Crossing to Canada, the right way
Adam Povlitz, president of Ft. Lauderdale, Florida-based Anago Cleaning, bucked conventional wisdom by selling his first international master in Chile, rather than in the more conveniently close Canada. The commercial cleaning company wasn’t actively considering Canada until a franchise broker brought them a dual-citizen candidate, a Lebanese/Canadian executive who wanted to change his corporate lifestyle and spend less time on the road away from family.
Currently in its second year, the relationship has been good, Povlitz says, and now that the franchisee has one year under his belt, all the hard work is paying off. “He’s now awarded 19 units, the bulk of which were this year,” Povlitz says. The problem, he points out, is that getting to the altar in Canada takes longer than one would think. And when you have a franchisee ready and eager to start, it takes away momentum when the franchisor has to wait for the trademark to be registered, and its agreement, manuals and software to be Canadaized.
The affable Povlitz compared the process to the sentiment voiced by Billy Crystal’s character in the romantic comedy, “When Harry Met Sally”: “When you realize you want to spend the rest of your life with somebody, you want the rest of your life to start as soon as possible.”
“I can’t believe I’m quoting ‘When Harry Met Sally,’” he says, laughing at himself.
But the sentiment demonstrates why it’s important to have all your docs in a row before signing up franchisees. And in Povlitz’s defense, the franchisor/franchisee relationship is more often than not referred to as a marriage.
Although most experts will suggest checking out Canada before heading halfway around the world, there are both synergies and challenges. And wise franchisors don’t slack on their due diligence, just because Canadians seem so much like Americans.
One obvious reason franchisors believe Canada is an easy sell is that the language spoken in the two countries, except for a few intonations, are basically the same.
Only Quebec has a requirement that all correspondence and signage be in both French and English (see sidebar).
Canadians pride themselves on having their own distinct culture. For instance, Joseph Adler of Hoffman Adler in Toronto points out, “We distinguish ourselves by our own TV shows, our own way to do business...and our distinct Canadian palate.”
When the Canadian and U.S. dollars were at parity, there was not as much interest from U.S. franchisors in northern exposure. Now with a weaker Canadian dollar, both Chad Finkelstein, an attorney with the Toronto office of Dale & Lessmann, and Adler have seen an uptick in both established and emerging U.S. brands checking out the feasibility of Canadian expansion.
Two major considerations are taxes and accounting, but sometimes it’s the smaller details that trip you up. That was the case for Povlitz’s cleaning franchise. Their U.S.-designed software for billing had a field for postal codes that wasn’t compatible with Canada’s six-character alphanumerical system. Headquarters, which does the franchisees’ billing, had to white out the Canadian postal codes and write them in by hand, until the software code could be rewritten.
Anago Cleaning also had a marketing snafu, Povlitz says. “In the U.S., you can send an email blast as long as you have an opt-out option,” he says. “But in Canada people need to opt in, so we had to change” the way they marketed.
An important consideration is whether franchisors are paid in Canadian or U.S. dollars and who does the conversion, Finkelstein says. A sometimes overlooked item is that non-residents, such as franchisors receiving royalties from Canadian citizens, are subject to a 10 percent withholding tax. Which is why tax issues require a Canadian CPA; and differing disclosure laws necessitates hiring a Canadian lawyer. Five provinces require franchise disclosure, but British Columbia is expected to join the ranks by the end of the year, Finkelstein says.
Trademark protection has also gotten stickier, he says, because the government is about to do away with the “use” component in the law, which could open the doors for “trademark trolls.” “Plan long in advance for your trademark protection,” he advises.
Also be forewarned, Adler says, that real estate prices in urban areas like Toronto are expensive and site selection software and criteria has to be altered.
A safe way to test out Canada, Adler suggests, is to build a corporate unit to work out the kinks and identify the real costs of doing business. “It can be the flagship, or refranchised,” he added. But above all, he says, U.S. franchisors have to show up in Canada, speak to experts and get the lay of the land first hand, so they’re not speaking top of head, eh?
Quebec is the only Canadian province that requires franchisors to translate their signs, documents and menus into both French and English, says Chad Finkelstein of Dale & Lessmann. And as soon as this coming fall, they may be required to translate descriptors in their exterior signs, such as “coffee shop,” into French as well, according to the Toronto Star.
The Language Police, as the people who enforce this law are known, originally wanted to force companies to translate their registered names into French, but big-box retailers in Canada sued and won, Finkelstein says. “If you have a trademark registered in English, you don’t have to translate it,” he says, however, any descriptors will have to be translated. Some proactive chains already have translated their names, such as Poulet Frit Kentucky (the U.S.’s KFC).
Another legal challenge was won by an Italian restaurateur who was being required to translate Italian words, such as “pasta,” into French on his menu.
Also be aware the “politically correct “greeting there is “bonjour-hi.”