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Ten Things You Should Know When Buying a Franchise in Ontario Small Business Week Tips from BMO Bank of Montreal  

One of the fastest small business growth areas in Canada continues to be the franchise sector.  With so many potential opportunities to choose from, Michelle Field, Vice-President of business banking at BMO Bank of Montreal suggests businesspeople should focus on ten key areas when considering whether to invest in a specific franchise operation.

  1. The consumer demand for the franchisor’s product or service

·         Is there a strong demand for it?

·         Are there many competitors?

·         Is the product or service of outstanding quality?

  1. The franchisor’s business track record

·         Have you spoken to existing franchisees about their experiences?

·         Have you contacted government consumer protection agencies such as the Canadian Franchise Association and the Better Business Bureau to get a profile on the franchisor’s track record?

  1. The proposed legal agreement between yourself and the franchisor

·         Have you reviewed it with an independent lawyer?

·         Are the terms and conditions in line with your expectations?

·         Does it cover the challenges you will face in running an independent business?

  1. The nature of the franchise fee and the ongoing royalty payments

·         How is the franchisor compensated?

·         What does the franchise fee cover?

·         What do you receive in exchange for ongoing royalty payments?

  1. The financial strength of the franchisor

·         Is the franchisor financially strong and stable?

·         Does the franchisor provide financial information you can take to your accountant?

·         Does the franchisor make available a “disclosure” document?

  1. The franchisor’s financial interest

·         Does the franchisor own the land or building?

·         Will the franchisor provide you with financial assistance?

  1. The franchisor’s plans for expansion and growth

·         What is the franchisor’s plan for targeted expansion?

·         What are the target markets for growth?

·         Are you assured of exclusive rights to the franchisor’s products and services in the area where you wish to locate?

  1. The franchisor’s market intelligence and market research capabilities

·         Will you have access to the marketing and product information regarding your industry as well as your specific business?

·         Will the franchisor assist you in the development of your business plan?

  1. The franchisor’s selection criteria

·         Is there a typical franchisee profile?

·         Are there any special training, educational or other requirements the franchisor will ask of you?

  1. The franchisor’s financial profile of each franchise location
  • What is the total cost going to be for your franchise?
  • Does this cost include equipment, lease hold improvements, advertising and promotion?
  • What is the minimum cash commitment you must make?
  • Has the franchisor established a pre-arranged financial services program for franchisees with a major Canadian chartered bank?

Remember there are many places to go for advice when thinking about buying a franchise including your local bank but the key to success before you invest in this sector is research, research and research.

Information on the Franchising Industry in Canada

The Canadian market is comprised of:

  • 1000 Active franchisors and 70,000 franchisees
  • Generates approximately 45 per cent of all retail sales.
  • Has a 15 per cent annual growth rate over past 10 years.
  • Makes up 12 per cent of Canadian GDP.
  • There are 1.5 million employed in Canadian Franchising Operations.
  • Canada has more franchisees per capita than U.S.

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