How to Buy a Franchise in Canada for Foreign Investors: Things to Consider Before Buying

How to Buy a Franchise in Canada for Foreign Investors: Things to Consider Before Buying

Coming to Canada by starting a new business provides a wealth of 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 as they offer multiple advantages that foreign investors usually lack in, namely, brand awareness and established customer base, proven methods of doing business, marketing support and training in the specific industry. This all can reduce the risk of failure for investors and allow them to draw on existing clientele that has been captured by the already established brand name. It is important to note that buying a franchise is not the only business immigration option available to you.

Below you will learn how to buy a franchise in Canada as a foreign investor and how to use it for your business and immigration goals.

Flowchart showing step by step process on how to buy a franchise in Canada for foreign investors

STEP 1:  Select the Right Franchise for Profit & Immigration 

When buying a franchised business in Canada as a foreign investor, there are several important factors that you must consider before placing your investment. This is especially applicable when you are considering incorporating your franchised business into your immigration plans. We suggest you carefully consider the following factors when selecting a franchised business: 

FOR PROFIT

FOR IMMIGRATION

New vs. Existing Location

When buying an existing location (resale) you have a chance to interview the seller, see the actual sales reports and confirm how profitable the business is. However, it is hard to find a profitable franchise for resale for less than $350,000.

When buying a new location, you must do very thorough research as revenue projections will be based on a number of assumptions and not on actual historic numbers. However, new locations tend to be cheaper than resale franchises. 

Industry

One of the aspects that you need to demonstrate in your immigration application is whether or not you are able to operate your business in Canada. Thus, having relevant experience in the industry or transferrable skills would help to strengthen your application 

Location

The location of your franchise business is very important and can directly affect the profitability of your business. For service type of franchise, check the density of the territory and ask for the number of potential customers in the assigned territory. For brick & mortar businesses – check how many similar businesses are there in your proposed location. 

Type: Executive vs. Owner-Operator

Some franchises are the owner-operator type and cannot support any executive role. However, to strengthen your immigration application especially at the permanent residence stage, you need to transition to the executive role within your business and not just operate it as the owner-operator. 

Franchisor’s Support

One of the advantages of buying a franchise is getting support from your franchisor to successfully operate your business. While all franchisors offer support with marketing, some franchises do not require you to actively engage in sales – customers just come to you once you set-up your business (like convenience stores, coffee shops, pizza places etc.). However, for some franchises you must actively engage in sales yourself (usually service franchises). Always ask what support is available to you as a franchisee and what are the keys to success for their business model.

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.

Failure Rate & Feasibility 

Another important 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, ask about the failure rate and what are the most common complaints from the existing franchisees. 

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 cashflow projections to confirm that the proposed franchise is viable and will generate healthy profits for the owners. 

Selling to Foreign Buyers

Many well-established franchises do not sell to foreign buyers and are very selective when it comes to awarding their branded business to new buyers. We suggest working with a broker who can help you to find those franchises that accept to work with foreign buyers.

Investment Amount

There is no minimum investment amount when it comes to buying a business in Canada. However, we recommend setting aside around $250,000 to buy a good business that can support your immigration AND profitability goals. 

You should aim to contact franchisors that have offers within your budget, for which you have suitable experience and skills, and that seems to be profitable. 

STEP 2: Do Due Diligence 

Once you’ve selected the right franchise that fits your budget, 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 done by the Franchisor or at least revenue information from the similarly situated franchisees to validate your assumptions about the profitability of the business.
  • 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 the 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 be successful in this business. 
  • Ask about the number of employees that 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 under obligation to answer truthfully to 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. Keep in mind that the franchisor will require you to sign a 5-year binding contract with the brand, so, your research has to be very 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 favorable 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 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 

There might be other documents that your immigration lawyer will ask you to submit depending on your circumstances and your business plan.   

STEP 5: Closing the Deal & Arriving in Canada 

Once your immigration application is approved, you should complete the remaining steps for acquiring the business & transfer the full 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 for you is to arrive in Canada and undergo a very thorough training program provided by your franchisor. You would spend around 2 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 from 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!

How to Buy a Franchise: Business Immigration Videos

 

 

 

Frequently Asked Questions

Can I buy a franchise for my immigration application? 

Owning a franchise business may support your immigration application provided that you meet all other requirements, including having relevant experience, sufficient funds and a clear business vision and a strong execution plan that will result in job creation for Canadians and other opportunities for Canadians. We do not recommend buying a franchise just for immigration – it is a bad strategy in general. Buy a franchise for earning profits and let the lawyers help you with the necessary paperwork regarding your immigration. 

Should I buy a franchise or non-franchised business?

It depends. There are 2 primary factors that you need to consider before answering this question: 

(1) What is your level of confidence in running your own business in Canada?

(2)  Is entrepreneurial freedom critical to your business vision and goals in Canada? 

If you are intimidated by the prospects of competing in the foreign market (Canada) and want to invest into a reliable business with a ready customer base and proven business concept, buying a franchise might be a good option for you. There are plenty of benefits of owning a franchise, here are some of them:

  • When you buy a franchise, you buy an established brand name. In many cases, you will save money on acquiring publicity and exposure. You are already part of a well-known brand.
  • One of the biggest selling points of owning a franchise is the proven business concept. With franchising, you are buying into a business model that has already been tested in the market. This doesn’t mean that you shouldn’t check the profitability of the model.
  • Buying into a franchise allows you to follow a detailed process. There is a minimal requirement for you to develop your own business processes since most of the way you do your business is already thought through by the franchisor.
  • With franchising you are able to save a lot of time on testing, negotiating, and trying out different suppliers and service providers. Once again, the franchisor will typically have existing agreements with suppliers, transportation companies, and other service providers.

What are the risks of buying a franchise?

Without a doubt, any business model has its drawbacks. For a franchise, they are:

  • Almost all franchises require you to put down a large upfront payment. This can be a deciding factor for many potential franchisees.
  • In a franchise, you don’t really have the freedom to explore different business processes, select different suppliers, or sometimes even advertise in the way that you want to. The franchising business is very tightly controlled.
  • In many cases, the success of your franchising venture will depend on your experience, skills, English language, and the ability of your workers. If you and your workers are unable to execute the business, your franchise might not succeed.
  • Owning a franchise requires continuous maintenance. You should be aware of operational and repair costs.

Can I get a PR (permanent residency) in Canada if I buy a franchise?

Buying into a franchise alone will not make you eligible for permanent residency. To apply for permanent residency in Canada you must meet other eligibility requirements such as language requirements, educational credentials, clear criminal record etc.  However, owning a business in Canada may support your immigration application in some cases. Before your business can support your immigration application, as a business owner, you can take the following steps: 

  • Operate your business for at least one year before you can transition to permanent residency.
  • Hold an executive role in your business, rather than working in your business as an owner-operator. 

How to find a good franchise to buy?

You can engage a franchise broker to help you to find a good franchise. Brokers are usually paid by franchisors and do not charge any fees to the buyers. You can reach out to us and we can connect you to our broker who has over 600 different franchising companies in his portfolio. Also please see the table above for tips on how to select the right franchise for your business and immigration goals. 

If I found a franchise for less than 100k,  is it worth buying? Or do we need to buy only a franchise over $200,000 to apply for a work permit?

Immigration authorities do not have a prescribed minimum investment amount when it comes to buying a franchise. However, in our practice, we noticed that good franchises usually cost 150,000 + depending on the industry, location and type of support they offer to their franchisees. 

How much time is needed to get a work permit through franchise immigration?

This information changes quite often, but in general terms around 2-3 months after we submit an application. The best option is to look at government immigration websites.

What is the best franchise in Canada for immigrants?

There is no definite answer to this question as it really depends on your background, investment budget, personal and immigration goals. We suggest you follow the steps above to find the right match for you or contact us for strategy and advice.