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Franchise Financing - How Franchise Finance Works in Canada

Guest post by: Stan Prokop

Article Overview: Information on franchise financing in Canada . Franchisees want to know how franchise finance works and what options are available to them . Pitfalls can be avoided via a good advisor .What are the key factors that determine a franchise financing strategy in Canada ?

Franchise Financing - How Franchise Finance Works in Canada

Franchise Financing becomes critical to a prospective franchisee after he or she has made their selection to purchase a franchise. At that point clients always ask us - 'How does franchise finance work in Canada?'

Naturally a large amount of time hopefully has been spent, as well as care! , in selecting the right business investment opportunity. Only one simply question remains, how does one pay for or finance the business.

One of the key aspects of that question is the type and size of the business you are purchasing. In some cases you are even considering perhaps purchasing an existing franchise from a current business owner who wishes to move on for whatever reason. (It is sometimes good to know why that owner wishes to sell of course.)

Size and type of business dictates the amount of financing you will need in Canada. We could generally lump franchise business models into two categories - service related businesses, or asset intensive businesses. Let's choose a quick example - if you are buying a mobile furniture repair business all you need is a truck, some products and inventory, and you are in business. However, the purchase of a major restaurant franchise could involve hundreds of thousands, sometimes millions of dollars in leaseholds, assets, equipment, and on occasion even real estate.

So if finances are limited that might be one of the factors that you might want to consider focusing on a service business that is not asset intensive. Naturally just the type of business you purchase shouldn't solely be driven around what you can afford; there are other factors to take into consideration also. These might include your personal interest in the industry, or even more importantly, your expertise. Example: Not everyone is cut out to be a restaurateur and deal with the public all day.

When financing a franchise you should also focus in on two key points - what funds do you need to acquire the business, and , as importantly, why financing is required on an ongoing basis for what finance people term as ' working capital ' . This would include ongoing investments you need to make in inventory, accounts receivable (if you are selling to a business) and in some cases equipment.

There are a handful of key options you can utilize to finance your purchase of a franchise. In Canada we can break these down into a few key components. The first component, and it's a requirement also, is your own investment of capital into the business. No one will finance a business where the owner has not put in some capital. The majority of franchises in Canada are financed by a unique government guaranteed loan that is technically called the BIL programme. This program has attractive rates, terms and structures, but at the same time requires a lot of careful planning.

Because franchise financing in Canada is a niche industry we encourage clients to work with a respected, trusted, and experienced advisor in this area. The assistance you will get with cash flow planning, financing options, and access to franchise capital could make or break your overall success.

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Article Tags: Canadian financing optionsfranchisees, franchise finance, Franchise financing



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
canada resources - I used to have a connection to a franchise consultant in Canada at "Franchise Officer" in Toronto. I wish I could remember his name ( but I can check my files at the office tomorrow). Anyway, he had a lot of connections to banks in Canada. He may know of them and may be able to offer some feedback. If you are looking for a business loan, Canada has similar business loan programs to that of the USA's Small Business Administration (SBA). I think its SLBS in Cananda, and I probably have the list of it's lenders in my office also. Do you think either can be helpful? If so, I can get back to you with this information tomorrow. Let me know!


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