A Closer Look at Canadian Franchise Fees
Franchising is the right path for many Canadian entrepreneurs, but there's a lot to learn about this type of ownership before you make a real commitment to a brand. Money, of course, is usually at the top of the concern list for prospective business owners, so here are some costs to consider.
The franchise fee: initial and upfront
Franchises usually charge an upfront fee to franchisees in exchange for the rights to use the system and its associated trademarks. This fee varies by brand and may include expenses incurred by the franchisor when it grants a new franchise, such as the cost of compliance with any applicable disclosure laws and brokerage fees.
Training, royalties and the ad fund: ongoing considerations
Many systems provide training for new franchisees, and they may train key staff at your location and offer training on an ongoing basis. There may be training fees passed onto you for this service, and training might also serve as a revenue stream for the franchisor.
Royalties are an ongoing expense that you will likely pay regardless of your profitability. This can be a fixed fee that is charged periodically, such as once a month, or a percentage of your sales over a period of time.
Last but not least is the advertising fund, which you may be required to contribute a percentage of your sales too. While pooling resources together with other franchisees for advertising is a good idea, you should research how each of your potential franchisors spend the advertising money.
Equipment and supplies: a continual cost
The cost of equipment and supplies will vary by brand, industry and franchise format. Franchisees are often required to buy some or all of their equipment and supplies in a way dictated by the franchisor to ensure consistency across locations and quality control, and this also gives them collective buying power. Keep in mind, however, that some franchisors upsell these items to franchisees directly or indirectly as another revenue stream.
Conventions, grand openings and more: the variable
Grand opening events are often required by franchisors for marketing purposes, and the franchisee may foot all or part of that bill. System-wide conventions are another event that you may have to pay to attend. While you do benefit from promotional events like grand openings and the training and networking that often happens at conventions, they are still other costs you'll have to plan for.
With a franchise, it pays to go in knowing what you'll be expected to spend. Go through your franchise disclosure agreement with a fine-toothed comb so you don't end up with unexpected expenses.