buying a franchise

[crabbybob]

Does anyone have experience with buying a franchise? I'm thinking about starting a small business and am currently investigating several franchise opportunities. The disclosure documents I've looked at do a good job of protecting the franchiser but don't seem to be concerned with the franchisee, other than to list some pretty expensive operating costs, fees, and penalties. Any suggestions of what to look for and what the pitfalls might be would be appreciated.

[DaveGH]

No idea, I would surely sink it.... but product and LOCATION would be important.

[Gary P]

check for competition clauses. some Franchises like D&d and subway have you purchase the rights to a geographic area but be careful there too as they often have clauses that you have to open more than 1 business in a certain amoutn of time. the upfront costs for any franchise are often high with no gaurantee for success. talk to you competition, or just watch to see the volume they do. Even if you fail which 4-5 small business do, the Franchiser always wins with all those rediculous upfront costs. Make sure you have at least 1 years capitol as the first year is critical to success and that is when you have to spend the most advertising your location.

[Paqman]

Me and my buddy thought about it, it was going to be a Popeyes in downtown springfield, gold mine, they just wouldn't supply the bullet proof vest MachineGun MachineGun

[crabbybob]

Thanks for the responses. The franchiser does seem to be very well protected and there are a lot of fees. One disclosure document even stated that any improvements the franchisee develops to the business model become the property of the franchiser.

Something like a McDonalds or Popeye's Chicken is well beyond my reach but a house near mine has gone into foreclosure and I was teasing my neighbor about opening a Popeye's Chicken on the site. He didn't see any humor in the joke.

[Paqman]

Thanks for the responses. The franchiser does seem to be very well protected and there are a lot of fees. One disclosure document even stated that any improvements the franchisee develops to the business model become the property of the franchiser.

Something like a McDonalds or Popeye's Chicken is well beyond my reach but a house near mine has gone into foreclosure and I was teasing my neighbor about opening a Popeye's Chicken on the site. He didn't see any humor in the joke.

Laughing1
Once we saw the price we realized that would be a lot 3 piece combos to break even

[Son Of Toad]

Actually I worked with the 2 brothers who started up the Zantos pizza shops all in western MA. One brother worked in Boston and nailed the dot com's before the pop, the other one worked with me as a computer tech at Baystate.

I can always find out what they are doing for their franchises, I know they are looking to start selling those to potential investors as well.

[Fishgill]

I know there are plenty of small Pizza shops. But have you looked into Papa Johns Pizza? I don't think we have any in the area. I've had it before and thought they had great Pizza. Just a thought.Wink1

[crabbybob]

Thanks for the input. I've been working with a consulting company called Franchoice. According to the consultant I should be looking for a service franchise with two or three employees, and she set me up with 4 different companies that fit that profile. I've been getting a lot of information from them but would like to talk to someone whose tried it and has nothing to gain by selling me something.

[kyle]

A McDonalds is very profitable.

My twin brother is a shift manager at a mcdonalds... and his store on average brings in $5k a day. Minus food costs, bills and labor, the store makes about 2-3 thousand a day (net that is). Pretty good if you ask me.

[crabbybob]

That's a good profit, kyle The problem is coming up with the initial capital. Someone told me a McDonalds franchise would be in the neighborhood of $1M. Yikes

[kyle]

Yep thats the only catch lol

[knotreelly]

i believe it was around 1965 when mc d had a hard time selling the franchise on northampton st in holyoke for 35k and a few yrs later the sigh read 1 million burgers sold

[Gary P]

Kyle with 5k in sales per day, there is now way they are making 2-3k profit, no way! profit on the margin of the food vs sales but not including operating costs. there is alot more than just rent and payroll. remember, in order to make money, you have to be open alot of hours and with only 2-3 empoyees, you better be ready for 70 hour work weeks! My cousin ownded a Baskin Robbins and did o.k. When he bought it, he paid 175k for the business which he was able to pay off in 3 years and draw about 50k in salary. Once it was payed off, it went to 100+k he was able to draw and only then was he able to hire a Mgr for 15 bucks an hours so he could get away a little bit. He was in a mall in Fl and the when his lease ran out, the mall wanted him to move to the foodcourt area instead of by the main entrance where he was. BR told him if he relocated, he would have to buy all new equipment from them at a cost of 500k! plus labor! He didn't want to go back to 7 day work weeks after all that so he closed his doors, total bust! He then bought a sports office complex with sports therapists, chiropracters, massae therapists etc. That work out for a few years but he got sick of all the old folks in Naples so he sold that and bought a video productions company that makes training videos etc ( not porn). but that went under a few years ago when the world of digital took over. He now is back working for the man as a head hunter

[DaveGH]

I'd rather do time than run a McDonalds, lol. Agree with Gary, life over. I'd try to look at something that I was interested in, had some passion for. Also looking at things that could be huge in 5-10 years could be a good to go. Green energies, solar, wind, healthier foods, fishing related products, internet... My best idea is to bottle seawater to splash on your face. I will be a billionaire!!
(don't take my idea)

[kyle]

Kyle with 5k in sales per day, there is now way they are making 2-3k profit, no way! profit on the margin of the food vs sales but not including operating costs. there is alot more than just rent and payroll. remember, in order to make money, you have to be open alot of hours and with only 2-3 empoyees, you better be ready for 70 hour work weeks! My cousin ownded a Baskin Robbins and did o.k. When he bought it, he paid 175k for the business which he was able to pay off in 3 years and draw about 50k in salary. Once it was payed off, it went to 100+k he was able to draw and only then was he able to hire a Mgr for 15 bucks an hours so he could get away a little bit. He was in a mall in Fl and the when his lease ran out, the mall wanted him to move to the foodcourt area instead of by the main entrance where he was. BR told him if he relocated, he would have to buy all new equipment from them at a cost of 500k! plus labor! He didn't want to go back to 7 day work weeks after all that so he closed his doors, total bust! He then bought a sports office complex with sports therapists, chiropracters, massae therapists etc. That work out for a few years but he got sick of all the old folks in Naples so he sold that and bought a video productions company that makes training videos etc ( not porn). but that went under a few years ago when the world of digital took over. He now is back working for the man as a head hunter

Okay so after talking to him again, i found out it is the lower end of the scale.

$5000 in sales on average a day. 20% goes to corporation. So now we are at $4000. There is on average 130 paid hours of labor, which equals to around $1200. Now its down to 2800. Food costs and utilities equal around $800, so now its at the $2000 mark.

Last year the store had $2.1 Million in sales, so the number $5k a day can vary a little.

[Gary P]

look at it this way. 2kmark left over x 365 days a year ave. is 730k, there is no way that a Mickey d's or most any other business that has 2.1 mill in sales is turning out 730k profit. That's a 33%margin. not gonna happen. Here's a few things you left out. unemployment taxes, health care, advertising, maintenence, snow removal, supplies, license fees. and the list goes on and on. I would bet he may clear 150 by the time it is all said and done which is still nice but nowhere near what you think

[Lefty]

I've done some research in retail businesses for my clients and the one thing that stands out is the long hours you have to work. Franchise contracts are set up favoring the grantor so part of the reason is holding down costs, especially in the first few years. The other reason is most of these deals are cash businesses and you have to keep your eye on the register. It's very easy for employees to pocket money if they've a mind to so someone trustworthy has to be there and most often, that's you.

[crabbybob]

Thanks for the insight Lefty. I've spoken to a few franchisees and they mentioned the same thing you did with regard to watching the cash register. As a matter of fact, I recently spoke with a franchisee of a franchise I'm investigating and he said employees have been his biggest problem. He's currently looking for a sales person in central MA and is having trouble finding a suitable candidate. It seems that people don't want to work anymore.