership.

Belron Canada

Another leading Canadian franchise in the automotive industry is Belron Canada, which was established in 1965 and began franchising its business under this brand in 1982. Currently, there are about 350 locations operating under this name in Canada and 30 other countries.

To launch a franchise of this company and finance a network of glass replacement stores, you will need approximately $700,000.

Steps to obtain permanent residency in Canada through franchise purchase.

If you’re outside Canada, you’re probably thinking that by buying a franchise, you can both establish a secure business for yourself that generates income and go through the process of obtaining permanent residency in Canada.

Yes, you’re right! Here, we’ll walk you through the steps to get a work permit for Canada and the process of obtaining permanent residency through buying a franchise.

Step one: Check the conditions for buying a franchise and sign the necessary contracts.

Step two: Prepare a business plan and gather the documents for the work visa application.

Step three: Obtain the work visa and enter Canada.

Step four: Launch the franchise in Canada and gain Canadian experience.

Step five: After 12 months of work experience, start the application for permanent residency through the Canadian Experience Class (CEC).

Benefits of obtaining permanent residency in Canada through purchasing a franchise:

You’ll be starting an active business that generates Canadian income.

The processing time for franchise work visa applications is significantly faster than other immigration programs.

You can extend your franchise work visa for up to 7 years.

You can apply for a dependent visa for your spouse, allowing them to work in Canada without restriction. Your children will also receive free education in Canadian schools.

After entering Canada, either you or your spouse can apply for permanent residency through various immigration programs.

Comparing franchise purchase in Canada with buying an independent business:

Criteria	Franchise purchase	Independent business purchase
Business Model	Operating as a branch of a registered brand	Personal and independent business
Control	Less control; need to follow headquarters’ guidelines	More control; ability to make personal independent decisions
Financial and Training Support	Extensive support from the franchisor	Limited support or none at all
Startup Costs	Typically slightly higher	Slightly lower
Risk Appetite	Low risk; suitable for those who don’t want to take risks	Higher risk

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Frequently asked questions

How long does the franchise purchase process take in Canada?

From the time you search for a suitable franchise to when you buy it, it takes about 3 to 4 months. Before opening the doors of the company to customers, it requires an additional 2 to 6 months for preparation.

Obtaining a work permit visa for Canada through purchasing a franchise also takes between 4 to 8 months.

How much income can you earn from buying a franchise in Canada?

The income generated from buying a franchise depends on various factors such as the industry type and the franchise brand, its size, and location. However, on average, a franchise owner in Canada earns about $40,480 a year. In well-known brands like Tim Hortons, this amount can exceed $100,000 annually.

Can you obtain permanent residency through buying a franchise in Canada?

Yes. Buying a franchise falls under Canada’s IMP program and it is part of the C11 visa category. This type of visa is based on significant benefit, meaning that the franchise purchase must provide economic, cultural, or social benefits to the Canadian government and Canadians to secure a work permit visa and enter Canada.

What’s the difference between a franchisor and a franchisee?

The franchiser is the owner of the brand who, in order to expand their business, grants the franchise rights to investors and entrepreneurs to start a branch or branches of their business under their brand. The buyers of the franchise who utilize the franchiser’s brand rights and establish the representation are referred to as franchisees.

Is it easy to set up a franchise in Canada?

If you pay close attention to your work, follow the instructions well, and coordinate effectively with the existing business system, setting up a franchise can be done quickly and easily, making you a business owner.

Is Starbucks a franchise?

No, Starbucks does not sell the franchise rights for its brand, so it is not possible to purchase a franchise under its brand.

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