Buying a US Franchise for Canada: What to Know

Author: BeTheBoss.ca

Date: NOV 8th, 2016

Topic: Industry Experts

Buying a US Franchise for Canada: What to Know  

Whether the franchise you're considering is headquartered in Alberta or Atlanta, many of the aspects of franchise buying will be the same. However, there are some special issues that you need to investigate before you buy a franchise from a US-based franchisor to operate in Canada.

 

Localization concerns

The Canadian and American legal environments for the franchising business model are not the same, and this is also true for the business environments, which will affect how you're able to operate. Differences can relate to supply chains and infrastructure. For example, if you're considering a food business, US food suppliers probably won't be useful. Strategies for leasing and even finding real estate will be different between these two countries, and a US-based franchisor may not have tax or payroll reports that are customized for Canadian businesses.

 

Master franchising 

Cross-border franchising is sometimes managed by using a master franchisee, who acts as an intermediary. This practice is widely used across Canada, but according to Dorsey  (https://www.dorsey.com), especially in Quebec due to their own unique language and legal requirements.   The master franchisees receive a territory, customize the system, sell franchises and consult and support franchisees, all with the franchisor's authorization. This arrangement can be beneficial if you're a Canadian franchisee using a US system because you will receive two levels of service—from the franchisor and the master franchisee—for the price of one.

 

Your franchise agreement 

The franchise agreement from a US-based franchisor may have provisions that aren't always found in Canadian agreements. These include beneficial terms, such as a mutual dispute relation clause, which requires meditation or arbitration should a dispute arise. Some provisions could prove troublesome for a Canadian franchisee, such as setting dispute resolution within the franchisor's home state or the franchisor reserving the right to set menu prices in line with its own national or local promotions. 

If you're ready to open a US-based franchise in Canada, ask for the disclosure document. If there are different versions for Canada and the US, ask to see both for the sake of comparison. The franchisor does not have to provide both to you, but if they do, you can get a stronger idea of any potential roadblocks. 

Speak to current or previous franchisees in Canada if the franchisor has already sold units in the country. Ask them about their businesses, what the biggest challenges have been, and what the strengths and weaknesses of the franchisor are. 

If you happen to be the first franchisee opening a business under a US brand in Canada, talk to former and current franchisees in the US. You also have some extra leverage in this situation, so negotiate to see if you can get the best terms in the US and Canadian franchisee agreements combined into one.