Three Things a Franchisee has to Remember
Whether you dislike your current job or just want to switch gears, investing in a franchise in Canada can seem like a great move. Being your own boss can help you grow personally, professionally and financially, but it's such a huge step to take that you need to remember to consider all the angles going in. Read on for the three most common things prospective Canadian franchisees should consider but often forget.
You're Renting the System
As a franchisee, you're not buying the franchisor's system; you're a "renter." You'll get the rights to use the company's system, trademarks and other brand benefits for whatever your franchisee agreement term is. While getting into a new business with an experienced company that has a proven system you can use is a huge benefit, it's vital to remember the rights are not yours permanently and that they do revert back to the franchisor once your term ends.
Renewal Rights Aren't A Guarantee
Just about all franchise agreements allow you to renew for at least one more term, says franchise attorney Tony Wilson at the Globe and Mail (http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/thirteen-things-to-consider-before-buying-a-franchise-in-canada/article20471510/), but keep in mind that it's not as simple as extending a lease on an apartment with a friendly landlord. The exercise of your renewal rights usually comes with fees and conditions, and if you can't meet them, you won't be able to renew your franchise term.
American Franchise Agreements May Need Tweaking
Be very careful with any US franchise agreements that don't take Canadian laws into account. The laws between the two countries are not the same, and this can have an impact on your business. Handling these potential issues before the final agreement is signed can save both you and your franchisor some financial headaches.
Canada's withholdings tax, for example, is a 10 percent levy on all royalties going into the United States. You, as a Canadian franchisee, have to collect and remit this to the Canada Revenue Agency. This, on top of the royalties you're paying the franchisor, can really eat into your business revenues, but the US franchisor may be able claim a tax credit for what you paid. This can all be worked into your franchise agreement, since it's often a wash if the tax credit is claimed by the franchisor.
Rushing into your new life as an entrepreneur may seem tempting, but remember that you've always got to look before your buy. Take all the time you need to do your homework and find the right opportunity.