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Key considerations for foreign investors buying a franchise in Canada.
Coming to Canada by starting a new business provides many immigration opportunities. However, starting a brand-new business in a foreign country can be difficult and risky if you lack experience in the new market. That’s why buying a franchise in Canada can be an attractive option for business immigrants. They offer multiple advantages that foreign investors usually lack: brand awareness and established customer base, proven methods of doing business, marketing support, and training in the specific industry. This can reduce the risk of failure for investors and allow them to draw on existing clientele that the already established brand name has captured. It is important to note that buying a franchise is not the only business immigration option available.
Below you will learn how to buy a franchise in Canada as a foreign investor and use it for your business and immigration goals.
STEP 1: Select the Right Franchise for Profit & Immigration
When buying a franchised business in Canada as a foreign investor, there are several essential factors that you must consider before placing your investment. This is especially applicable when considering incorporating your franchised business into your immigration plans. We suggest you carefully consider profit-related and immigration-related factors when selecting a franchised business.
For-Profit
Consider the below business and profit-related factors:
New vs. Existing Location
When buying an existing location (resale), you can interview the seller, see the actual sales reports and confirm how profitable the business is. However, finding a profitable franchise for resale for less than $350,000 is hard. When buying a new location, you must do in-depth research, as revenue projections will be based on several assumptions and not on actual past numbers. However, new locations tend to be cheaper than resale franchises. It is crucial to consider the cost of buying a franchise that has a brand-new location or an existing one.
Location
The location of your franchise business is very important and can directly affect its profitability. For the service type of franchise, check the density of the territory and ask for the number of potential customers in the assigned territory. For brick-and-mortar businesses, check how many similar businesses are there in your proposed location.
Franchisor’s Support
One of the advantages of buying a franchise is getting support from your franchisor to operate your business successfully. While all franchisors offer support with marketing, some franchises do not require you to engage in sales actively – customers just come to you once you set up your business (like convenience stores, coffee shops, pizza places, etc.). However, you must actively engage in sales for some franchises (usually service franchises). Always ask what support is available to you as a franchisee and the keys to success for their business model.
Failure Rate & Feasibility
Another critical aspect to consider when buying a franchise is the failure rate for franchisees. All franchisors must provide potential buyers with a disclosure agreement that clearly shows the failure rate among their franchisees, any outstanding litigation and other important information. Pay attention to these numbers, ask to interview the existing franchisees, and ask about the failure rate and the most common complaints from the current franchisees.
Selling to Foreign Buyers
Many well-established franchises do not sell to foreign buyers and are very selective when awarding their branded business to new buyers. We suggest working with a broker who can help you find franchises that accept working with foreign buyers.
For Immigration
Consider the following immigration-related factors:
Industry
One aspect of your immigration application that you need to demonstrate is whether you can operate your business in Canada. Thus, having relevant experience in the industry or transferrable skills would help strengthen your application.
Type: Executive vs. Owner-Operator
Some franchises are the owner-operator type and cannot support any executive role. However, to strengthen your immigration application, you need to transition to the executive role within your business and not just operate it as the owner-operator.
Number of Employees
One of the key aspects that the immigration authorities care about deeply is the number of job opportunities your business can generate for Canadians. Therefore, franchises that require you to hire at least 2-3 employees to operate the business should be high on your priority list.
Viability
Another important factor that visa officers often check is whether or not your proposed business is viable. Therefore, request the franchisor to provide you with in-depth market research and cash flow projections to confirm that the proposed franchise is viable and will generate healthy profits for the owners.
Investment Amount
There is no minimum investment amount when buying a business in Canada. However, we recommend setting aside around $250,000 to buy a good business supporting your immigration AND profitability goals.
STEP 2: Do Due Diligence
Once you’ve selected the right franchise that fits your budget, is relevant to your qualifications, and can support your financial and immigration goals, we recommend conducting thorough due diligence with or without the help of business professionals. As a part of your due diligence process, make sure to do the following:
Carefully review the FDD documents provided by the franchisor.
Request interviews with the existing franchisees.
Ask for market research analysis or revenue projections from the franchisor or at least revenue information from similarly situated franchisees to validate your assumptions about the business’s profitability.
If it is a resale business, ask for T2 Corporate Tax returns, Schedule 100 and Schedule 125 for the past 2-3 years, to review the reported revenues and expenses.
Ask for failure rates, common complaints and existing litigation information (see FDD documents).
Ask what support is available to the franchisees and what is required from the franchisors to succeed in this business.
Ask about the number of employees you need to hire for the proposed location.
Confirm timeframes, deposit structure, training & support provided, any hidden fees or additional charges, etc.
In general, our main tip to you at this stage is to ask a lot of questions and validate all your assumptions. Franchisors are obligated to answer truthfully all questions that the buyers are asking. So, it is your duty to ask questions and get satisfactory answers before investing your money into a franchise. Remember that the franchisor will require you to sign a 5-year binding contract with the brand, so your research must be thorough. We also suggest getting support from your immigration lawyer to do due diligence checks from the immigration perspective. The success of the franchise is the success of your immigration journey.
STEP 3: Negotiate Terms & Pay the Deposit
Once you complete the due diligence part of the process to your satisfaction, you can then move to the next stage of the process – negotiations of the terms of the engagement. Please note that all franchises have very standard agreements with their franchisees, and there may be little room for negotiations. However, many of our clients were able to negotiate favourable terms for themselves, such as refundable deposit structures, delayed launch dates, additional discounts, additional training, and substantial support for immigration applications.
STEP 4: Canadian Immigration Application
Depending on the nature of your business and your immigration goals, your immigration lawyer will prepare and submit your application and guide you through the application process. Make sure to include the following documents:
Evidence of your relevant experience (business ownership or management experience)
Franchise purchase agreement
Lease agreement
Proof of payment of the initial deposit of franchise fees
Market research and feasibility study (provided by the franchisor)
Availability of funds to purchase & operate the franchise
Business plan
Depending on your circumstances and your business plan, there might be other documents that your immigration lawyer will ask you to submit.
STEP 5: Closing the Deal & Arriving in Canada
Once your immigration application is approved, you should complete the remaining steps for acquiring the business and transfer the total purchase price to the franchisor. Usually, your business lawyer will be able to assist you with that.
STEP 6: Undergo a Training and Launch Operations
The last step in this process is to arrive in Canada and undergo a comprehensive training program provided by your franchisor. You would spend around two weeks on the job site (or training center) to learn how to operate your new business and get all your questions answered by the franchisor. Once the training part is completed, the franchisor usually hands you the keys to your new business, and you can start running your business under the franchisor’s brand. Make sure to have a look at our client success stories!
