With more and more franchises like Planet Smoothie and Ponderosa Steakhouse crossing over from the United States into Canada, you might be considering one as an investment possibility. After all, with marketing dollars poured into not one but two countries, you’ll have more branding behind your franchise than a locally-based one.
However, with the Canadian dollar around the $.70 cent mark and no improvement to the Canadian-US dollar exchange rate in sight, anyone considering buying a cross-border franchise should do so cautiously. That disparity in values for what was for a very long time essentially equal may take a larger chunk out of your pocket as a result.
Negotiation is in Order
US franchisors aren’t jumping to lower franchise fees, but that doesn’t mean you can’t try to negotiate them lower. If a brand wants a presence in Canada, it may be willing to accept a reduced franchise fee, due to the loonie’s decrease in value.
Royalty fees, too, may be negotiable. Ideally, you can pay them in Canadian dollars, and make the conversion costs the responsibility of your franchisor.
Realize That You May Have Tax Implications
Many cross-border franchise agreements are subject to tax withholding. Sometimes American franchisors require franchisees to pay 100% of this tax to the franchisor, and then an additional 10% to the Canada Revenue agency. Don’t be shy about negotiating those numbers so you don’t pay over 100% to either party. Also petition to pay this in Canadian dollars.
Consider Waiting it Out
If you do some number crunching and don’t like how little you’ll earn with the exchange rate, consider holding off on purchasing a cross-border franchise. Alternately, you can invest in a Canada-based franchise and not have to worry about how the economy will affect your sales and profit.
If you’re considering a cross-border franchise, make sure to stay on top of the exchange rate and economic forecast, as these will greatly affect your ability to succeed as a franchise owner.
Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.