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A2ALet’s answer the headline question first: Yes, you can lease to own a business.The technical terminology is a Lease With Option to Purchase Agreement.You can pretty much lease anything you want, if the current owner is willing to carry the lease; if they aren’t you are going to have to find a leasing company willing to do the carry on it.This means that you have to find someone willing to buy the business, own it, be prepared to repossess it from you should you fail to make payments, and run it themselves or find someone else to lease or purchase it, in that eventuality.Now the details. Should you?You asked:Can you lease to own a business?I have a business that is doing $700k in revenue & 5% profit. $410,000 has been invested in the business in equipment, website dev., inventory & marketing.The business has been open since 2009. Best year was $1 million in rev. in 2012. Can I lease to own the business? Any examples or thoughts.It’s not clear if you are asking about a business you already own, or a business you are evaluating for this type of deal (“I have a business”).If you are evaluating, just from the numbers provided: I would not want to buy this business, and a lease with option to purchase agreement is going to make it even less attractive.If you are the person who owns the business considering setting up such an agreement in order to flip the business: I would not want to do the carry on the lease, either as the current owner, or as a leasing agency.The numbers do not support it.Unless the business is currently grossly mismanaged (i.e.: a “fixer-upper”), 5% profit before lease loading is just not worth it.That said: there are a lot of businesses that qualify as “fixer-uppers”.You haven’t really given enough information about the business to see if it qualifies as such.You’ve given $700K as a gross revenue figure, with $35K as a net revenue figure. This is a really low percentage return on net for any business, unless you are including employee salaries and the business is one you can move to St. Barts in the French Caribbean, and the business will continue to throw off that 5% every year.After lease loading. After lease costs.In other words: relatively low risk, with high enough “bus numbers” (how many employees would have to get hit by a bus in order to crash the business), it’s $35K a year for nothing.It’s doubtful this business is one of those.For comparison:A Subway Sandwich franchise, given their distribution density (how many franchises per square mile), is roughly the equivalent of buying yourself an $80K-$85K a year job.It’s not something that just throws off money, you actually have to work, unless you can get 5 or more of them (a “master franchise”) in an area, and then use economies of scale on the logistics chain, including inter-unit material loans so that you can run at a lower JIT (Just In Time) inventory float.I actually considered bringing a master franchise for a particular food franchise that’s not currently in the Bay Area into the region, about 6 or 7 years ago. I might still do it, if I can talk them into not requiring me to work in a store, even one I own, for a year as a franchise condition. The only way it could happen, though, would be to leverage the economies of scale.The business you are talking about appears to be a hands-on purchase of a $35K a year job. And if you take all that in profit, even if it’s a “fixer-upper”, that’s a $35K/year job.Better to go with the Subway Sandwich franchise, if that’s what you’re doing.The $410K “bonus”.Up front, you’d hope that the $410K would offset the cost of the business. It doesn’t.Here’s what’s in that $410K, according to what you’ve told us:Equipment; no idea where it is on the depreciation schedule, but they are likely counting the purchase new price, rather than the current depreciated valueInventory; no idea on the type of business, but if it were e.g. a Subway Sandwich, then it has a limited shelf life.Even if it were not directly subject to spoilage, it may still have a limited shelf life: how many Furby™ do you think were sold this year?Web Site Design and MarketingI’m going to lump these together; personally, I consider them largely the same thing, and although it’s possible to manage a web site well, and have it have considerably more value, at the moment, whatever part of the $410K was spent here is a sunk cost.The businesses’ Good NameThis, actually, can have substantial value, even more than the revenue.This is a pretty much perishable list, however. I do not consider the $410K an offset at this point in the discussion.Good name, in particular, has a really short shelf life.Here’s the bottom line:Unless that $35K in profit per year is after you pay everyone, including paying yourself, as a leasing agency I wouldn’t touch the business.Assuming the $35K a year is after you pay yourself, then we can talk.Valuing a business: the short form.OK, so what’s the value of the hypothetical business?If it’s throwing a profit of $35K a year, and that’s net of:All annual costsEquipment depreciationInventory spoilage/shrinkagePaying all employees, including the principles, even if not directly involved in day to day operation (especially if not involved, in my estimation, since you’d want to own several of these, if that’s the case: full time jobs do not scale)Then I’d give a rough valuation of 2–2.5 years gross income on the business.That puts us in the neighborhood of a $1.4M-$1.75M valuation on the business.This is probably the smallest lump sum cost I would expect the business to sell for, even if it were a “fixer-upper”.As the current business owner, or as a leasing agency, would I do the carry on that?Not for 5%. Unless that was net of lease loading. If that’s after the lease costs are covered, then we are into “time value of money” territory. 5% is not currently that bad a return, if you are relatively uninvolved.But…A lease to own is not the same as a lease.Specifically, it’s not one agreement — or at least, it should not be structured as one agreement — it’s two agreements:The lease agreement itselfThe option to buy agreementIn an option to buy agreement, there is also the fact that you sell the option.In other words: for a lease with an option to buy, if you are doing the carry, you still own the business, and there is a separate option agreement that’s executed that you also get paid for, up front.$35K net of lease loading, as the owner, I’d do the carry/be the lessor (I’d be getting paid the lease loading, and it better be 5% or better a year to me). Plus I get an up front lump sum on the option to buy from the lessee.The lessee makes money, I make money, and the lessee has an option to buy.I’d make the option renewable as the lease is renewable, with an additional lump sum due on each option renewal.Can you get a leasing agency interested in a deal like this?I have no idea. A lease of a business generally applies to a commercial property management lease, more than in other situations, in my personal experience.You might interest them, depending on what the percentage return was on the carry amount invested, and whether you had an existing relationship with the business.You might also interest a high net worth individual, if they had a kid they wanted to “teach how to run a business”. They can afford that type of investment in a kid’s education.Obviously, your mileage may vary.Specifically, we don’t have a lot of details on the business which might impact the overall valuation. A lot of factors will impact the value of the business up or down from there.And there are actual finance people you could A2A that one.

Every minute of every day, Canadians are doing business with franchises. From St. John’s to Victoria, and everywhere in between, interacting with the franchise model has become par for the course in daily Canadian life.Canada has a well educated, highly skilled workforce, with workers who have disposable income and spending patterns similar to Americans. Canada has wide natural resources, an extensive infrastructure of highways, railways, shipping lines, and telecommunications, all features that support and enable successful business operations. These factors give the strong reason why Diaso would be very glad to open a franchise in Canada.Before you start a franchise there are certain things to keep in mind:Cost - total investment to get your franchise up and running. This should include the purchase costs, your opening inventory and the amount of working capital you are going to need before you break evenFederal legislation regarding intellectual property which guides you on how to use them, per say, Trademark of the FranchisorSensitive activities in Franchising:Price fixingMergersAbuse of dominant positionTied sellingRefusal to dealExclusive dealingMarket restrictionDelivered pricingAdvertising practicesOntario, Manitoba, Prince Edward Island, and New Brunswick statutes are wide-reaching in that they apply to any franchise to be operated in whole or in part in their respective provinces, whereas a franchisee must have some connection to Alberta, such as residency, in order to fall within the purview of the Alberta legislation.Common Law and the Civil Code familiarity would be essential, as all franchise business should adhere to it. There is no specific franchise statute in QuebecIn case you want to register your domain name, Aside from “.com”, Canada has the “.ca” top-level domain name in extensive use. These domain names must be registered with the Canadian Internet Registration Authority and are handled on a first-come, first served basisFranchisor support - The ongoing support and training provide the impetus for growth, providing the franchisee with the tools and tips to expand its customer base and build its market share. The responsibly built franchise system provides value to its franchisees by teaching them how to get and keep as many customers as possible, who consume as many products and services as possible and as often as possible.Review of Franchise Agreement - As a franchisee, you need to understand the lease terms and conditions and the contract you’re signing with the franchisor,” Saqib cautions. “In some cases, they can pull the franchise license if you don’t hit specific sales benchmarks, or if you fail to meet certain requirements.Get your paperwork in order - Financial institutions typically require a draft of the franchise agreement, the franchisee’s statement of personal finances (including net worth) and a business plan. Once your business loan is approved, Saqib says entrepreneurs shouldn’t be afraid to seek help in running their franchise. “It’s often a good idea to seek the help of a consultant to coach you through the initial months and years of operating your franchise.”Lawyer Guidance - Long, complicated and wordy franchise agreements filled with legal jargon may well help a franchisor in court when there's a dispute with a franchise. This is a form of legal protection in the world of franchise business type. These agreements don't take into account the problems with marketability. Therefore, ensure to have a thorough due-diligence carried out on the Franchisor under the guidance of an experienced lawyer.PS: Nava Wilson provide an affordable quality legal solution to franchise business clients so as to help them put the best foot forward. You can write to them at [email protected] or just give a missed call on (416) 321-1100Procedure to start your Franchise:Choosing a structure -single-unit franchisees -very common method of cross-border franchise expansionThis structure is more costlyThe franchisee will have to remit to the Canadian income tax authorities a prescribed percentage of the amounts paid or credited to a non-resident franchisor as rent, royalty or a similar payment, including the initial franchise feeMaster Franchising, Area Development, and Area RepresentativesUnder master franchisee, franchisee can act as a local, self-sufficient party who organizes franchise recruitment, site selection, construction and operational supportUnder an area development agreement, a franchisor grants a franchisee the right to open franchises within a defined territory over a fixed period of time. Generally, these agreements do not allow for the franchisee to sub-franchise to third parties. However, they allow the area developer to operate units and fulfill some franchisor functionsarea representative arrangements are increasingly being used. In these arrangements, the franchisor will still enter into franchise agreements directly with the franchisee, but enlist more involvement and assistance from local area representatives. This method is beneficial to the franchisor because it can retain control while shifting responsibility (for example, in marketing efforts) to the area representative in exchange for a percentage of royalties payable by the unit franchisees.Joint Venture Franchising - A joint venture franchise is a contractual structure where each venturer, usually the franchisor and the local partner, makes a contribution for a single common purpose, usually a local entity. Any of the multi-unit structures described above might have joint venture ownership.Verifying Franchisor Descolure statuesAll regulated provinces require franchisors to provide the prospective franchisee with a franchise disclosure document before granting the franchiseThe disclosure document must be delivered at least fourteen days prior to the earlier of the parties' entry into any agreement relating to the franchise or the prospective franchisee's payment of any consideration.Defines material facts as "any information about the business, operations, capital or control of the franchisor or franchisor's associate, or about the franchise systemFranchisees should obtain local Canadian legal advice on the issue of material facts, and identify what is required to be included in a Canadian disclosure document.Leasing of PremisesHistorically, it was a very common practice in Canada is for the franchisor to first lease the business or retail premises, and then to sublease them to the franchisee.In that case, a franchisor will want to obtain some right to enter the premises and assume the lease in the case of a default by the franchisee as the tenant.Equipment and Supply Issues - Franchisee should be aware that depending on the nature of the items, franchisor depending on criticality, account for volume purchases, rebates, and discounts, and to account for whether the franchisor will make a profit on the sale of these items to franchisees, all clearly mentioned in the Franchise Agreement.Providing Security - Franchisors can take a security interest in the franchisee’s assets to protect themselves in the event of default on payment. Canadian provincial security interest legislation has mandated that security interests are given priority based on registration and perfection. Franchisors should consider the probability that their interests will be subordinated to those of the franchisee’s primary lender.Legal review of the Franchise Agreement - The one and only document that protects the relationship between franchisor and a franchisee is the franchise agreement. To not get lost by jargons, to get a clear picture of the facts, and to stage your suggestions based on the clauses provided, always get experienced professionals advice.Finally, to start Diso Franchise in Canada, The Fairchild Group holds exclusivity on licensing and franchising rights for Daiso in North America. Any enquiries on wholesale, franchising, and joint venture opportunities can be cleared out at Fairchaild Group official site or at Navawilson.lawAll the very best, my friend!Thanks

Short answer: The truth is that Western companies are usually falling over themselves to give IP to the Chinese in exchange for lower manufacturing costs (the exception being some glaring examples of outright IP theft or industrial espionage - eg. American Superconductor)Chinese trade secret theft nearly killed my companyThe Chinese government has adopted a highly successful strategy to attract investment and IP to the country to spur its economic development. The way it usually works is deceptively simple: it begins with the the Chinese government identifying areas of strategic importance and then basically opening up their wallets to entice targeted companies to move operations to specific localities.An example: A US company might be looking to expand operations or invest in some new plant or factory. Traditionally, for funding, they can call on their their shareholders (eg. do more dilutive stock offerings), tap the debt markets or use their existing cash from current operations to fund the new expansion. Local governments might also offer some grants or tax credits. A business case is constructed to justify the investment, and if the project is expected to return over a specific hurdle rate, the investment proceeds.Now, if this company happens to be in possession of some technology or know-how deemed strategic by the Chinese government, they really open up the tap and aggressively dangle incentives to get the company to move operations there instead.They will offer significant incentives for Western companies to set up operations in China including but not limited to:significantly large dollar amount of cash for equity partnerships on favorable terms (with the govt directly or local proxy entities)Equity for used equipment transfers into the entitylarge dollar amount of govt grants (that don’t have to be paid back)subsidized, below market interest rate bank loans and debt for a period of timediscounted fixed assets (eg. leases on buildings, factory shells etc) for a period of timediscounted utilities for period of timeUse of bonded zones, tax credits, incentives and favorable rates for many yearsuse of the cheap local labor forceif such a JV or joint enterprise has partial government ownership along with its blessing, getting access to the market and sales from large customers in China becomes a lot easierAll these offerings are designed to make the business case for investment in China very tempting and easy to justify for short-term minded CEOs to pass up. But in order to make the project a reality, this also entails licenses for intellectual property (IP) and some knowledge transfer agreements so that the local labor force has the tools and knowledge to be productive. Often foreign executives will be brought in on expensive expat packages to oversee and train the junior but local executives to run the plant or factory. The US companies gladly offer these licences and cannot wait to get the project up and running so the stock price can increase and reward the executives who’ve been granted equity and options.From the point of view of the Western company, their initial capital outlay has been drastically reduced to one consisting of mainly intellectual property and/or existing equipment on hand (all of which are usually considered sunk costs, which implies an incremental marginal cash cost of contributed capital to be close to zero), which significantly boosts the rate of return on the business case as the cash investment from the company itself is very small (compared to say investing in the West) because the Chinese govt is providing most of the upfront cash, and yielding equity to the Western company for IP and used equipment.From the point of view of the Chinese, they just got a leg up and saved years, if not decades, of investment and learning. They also realize that after the initial license terms are up, there will be little choice for the US company but to keep making incremental investments to keep the plants going, though the terms may not be as favorable later.Soon enough, there usually will be incremental investments in R&D or manufacturing technology required by the venture, and since the government (or local proxy) also owns part of the entity, the eventual IP ownership will not always be legally unequivocal. In the future, some of the executives in such a venture may even leave to start their own companies, with the government’s blessing, utilizing what they’ve learned and maybe even taking some IP with them, the provenance of which by now is sufficiently muddled.Dispute resolution protocols over the long run are usually not given sufficient priority or thought in such deals, nor sufficiently provisioned for due to a variety of reasons, mainly because no one wants to bring up issues that might scuttle the deal (thinking positive and all that crap). But all that will become some other CEO’s problem, from the Western company’s standpoint. The original CEO is likely enjoying retirement or has moved onto another company by the time issues arise.Over the years, this has led to entire ecosystems and complete supply chains in many industries moving to China, something that is very hard, if not impossible to undo. It is almost always cheaper to expand current operations and be situated close to other suppliers or assemblers, testers, packagers etc than it its to start a new greenfield operation elsewhere where the rest of the elements of a supply chain are not present.So what happens is that, over time, the locals master the licensed IP, but also learn from it and leverage it to produce their own. This strategy is not unique to only China. They just do it on a larger scale and better than anyone else. Look back over the last 30–40 years. Where did the likes of Asus, ZTE, Huawei, Foxconn, Lenovo learn their craft? Either the companies were directly purchased (e.g. Lenovo) or they were originally either subcontractors or partners of US companies, or developed as offshoots by departing executives who learned their skills implementing the designs and IP of US companies, making their products for them, eventually learning enough to make their own.While admittedly IP laws and protection are not what is available in the West, and though there is significantly more corporate industrial espionage and theft, it is not nearly as material or large as made out by jingoistic politicians.The bulk of the IP obtained by China is not stolen or forcibly surrendered by Western companies, but rather is willingly offered by those companies in exchange for economic gain that is ultimately reflected in the company’s stock price. NO ONE IS FORCING ANY COMPANY TO DO ANYTHING! (Please cite some examples otherwise).See:Zoyadnikov Berg's answer to Why has Trump placed a tariff on imports from China when many of the imports are made by US corporations that have outsourced to China?EDIT:A comment was made regarding the copying of US designs for China’s indigenously developed jet fighters. Yes, while probably true for many such instances (and not just involving fighters or planes and the like) I would regard this type of theft as more under the category of traditional sovereign espionage rather than corporate economic theft.Again, no one (including the Chinese govt) denies copyright and IP protections are lax by Western standards and more needs to be done, but the infringements are hardly to the tune of the amounts claimed by zealous politicians intent on implementation of any and all tariffs on whatever product comes to mind that day.