The Canadian dollar going below 70 US cents is good news for the
manufacturing sector and bad news for Canadian tourists and
customers, and it might also spell new challenges for cross-border
In the past, the Canadian dollar kept up with the US dollar enough
that franchise agreement exchange rates were not a hotly debated
matter. Plenty of Canadians are interested in acquiring national,
regional or local rights to develop US brands, according to Edward
Levitt of Canadian Franchise Magazine.
It is still too early to predict exactly what type of impact the
lowered Canadian dollar will have on franchise deals that cross the
border, but it is likely you will need to engage in more proactive
negotiations with US franchisors. This will be necessary to help
change the terms that are now typically used by US franchises with
Canadian franchisees because those terms simply do not reflect the
current state of the Canadian dollar.
Essentially, whether you’re going to buy franchise rights for a
single unit, rights to develop multiple units, or the national or
regional master franchise rights with sub-franchise rights, you’ll
have to pay an initial franchise fee. With the Canadian dollar
weakened, you will need to try to negotiate this fee downward.
Unfortunately, this is something that will be easier for bigger
franchisees, but a savvy smaller franchisee might just be
successful with the right brand and negotiation tactics.
Ongoing royalty fees, which might be a percentage of sales, a flat
fee, or a combination of the two, are another potential area of
concern you can target. One route may be to negotiate so that the
royalty payments end up in Canadian dollars to match the currency
your sales are made in, with the franchisor taking responsibility
for any conversion costs.
A little creativity can go a long way in franchise deals in
general, and the same applies to cross-border US/Canadian franchise
agreements. Some US franchisors, for example, may agree to a
Canadian franchisee paying any money owned under the franchise
agreement in Canadian dollars unless the total falls below a
Disparate exchange rates are certainly not something new in the
world of franchising, and with juggernaut American franchisors and
fast-growing brands offering opportunities to Canadians, a weak
dollar certainly should not deter you. Try a little creativity in
your franchise deal to make the most of your investment dollars!