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What You Need To Know About Franchise Financing In Canada

Guest post by: Stan Prokop

Article Overview: Information on how entrepreneurs can access franchise financing in Canada . What information and planning is required to successfully complete the purchase of a new or existing franchise ;Tips on Franchise Finance in Canada

What You Need To Know About Franchise Financing In Canada

Franchise financing in Canada has to work for you as the franchisee as well as your franchisor and of course your lender(s). How do you access franchise finance after you have made the critical decision to purchase a new or existing franchise – in many cases you may be fighting timelines and need to ensure that you have access to all the proper information about financing your business , and , more importantly, ensuring you have put together the best franchise financing package . Let’s examine some of those issues.

Financing is available for pretty well very type of franchise in Canada , and most people are very surprised to hear that franchising as a whole in Canada accounts for close to half of all our retail sales – that’s a staggering figure, so franchisors must be doing something right !

We are all probably keenly aware that many franchisors in Canada are in fact branch organizations of U.S. based systems. That is ok as long as your franchisor has an acceptable and successful franchise model. Financing for your Canadian purchase should not be affected by a U.S. ownership of your franchise system.

There are a couple of major questions that, if clarified early on in the process, will allow you to finance your new business in a successful manner. One of those key questions is whether your franchisor has a program in place that they either self fund, or perhaps work in partnership with a Canadian financier such a bank. However, in our experience we caution clients not to rely or think they will receive a huge amount of assistance, particularly financial, in setting up their business. There is one clear reason for that, the franchisor is in the business of selling franchises and using your funds to build the next one – that’s how it works, and there is of course nothing wrong with that.

What the franchisor can in fact do though is to give you guidelines around how their franchisees have been financed in the past, and provide you with sample breakdowns of financing needs. Financing needs for a franchise come in a couple concise categories – they include the franchise financing fee itself, equipment and leaseholds that may be required to open the business, and of course on going working capital .

On going working capital is a key point, imagine the disappointment or stress of financing a franchise for purchase and then slowly discovering you don’t have enough working capital to fund receivables, inventory, growth, equipment and expansion needs, etc .

Clients are always asking if financing a franchise in Canada is different from financing any other business. The answer won’t be one of your favorites – the answer is yes and no! Any business, franchise or not, requires a finance plan to purchase the business, a business plan to map out costs and growth, and ongoing working capital financing. In that manner franchise finance is similar to starting any business. Where it differs is that there are a limited number of ways in which a franchise is financed in Canada. It may surprise most entrepreneurs that banks and other lending institutions and firms view the industry fairly positively – we think that’s because there is strength in a proven business model, resaleability, and the branding that comes with your purchase.

Financing your business purchase has to be a carefully followed roadmap. In Canada the majority of franchises are financed by a special program called the CSBF program, which in fact is a program supported by the government and administered by the banks. As an owner you have to put some of your own equity into the business. The key challenge is whats the right balances for that amount – you don’t want to borrow too much, and conversely you may or may not have a huge amount of equity to put into your purchase of a new or existing franchise. We say existing franchise because it is perfectly acceptable to purchase a business, and finance it, from an existing franchisee. In some cases the financing is actually easier because there are financial statements and a finance history to the business already, as well as possible existing assets to the business.

In order to finance your franchise you require a breakdown of the different asset categories – as well as a business plan that shows cash flows and projected profits. As a business owner you should have some experience or skills related to your purchase, and we already have mentioned that fact that you must put a ‘reasonable ‘down payment into the business from your own funds. Business owners with spotty personal credit histories have a larger challenge in getting financed, as there is an emphasis on how you have run your affairs in the past.

In summary, focus on getting the right franchise that suits your skills and risk tolerance. Understand your finance plan as it relates to the purchase and ongoing needs of your business. Speak to an experienced, credible, and trusted franchise financing expert to ensure you can successfully complete your acquisition and commence your entrepreneurship journey!

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Article Tags: franchise finance, franchise financing in Canada



Related Forum Posts
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!
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.


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