Thinking of Buying a Franchise in Canada - Consider the Cost Factors

Even those among us that are the most inexperienced in setting up and running a business know that there are varying degrees of monetary investments involved in getting any business off the ground. The business model you choose to go with, the kind of business you choose to make your foray into, infrastructure, hiring, and so many factors determine the cost involved in setting up and operating just about any business, including a franchise in Canada. This blog aims to shed light on the subject of monetary investments required to setup and operate a franchisee anywhere in Canada, bearing in mind the nature of the franchise you choose to buy into. Read further for a comprehensive breakdown of the various cost factors you must consider while thinking of buying a franchise in Canada.

Franchise Fee

When you buy into a franchise, the franchisor is likely to charge you a franchise fee. This is an initial payment that authorizes you to sell the product or service that the franchisor is known for, has developed and continues to develop. Most franchises in Canada are known to charge prospective franchisee owners a franchise fee at the start of the agreement between the franchisor and prospective franchise owner. Alongside paying this fee, one may be required to sign a deposit agreement. This deposit could be paid in full or in part at the commencement of the agreement and may or may not be refundable when the agreement term is completed. This franchise fee may range from $5000 CAD to $75,000 CAD and sometimes more, depending on the brand value of the franchisor. This fee is an investment in return for the support a franchisee owner receives from the franchisor, and this support covers:

·        Training

·        Recruitments

·        Franchise Grand Opening

·        Franchise Development

·        And Franchisee Site Identification

Royalty Payments

Since many franchisees and franchisors have a profit-sharing setup, franchisors are due regular royalty payments on sales generated. These payments vary in terms of percentage and frequency. It is also likely that a franchisor may not charge a royalty payment. However, this monetary obligation is included in rebates and product or service charges.

Miscellaneous Costs

Apart from royalty payments and the initial franchise fee, be prepared for various miscellaneous costs. These costs include, but are not limited to:

·        A franchise advertising fund wherein the franchisee is obligated to make a fixed contribution to a fund which goes into regional or even national advertising for the franchisor brand.

·        Equity investments to ensure that the franchisee remains in operation till the point at which it becomes profitable.

·        Product/Service Research and Development Funds

·        Infrastructure purchase costs

·        Infrastructure improvements and maintenance costs

·        Employee training costs

·        Franchisee insurance costs

Bearing in mind the various costs associated with setting up and running a franchise in Canada, it does make sense to do your research on the top franchise opportunities in the country that match your budget. One way to do so is to rely on www.canadianfranchisemagazine.com; a bi-monthly magazine that is among Canada’s leading online franchise directories.