What costs and fees are involved in buying a franchise in Canada, and where do they have to be disclosed?

Franchise prices in Canada are not a single number. The Canadian Franchise Association describes a franchisee as paying a fee, typically an initial franchisee fee and ongoing royalties, to the franchisor for the right to use its trademarks and business system. The Association says some provinces require a disclosure document by law, and names British Columbia, Alberta, Manitoba, Ontario, New Brunswick, Prince Edward Island and Saskatchewan. This page uses Ontario’s rules as the worked example; check the law of the province where the franchise will operate.

What Ontario’s disclosure document must list

Ontario’s General regulation under the Arthur Wishart Act requires a list of all the franchisee’s costs associated with the establishment of the franchise, including the amount of any deposits or franchise fees and whether they are refundable, and if so, under what conditions. It also requires an estimate of the costs for inventory, leasehold improvements, equipment, leases, rentals and other property necessary to establish the franchise, with the assumptions behind it, and any other establishment costs, including any payment to the franchisor, direct or indirect, required by the franchise agreement, with the nature and amount of the payment and when it is due. If the document gives an estimate of annual operating costs, it must state the basis and assumptions for that estimate.

When you must receive it

The Act requires the franchisor to provide the disclosure document, and the prospective franchisee to receive it, not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise and paying consideration (excluding certain deposits), with exceptions set out in section 5. The document must also include financial statements as prescribed. Ontario’s Act allows the Lieutenant Governor in Council to exempt a franchisor, by regulation, from including specified financial information if prescribed criteria are met, so confirm what your franchisor’s document actually contains.

Capital beyond start-up costs

The Association asks whether you have the capital, including working capital and emergency capital, to get started and to keep earning a living in slower times. The regulation’s list is about the costs of establishing the franchise, so check whether the document answers that question for you. Put the figures from the document next to your own estimate of living costs and the months before the location covers its own expenses, and ask a franchise lawyer and accountant to test both.

For overall funding, see How much money do you need to buy a business in Canada?.