I still remember my husband’s reaction when, out of the blue, I called his office and blurted out: Do you want to open up a pet store?!
We had never talked about owning a business in our five years of marriage, but after a very enlightening call with my parents, I found myself telling them all I ever wanted to do was own a pet specialty retail store (better known as pet store, but without selling live animals). Then they asked me: So why don’t you? “Yeah – why don’t I?!” I said to myself. Immediately I called Shawn (the hubby) and asked the now infamous question.
At that time I was working in a public relations job and had fallen in love with my first dog (and the dog of my life), Pepe. A beautiful Giant Schnauzer that converted us in crazy “pet parents” and made us do unimaginable things to give him a good life – like waking up at 5:00 am so he could ride with us during the off-peak hours in the Toronto subway (when dogs are allowed) and go to doggy daycare. Every. Single. Day. Crazy, I know.
Shawn and I were in our 20’s and had never owned a business. As an immigrant, I had NO CLUE how the business world worked in Canada. We didn’t know how the pet industry worked. All I knew was that passion, energy and a lot of homework would get us there. Somehow. BUT HOW??
We talked about different options – from starting the business from scratch on our own; to purchasing a franchise. In the end we decided to go the franchise route, as it provided a peace-of-mind, tried-and-true method we needed to be successful from day one. I should also mention it was 2008 – the peak of the recession in Canada. Starting something from scratch without knowing the industry was risky and would leave us with little to no financing options.
After a year of researching different franchises, reviewing disclosure documents, talking to lawyers and number-crunching, we selected the franchise that best worked for us. We didn’t take this decision lightly as absolutely all of our eggs would be in this basket and had zero margin of error – failure was never an option. We were willing to invest every penny we had (and then some) so we took our time with this decision.
Franchises can get a bad rep in the business world. Some can be a bit tricky, yes, but if you do the due diligence and ask the right questions and request the right documents, it could be a great way to start a business in Canada (or anywhere) for someone new in the country. A good quality franchise provides a roadmap to a successful business with great support from the franchisor.
Based in my experience with now three franchises in my business portfolio, this is how the process works and some key questions you should be asking if this is a route you want to take. If you are new to Canada, make sure you also check the Canadian Franchise Association website. This is the franchise regulating body that supports franchisees. It is loaded with information and they regularly update it.
These are the emails or calls that go back and forth between franchisor and potential franchisee. Be prepared to talk about your experience or passion in the industry. A good franchisor will take the time to get to know your history to assess if you are ready for the next step. Be aware that most franchises work by territories – you buy into a territory (it could be by postal codes, cities, kilometer radius, country, etc.). If you have a location/territory in mind, make sure you disclose it right away and the franchisor will be able to tell you if it’s available. That way if it’s not, you don’t waste each other’s time.
After a few successful calls and emails, the franchisor will send you and Non Disclosure Agreement or NDA (a document you need to sign where you legally promise not to divulge in public the information they are about to send you). After agreeing to that, you will receive the Disclosure Document. This time-sensitive document contains information about costs associated with franchise fees, royalties, marketing fund, general equipment and construction costs. It also contains information about the company in general and an overview on their financial health. Ask the franchisor as many questions as you have. Never leave anything unasked – the more you know, the better.
At this time you should ask for names and phone numbers of existing franchisees so you can call them and ask for information about what is like running that franchise. Other very important questions to ask existing franchisees:
- How is the level of pre-opening training the franchisor provides?
- How supportive is the franchisor when the business is underperforming?
- Are the marketing fees being used to help market their region?
- Is there a franchisee advisory committee that advocates on behalf of all franchisees?
Some franchises will require you to go to their head office to meet with the team, answer any more questions and provide more information in person.
They usually give you around 30 days to review the document, ask questions, and do more homework before you make your decision. If the franchisor pressures you to sign the deal because “there is a lot of demand,” WALK AWAY. In no way you should feel like someone is putting a gun to your head to sign anything.
If you like what you see, then you provide a deposit to the franchisor – it can be as little as a few thousand dollars, to half of the franchise fee. Make sure this deposit is fully refundable should you wish not to go ahead after you review the Franchise Agreement.
This is the real deal. It is a big legal document that explains absolutely everything about the franchisor-franchisee terms and conditions. It is very important that you hire a lawyer that has experience with franchise deals. Never, ever, ever sign this document without the help of a franchise lawyer. Never, never, neveeeeeeeeer. Franchisors draft these documents to their advantage – after all, they are a business. Get legal help and make sure your lawyer points out important information and advocates for you.
In the larger franchises, up until signing the agreement you may be talking to the same person at headquarters. After signing it, you will be handed over to the operations team at the franchise and this is where things ramp up. They will start the location scouting with you unless you have a location already. They will provide necessary training and should be with you every step of the way until you are ready to open/launch.
Every franchise is different and these are just estimates.
|Deposit||It is a “placeholder” – important to make sure it is fully refundable in case you don’t want to go ahead with the purchase||$500 – $10,000 – varies greatly. Some franchises don’t require a deposit and go straight to the Franchisee fee|
|Franchise fee||Renewable every 5-10 yearsThis fee gives you the name rights, access to the franchise’s resources, vendors, etc.||$15,000-$30,000. $30K is a good average but there are smaller, less expensive franchises|
|Legal revisions of franchise agreement||Some lawyers have franchise revision packages||$2,000 – $5,000|
|Royalties||Taken off total revenue weekly or monthly||Anywhere between 3% to as much as 25% depending on the industry|
|Marketing/Ad Fund||Contribution made to the franchise marketing efforts. Taken off monthly revenue.||Anywhere between 1%-5% (although 2% is average)|
So there you have it my friends. As you can see, buying into a franchise is not cheap, but if you have the capital to do so (at least the franchise fee and some working capital), the rest could be financed. It is important that you speak with your banking institution and have them look into the franchise you wish to buy. If it’s a strong chain, chances are banks have pre-arranged lending reserves designated to approved franchisees.
With the right research, guidance and business plan, a franchise could definitely be a great way to start a business in Canada.
Is this something you have looked into? Are you an immigrant franchise owner? Let me know your thoughts in the comments below.