Author Topic: Anyone have experience with Franchises?  (Read 3793 times)

Meggslynn

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Anyone have experience with Franchises?
« on: December 02, 2015, 02:31:01 PM »
Hello,

I am looking for some feedback about my idea. I can't release names or specifics as I signed a disclosure agreement.

I have 32, married, one child. Recently laid off from oil and gas. I was a payroll supervisor. I am Canadian and I am in one the fastest growing communities in Canada.
I have one passion and one hobby that are the same. There is a franchise that is available that would allow me to combine my career and my passion. If I did this for living as an employee I would make about $40K. My region is open for this franchise and I met with them today.

I have enough cash to pay about 30% of the total cost and I would be in debt about 400K on a business loan. I have done lots of research and owners of this franchise make anywhere from 112K to 225K profit. My region is highly comparable to another region and they make 175K. This franchise company is well run and has been around for 12 years in Canada and much longer abroad so the likelihood of it failing anytime soon is slim to none. This franchise company has been labelled as one of the most successful in numerous business and financial magazines and papers.

I have been asked why not open an independent location? Well I would have to get trained which would be a year long process, I would have no support and this franchise will open in this area likely putting me out of business.

One of the reasons I do not want to go back to the professional world as it was highly stressful having to work 40-50 hours a week and having a boss to report to. I have a son with health problems and it was incredibly difficult to get off work for appointments and sick days and work holidays away from my family. I was told by the franchise typically after the first year owners work 0-30 hours a week once the business is well established. I love the idea of being able to pick up my son from school or not worry about getting fired from all the sick days I need to take. I also have a condition that causes me a great deal of pain and it will get worse the older I get and this will provide me with income.

My husband has a stable job with the government and makes 75K. He would continue to work for government until we reach a point of being debt free and being easily able to service our expenses from our profits. We can live off of his income and put the profit all towards the business loan for however long it takes to become debt free.

So what do you all think? Am I crazy to consider going 400K into debt to get a lifestyle I want? Yes, eventually the business loan will be gone and it will become a huge asset for us. But as anti-debt people I think we might be nuts.
« Last Edit: December 02, 2015, 03:25:31 PM by Meggslynn »

Argyle

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Re: Anyone have experience with Franchises?
« Reply #1 on: December 02, 2015, 02:50:20 PM »
All of this sets off alarms of a "If it sounds too good to be true..." nature.

I would start by talking to people who already own franchises of this company.  Is it true that they work 0-30 hours a week?  Especially the 0 -- really?  They're bringing in income with no hours worked per week?  For a profit that starts out around $112,000 per year?  How can that be possible?

Have you googled "[franchise name] scam" and the like? 

COlady

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Re: Anyone have experience with Franchises?
« Reply #2 on: December 02, 2015, 02:58:10 PM »
Hello,

I am looking for some feedback about my idea. I can't release names or specifics as I signed a disclosure agreement.

I have 32, married, one child. Recently laid off from oil and gas. I was a payroll supervisor. I am Canadian and I am in one the fastest growing communities in Canada.
I have one passion and one hobby that are the same. There is a franchise that is available that would allow me to combine my career and my passion. If I did this for living as an employee I would make about $40K. My region is open for this franchise and I met with them today.

I have enough cash to pay about 30% of the total cost and I would be in debt about 400K on a business loan. I have done lots of research and owners of this franchise make anywhere from 112K to 225K profit. My region is highly comparable to another region and they make 175K. This franchise company is well run and has been around for 12 years in Canada and much longer abroad so the likelihood of it failing anytime soon is slim to none.

I have been asked why not open an independent location? Well I would have to get trained which would be a year long process, I would have no support and this franchise will open in this area likely putting me out of business.

One of the reasons I do not want to go back to the professional world as it was highly stressful having to work 40-50 hours a week and having a boss to report to. I have a son with health problems and it was incredibly difficult to get off work for appointments and sick days and work holidays away from my family. I was told by the franchise typically after the first year owners work 0-30 hours a week. I love the idea of being able to pick up my son from school or not worry about getting fired from all the sick days I need to take. I also have a condition that causes me a great deal of pain and it will get worse the older I get and this will provide me with income.

My husband has a stable job with the government and makes 75K. He would continue to work for government until we reach a point of being debt free and being easily able to service our expenses from our profits. We can live off of his income and put the profit all towards the business loan for however long it takes to become debt free.

So what do you all think? Am I crazy to consider going 400K into debt to get a lifestyle I want? Yes, eventually the business loan will be gone and it will become a huge asset for us. But as anti-debt people I think we might be nuts.

I don't have too much knowledge of the franchise business....only enough to be dangerous.  This is the part that worries me the most:

One of the reasons I do not want to go back to the professional world as it was highly stressful having to work 40-50 hours a week and having a boss to report to. I have a son with health problems and it was incredibly difficult to get off work for appointments and sick days and work holidays away from my family. I was told by the franchise typically after the first year owners work 0-30 hours a week. I love the idea of being able to pick up my son from school or not worry about getting fired from all the sick days I need to take. I also have a condition that causes me a great deal of pain and it will get worse the older I get and this will provide me with income.

I don't know what kind of franchise this is (since you said you can't disclose) but I would think owning your own business is much more stressful than even the most stressful of salaried positions.  The worst thing that happens if you lose or quit your salaried job in most people's situations: you have to find a new job, you might stress about bills and/or meeting savings goals or go into debt on a CC to live.  When you own your own business the business is YOURS. If someone doesn't show up, you do or your business fails. If your business fails you can't pay your $400k loan.  I don't want to be Debbie downer but you should definitely go into this with your eyes wide open.  If you're already stressed in other areas of your life, I don't think opening your own business will be the stress reliever that you think it will. What about using your skills in an existing company on a part-time or flex time basis that way you can take the time you need. What about consulting (if that applies to your industry)? That way you get paid when you work but don't get fired when you don't work. I'm currently consulting because my son has a lot of health problems and it works for us because I don't have to feel guilty about all the doctor's appointments, ect. I've agreed to work 20 hours per week and I can do it when and wherever I want.


COlady

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Re: Anyone have experience with Franchises?
« Reply #3 on: December 02, 2015, 03:04:21 PM »
Also, remember that franchisors make money off of their franchisees through royalties, etc. so of course they want you to sign up with them. They are not a unbiased party when evaluating this decision. I think you should talk one on one with other franchisees and maybe sit down with a well respected person with business knowledge. Maybe you should put together a financial projection with best and worst case scenarios?? A CPA could probably help you out with this. Yes, you'd have to pay for it but it's better to do your due diligence.

seattlecyclone

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Re: Anyone have experience with Franchises?
« Reply #4 on: December 02, 2015, 03:16:26 PM »
I've heard franchises described as "buying yourself a job," and it sounds like an appropriate description to me. You need to work a lot of hours building up a good customer base and managing a staff to make the types of profits they claim. You can work less and hire someone to manage the business for you, but you first have to find someone you trust to do the job as well as you would, and then you need to pay them. Every dollar you pay them comes straight out of your own bottom line. If you do go the "0 hour" route, you may still receive some sort of profit at the end of the year, but I doubt it would be as good of a return on your $400k as you would get with an index fund, for example.

Meggslynn

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Re: Anyone have experience with Franchises?
« Reply #5 on: December 02, 2015, 03:17:06 PM »
Yes I understand that there will be a different kind of stress related to owning my own business. I have talked to two owners of this company and one works 6am to 11am or 12pm everyday and he pulls in about 150K and the other has two stores one where he works 7am to about 1 or 2pm and the other location has a manager and he goes for a weekly check in and that's it. This is a rather large company and they are very well-known in Canada and from the research I have done I only know of one location in my province that has gone under and that was due to location and owner who was also acting manager and treated the staff very poorly and couldn't keep staff therefore never had product on the shelves. 

I don't think if someone doesn't show I have to. I will have an employee base that I can call to see if they can cover if I can not. I anticipate putting in long hours the first year or two like most of the franchise owners I talked to did but after that I see myself working 6 hour days.  My commute would 5 minutes instead of one hour. I have gone to school for business management and feel that I have a comprehensive understanding of what I am getting myself into.

Unfortunately in my area of expertise there is no consulting available unless you are a software SME, which I am not. Unfortunately there is no such thing as part time or flex time in payroll. Its full time, all the time.

Meggslynn

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Re: Anyone have experience with Franchises?
« Reply #6 on: December 02, 2015, 03:17:57 PM »
Also, remember that franchisors make money off of their franchisees through royalties, etc. so of course they want you to sign up with them. They are not a unbiased party when evaluating this decision. I think you should talk one on one with other franchisees and maybe sit down with a well respected person with business knowledge. Maybe you should put together a financial projection with best and worst case scenarios?? A CPA could probably help you out with this. Yes, you'd have to pay for it but it's better to do your due diligence.

Thank you, this is a good idea.

Meggslynn

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Re: Anyone have experience with Franchises?
« Reply #7 on: December 02, 2015, 03:23:18 PM »
I've heard franchises described as "buying yourself a job," and it sounds like an appropriate description to me. You need to work a lot of hours building up a good customer base and managing a staff to make the types of profits they claim. You can work less and hire someone to manage the business for you, but you first have to find someone you trust to do the job as well as you would, and then you need to pay them. Every dollar you pay them comes straight out of your own bottom line. If you do go the "0 hour" route, you may still receive some sort of profit at the end of the year, but I doubt it would be as good of a return on your $400k as you would get with an index fund, for example.

Yes that is very true. I do not see myself going the 0 hour route until I am much older. My goal right now is to work 40-50 hours a week for the first couple years and the reduce that to 9am to 3pm shifts so I can drop off my son and pick him up from school. This particular franchise has been considered one of the most successful franchise companies in the world by many financial and business magazines and papers.

Gone Fishing

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Re: Anyone have experience with Franchises?
« Reply #8 on: December 02, 2015, 03:23:26 PM »
My dad looked at several franchises over the years and despite going pretty far down the road with one of them, never pulled the trigger on opening any of them.

I deal with franchise owners from time to time and these are the major issues I see:

Corporate can screw you at any given time. Get a bad or greedy group of executives or board members and they will milk the franchises dry by increasing fees, costs of materials, ect.

There is a reason they make you sign a confidentiality agreement. 

Corporate usually has a few "flagship" franchisees that they like to parade around in order to sell more franchises.  These individuals typically do very well, and may even get special treatment when it comes to territory etc. to keep them promoting the franchise.

Bad press at any location is bad press for you.

Lack of diversification.

If it was really that good, they would be opening corporate stores vs franchise locations.  What they get with a franchise is a vested manager (you).  If you step out of the picture and try to hire someone (or several people) to run the location for "passive income"  the probability for success drops significantly.

There are certainly people that have built up tremendous incomes with franchises, but they typically do it the old fashioned way, reinvesting the profits over and over, plus a bit (or a lot) of leverage that they are lucky enough not to have come back and bite them. For the reasons above I don't think I would ever be too interested in a franchise.  But if I was, an existing location with good performance records would be preferred, unfortunately these usually come with a price tag to match.

Gone Fishing

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Re: Anyone have experience with Franchises?
« Reply #9 on: December 02, 2015, 03:29:31 PM »
This particular franchise has been considered one of the most successful franchise companies in the world by many financial and business magazines and papers.

So was Krispy Kreme

http://www.marketwatch.com/story/rise-and-fall-of-biggest-krispy-kreme-franchisee

oldmannickels

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Re: Anyone have experience with Franchises?
« Reply #10 on: December 02, 2015, 03:34:33 PM »
I have a couple clients that are franchise owners and they can be complete cash cows and at the same time be complete debt black holes.

Some things to think about. 20 years from now you've paid off that debt and your franchise agreement comes up. You decide that you want to sell. Your business is pretty worthless without the franchise agreement. Who owns the real estate where the franchise would be located and are then in a position to match the lease up to the franchise license because otherwise you can be a franchise without a building or a building without a business. 10 years from you your franchise is going to look stale and they'll want you to pony up another $250k to refresh the franchise concept and maybe re-up the franchise agreement at a discount. Are you going to be willing to go into more debt to maintain what you have?