What upfront costs should I check before buying a franchise in Canada, and how can they be financed?

Anyone wondering whether they can buy a franchise with a small amount of cash should start with the full list of upfront costs, not the franchise fee alone. In Canada franchise disclosure is regulated at the provincial level rather than through a single national law, so this page uses Ontario’s rules as the example; several other provinces have their own legislation.

What the disclosure document must show

Ontario’s franchise regulation requires the disclosure document to state the amount of any deposits or franchise fees, whether they are refundable and on what conditions. It must also include an estimate of the costs for inventory, leasehold improvements, equipment, leases, rentals and all other tangible and intangible property necessary to establish the franchise, with an explanation of the assumptions behind the estimate. Read those assumptions line by line.

Timing and ongoing costs

Under Ontario’s Arthur Wishart Act, the prospective franchisee must receive the disclosure document not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise, or paying any consideration relating to the franchise to the franchisor or its associate, with exclusions and exemptions set out in the Act. BDC advises that knowing who owns the lease on your franchise location, as well as repayment and ongoing royalty or revenue sharing obligations, is crucial.

How the costs can be financed

The disclosure document must set out the terms of any financing the franchisor or its associate offers. Beyond that, the Canada Small Business Financing Program’s term loans can finance purchasing or improving new or used equipment, land and buildings used for commercial purposes, and intangible assets and working capital, through a participating lender. BDC says you need money set aside, either through your own equity position or the banks, so ask each lender what it requires from you.

For a resale, see whether a franchise purchase can be financed.