How Foreign Investors May Purchase a Canadian Franchise
THINGS TO CONSIDER PRIOR TO PURCHASE
Starting a new business in Canada presents numerous immigration prospects. However, if you lack experience in the new industry, launching a brand-new firm in a foreign nation can be challenging and risky.
For this reason, purchasing a franchise in Canada might be an attractive alternative for immigrant entrepreneurs. They provide numerous benefits that foreign investors typically lack, including as brand recognition and an established client base, proven business practices, marketing support, and industry-specific training.
All of these factors can lower the risk of failure for investors and allow them to capitalize on the established brand’s customers. It is vital to understand that purchasing a franchise is not the only option for business immigration.
Below, you will discover how to purchase a franchise in Canada as a foreign investor and use it for business and immigration purposes.
Select the Best Franchise Opportunity for Profit and Immigration
Buying a franchised firm in Canada as a foreign investor necessitates careful consideration of a number of critical considerations prior to making an investment.
This is particularly relevant when contemplating the incorporation of your franchised firm into your immigration plans. When choosing a franchised firm, you should carefully evaluate profit-related and immigration-related considerations.
Consider the following profit and business factors:
Existing versus New Location
When purchasing an existing site (resale), you have the opportunity to speak with the seller, review actual sales figures, and verify the profitability of the business.
Nonetheless, it is difficult to find a lucrative franchise for less than $350,000. You must conduct extensive study before purchasing a new location, as income forecasts will be based on a lot of assumptions rather than actual historical figures. However, new locations are typically less expensive than resold franchises. It is essential to assess the cost of purchasing a franchise with a brand-new or an existing location.
The location of your franchise firm is crucial and can have a direct impact on its profitability. Check the territorial density and inquire about the number of prospective clients in the allotted territory for service-based franchises.
One of the benefits of purchasing a franchise is receiving assistance from the franchisor to properly operate your business. While all franchisors provide assistance with marketing, certain franchises do not require you to actively engage in sales – clients come to you after your firm is established (such as convenience stores, coffee shops, and pizza parlors).
However, you must actively engage in sales for some franchises (usually service franchises). Always inquire about the support you will receive as a franchisee and the success factors for their business plan.
Failure Rate & Feasibility
The failure rate of franchisees is another important factor to consider when buying a franchise. All franchisors must furnish prospective purchasers with a disclosure agreement that outlines their franchisees’ failure rate, any pending lawsuit, and other pertinent facts.
Pay attention to these figures, request an interview with existing franchisees, and inquire about the failure rate and the franchisees’ most prevalent grievances.
Selling to International Buyers
Numerous well-established franchisees do not sell to foreign buyers and are quite picky when granting their brand to new purchasers. We recommend dealing with a broker who can assist you in locating franchises that accept foreign buyers.
Consider the following considerations pertaining to immigration:
One of the requirements for your immigration application is to demonstrate whether or not you can operate your business in Canada. Therefore, having relevant industrial experience or transferable abilities would boost your application.
Executive as opposed to Owner-Operator
Some franchises are of the owner-operator variety and hence cannot support executive positions. To enhance your immigration application, particularly at the permanent residency stage, you must transfer to an executive role inside your business, as opposed to simply operating it as an owner-operator.
Quantity of Employees
One of the most important factors for the immigration authorities is the quantity of jobs that your firm may provide for Canadians. Therefore, you should prioritize franchises that require you to hire at least two to three staff to operate.
The viability of your intended firm is an additional crucial criterion that immigration authorities frequently evaluate. Therefore, insist that the franchisor provide you with comprehensive market research and cash flow estimates to ensure that the proposed franchise is feasible and will generate healthy returns for its owners.
In Canada, there is no minimum investment required to purchase a business. However, we advocate laying aside approximately $250,000 in order to purchase a business that will support your immigration AND profitability objectives.
Do Due Diligence
Once you’ve chosen a franchise that meets your budget, is relevant to your skills, and can support your financial and immigration goals, we advise undertaking extensive due diligence with or without the assistance of business specialists. As part of your due diligence, be certain to perform the following:
Review the FDD materials provided by the franchisor with care.
Request interviews with the franchisees currently in operation.
Request market research studies or revenue estimates from the franchisor, or at least revenue data from franchisees in a comparable situation, to validate your assumptions about the business’s viability.
If the business is in the reselling industry, request the T2 Corporate Tax returns, Schedule 100 and Schedule 125 for the previous two to three years in order to review the stated revenues and expenses.
Request information on failure rates, common complaints, and pending litigation (see FDD papers).
Inquire about the available franchisee support and the franchisor requirements for success in this business.
Inquire about the required number of staff for the planned site.
Confirm timelines, deposit structure, training and support offered, as well as any hidden fees or additional charges.
Remember that the franchisor will ask you to sign a five-year deal, so your research must be exhaustive. Additionally, we recommend enlisting the aid of an immigration attorney while conducting immigration-related due diligence.
The success of your immigration journey is contingent upon the success of the franchise.
Negotiate terms and pay the initial deposit
Once you are satisfied with the results of the due diligence phase of the process, you can go on to the following phase, which involves negotiating the conditions of the engagement. Please note that all franchise agreements with franchisees are extremely typical, and there may be limited space for adjustment.
However, several of our clients were able to negotiate favorable terms, such as refundable deposit arrangements, delayed launch dates, more savings, additional training, and major assistance with immigration applications.
Application for Canadian Immigration
Your immigration lawyer will prepare and submit your application and guide you through the application process based on the nature of your business and your immigration objectives. Ensure that the following documents are included:
- Proof of your pertinent experience (business ownership or management experience)
- Agreement for the purchase of a franchise
- Proof of initial franchise fee deposit payment Market research and feasibility study (provided by the franchisor)
- Financial Capacity to Acquire and Operate the Franchise
- Business strategy
- Depending on your circumstances and business plan, your immigration attorney may request that you provide additional documentation.
CONCLUSION OF THE TRANSACTION AND ARRIVAL IN CANADA
Once your immigration application has been approved, you must complete the remaining company acquisition stages and transfer the final purchase payment to the franchisor. Typically, your business attorney can assist you with this
Participate in Training and Start Operations
This procedure concludes with your arrival in Canada and participation in a rigorous training session supplied by your franchisor.
You would spend around two weeks at the job site (or training center) to learn how to run your new business and to receive answers to all your queries from the franchisor. Upon completion of training, the franchisor often offers you the keys to your new firm, allowing you to begin operating under the franchisor’s name.
There are numerous advantages to franchise ownership. Here are several examples:
When you purchase a franchise, you acquire a well-known brand name.
In many circumstances, getting attention and exposure will save you money. You are already associated with a prominent brand.
The proven business model is one of the most attractive aspects of franchise ownership.
By investing in a franchise, you are acquiring a business concept that has already been tested in the market. This does not mean that you should not evaluate the model’s profitability.
Acquiring a franchise enables you to adhere to a specific procedure. There is no need for you to establish your own business processes, as the franchisor has already thought out the majority of your operations.
With franchising, you can save a great deal of time testing, negotiating, and evaluating various suppliers and services.
Again, the franchisor often has agreements in place with suppliers, transportation companies, and other service providers.
What risks are involved with purchasing a franchise?
Certainly, any business plan has disadvantages. In terms of a franchise, they are:
- Almost all franchises need you to put down a substantial upfront deposit. This can be decisive for many prospective franchisees.
- In a franchise, you lack the ability to explore new business procedures, choose different suppliers, and sometimes even advertise as you see fit. The franchising industry is highly regulated.
- In many instances, the success of your franchising endeavor will depend on your expertise, talents, command of the English language, and the proficiency of your employees. If you and your employees are unable to run the business, your franchise may fail.
- Owning a franchise involves continuous maintenance. You must be aware of operations and maintenance expenses.
If you meet all other standards, including having appropriate skills, sufficient cash, a clear business strategy, and a good execution plan that will result in the creation of jobs and other opportunities for Canadians, owning a franchise firm may assist your immigration application. The purchase of a franchise solely for immigration purposes is a poor idea in general. Buy a franchise to generate money and allow the attorneys to assist you with your immigration procedures.
Purchasing a franchise will not qualify you for permanent residency on its own. To apply for permanent residency in Canada, you must satisfy further qualifying conditions, such as language qualifications, academic credentials, and a clean criminal record, among others. However, operating a business in Canada is a need.
may in some situations support your immigration application. Before your business can help your immigration application, you can take the following procedures as a business owner:
Before transitioning to permanent residency, you must operate your business for at least a year.
Instead of working as an owner-operator, you should hold an executive position in your business.
Is it worthwhile to own a franchise for less than $100,000? Or must we purchase a franchise for over $200,000 in order to apply for a work permit?
There is no minimum investment amount required by immigration officials when purchasing a franchise. In our experience, however, solid franchises typically cost $150,000 or more, depending on the business, location, and type of support offered to franchisees.
This information changes rather frequently, but in average, two to three months after we submit an application.