Author Topic: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.  (Read 6575 times)

Jack0Life

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Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« on: January 21, 2021, 11:10:43 PM »
You can see more info here. https://www.zerodegreescompany.com/franchise
Opening in Houston where people waited for over 1 hr. https://www.youtube.com/watch?v=mtOIR7oTV3Y

This franchise is located in Orlando. Belongs to a friend of mine.
When it first opened, the lines were long too, just not as long as Houston LOL.
She put in around $300k into the restaurant. Everything inside is pretty much new.
Just talked to her and she is willing to sell it to us for $130k + $5000 franchise transfer fee . We want to offer $120k.
My wife is really excited about running a small business(it's her lifelong dream). I'm 50/50.
I've been laid-off so I'm doing nothing although I might be recalled by June. My wife hates her job and is planning to quit around March/April.
Our NW is hovering around $1,130,000.
Our original plan was to take a few years off and travel and such. We would stay out as long as out NW stays above $1 million. If it dips below, we might go back to work. I figured worst case we could stay out for 2 yrs.

The restaurant opened mid 2018. It was packed. Lines outside the door. I don't know what sales they had but I know this was their best half year.
2019. Sales around $430k. She spent little time at the restaurant. Did not take a salary. Netted around $50k. Probably more cause she took money here and there but $50k was what on the books.
2020. Pandemic. Had to close for 2.5 months. Sales to Oct is only $200k. Small loss according to the books but maybe just broke even.
This franchise has a lot of potential. Sales in 2019 is pretty average and even at that figure I can streamline some stuff and make more than the $50k she reported.
2021. I'm estimating sales maybe around $350k. At this figure, I think I can eek out a small profit.
I was in the McDonalds business for yrs and GM for >5 yrs so I know how to run a quick service restaurant.

Like I was saying, I'm 50/50. I have never had a small business before. My wife have had many small businesses but only in her native country which is why she loves the idea.
Basically instead of spending our next 2+yrs traveling and enjoying ourselves, we would spend that amount of time devoted to the restaurant.
If it does come into fruition I would only offer the max of $120k vs her $130k.
Love to hear what some of of you guys who have had experience in small business think.
Have to make a decision by Sunday.
YAY or NAY ?


ender

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #1 on: January 21, 2021, 11:51:42 PM »
Do you want to work 60 hour weeks?

Adventine

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #2 on: January 22, 2021, 03:29:44 AM »
I'm highlighting some parts of your post that really stood out to me:

I've been laid-off so I'm doing nothing although I might be recalled by June. My wife hates her job and is planning to quit around March/April.

Our original plan was to take a few years off and travel and such. We would stay out as long as out NW stays above $1 million. If it dips below, we might go back to work. I figured worst case we could stay out for 2 yrs.

Basically instead of spending our next 2+yrs traveling and enjoying ourselves, we would spend that amount of time devoted to the restaurant.

You've got a great net worth. You plan to travel and enjoy yourselves. Do you really want to trade your extended vacation plans for... more work?

helloyou

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #3 on: January 22, 2021, 04:16:21 AM »
can you hire someone to do 90% of the restaurant work for you? and you just be the hands off manager?

FL_MM

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #4 on: January 22, 2021, 04:47:03 AM »
I see a location on Sand Lake and one on Colonial. Is it one of these?

obstinate

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #5 on: January 22, 2021, 08:21:22 AM »
Restaurants are where nest eggs go to die. There are dozens of horror stories you can read in papers or online. Friend isn't selling at a nearly 200k loss out if the goodness of her heart.

Unless you have personal experience running a restaurant, run away screaming. If you have extensive personal experience managing a restaurant, approach with extreme caution.

jrhampt

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #6 on: January 22, 2021, 08:30:55 AM »
Restaurants are where nest eggs go to die. There are dozens of horror stories you can read in papers or online. Friend isn't selling at a nearly 200k loss out if the goodness of her heart.

Unless you have personal experience running a restaurant, run away screaming. If you have extensive personal experience managing a restaurant, approach with extreme caution.

+1
NAY.  Especially during COVID.

YttriumNitrate

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #7 on: January 22, 2021, 08:43:43 AM »
I was thinking "Hell No" until this part:

I was in the McDonalds business for yrs and GM for >5 yrs so I know how to run a quick service restaurant. Like I was saying, I'm 50/50. I have never had a small business before. My wife have had many small businesses but only in her native country which is why she loves the idea.

After that part I was thinking "Okay, but why?" It seems like you'll be devoting a lot of hours to something that will probably have fairly small returns relative to your overall net worth.
« Last Edit: January 22, 2021, 10:49:18 AM by YttriumNitrate »

Rhinodad

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #8 on: January 22, 2021, 08:59:36 AM »
The quickest way to have $500,000 from the restaurant business is to start with 1,000,000. When Sonic came to our city, lines were long, place was packed for 6 months. 2 years later, they are all closed. You would literally be buying yourselves jobs...one in which you can't leave the stress at work.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #9 on: January 22, 2021, 09:06:01 AM »
I see a location on Sand Lake and one on Colonial. Is it one of these?

Colonial. It's in a worst off area but that shopping center is like mostly Asian businesses and good foot traffic.
Rent is fairly cheap.
There are people there that is trying to develop the old building into Asian mall type. It won't be a while.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #10 on: January 22, 2021, 09:08:43 AM »
Do you want to work 60 hour weeks?

I already know this. I ran McDonalds for a long time, there are times where I spent many hours in my store because I lost people and such.
This is mostly for my wife. As I was saying I might get called back into my old job so she would have to run the place.
As to your question. HELL NO.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #11 on: January 22, 2021, 09:10:29 AM »
I'm highlighting some parts of your post that really stood out to me:

I've been laid-off so I'm doing nothing although I might be recalled by June. My wife hates her job and is planning to quit around March/April.

Our original plan was to take a few years off and travel and such. We would stay out as long as out NW stays above $1 million. If it dips below, we might go back to work. I figured worst case we could stay out for 2 yrs.

Basically instead of spending our next 2+yrs traveling and enjoying ourselves, we would spend that amount of time devoted to the restaurant.

You've got a great net worth. You plan to travel and enjoy yourselves. Do you really want to trade your extended vacation plans for... more work?

I DO NOT but as we were discussing the pros and cons, I notice every time I brought up a con, my wife would try to negate my cons. I can see she really want this opportunity.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #12 on: January 22, 2021, 09:12:14 AM »
I was thinking "Hell No" until this part:

I was in the McDonalds business for yrs and GM for >5 yrs so I know how to run a quick service restaurant. Like I was saying, I'm 50/50. I have never had a small business before. My wife have had many small businesses but only in her native country which is why she loves the idea.

After that part I was thining "Okay, but why?" It seems like you'll be devoting a lot of hours to something that will probably have fairly small returns relative to your overall net worth.

Agreed 100%.
Mostly for my wife's sake. She wants to quit her job and this is what she dreams of. Running a small business.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #13 on: January 22, 2021, 09:22:31 AM »
I totally understand the hardship of running a small business especially a restaurant but I would like you know what people think about the situation financially ?? The big positive I see in this situation is that we can get in the business for a relatively small amount. $125k to get into this franchise is very cheap. Look at the fees from their site.
Believe me when I tell you that I absolutely hate running a small business. My entire life philosophy is to work hard, be frugal, save and retire which is what I've done.
My wife is so excited about this opportunity that if I just blew it off without giving it a chance, she might hold grudges for a while.
YES, there is a wife involved. I even told her if she let me make the decision, it would be a NAY for me right away.



uniwelder

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #14 on: January 22, 2021, 09:38:50 AM »
I totally understand the hardship of running a small business especially a restaurant but I would like you know what people think about the situation financially ?? The big positive I see in this situation is that we can get in the business for a relatively small amount. $125k to get into this franchise is very cheap. Look at the fees from their site.

Here's what people have already said about the financial aspect of this deal----

The quickest way to have $500,000 from the restaurant business is to start with 1,000,000. When Sonic came to our city, lines were long, place was packed for 6 months. 2 years later, they are all closed. You would literally be buying yourselves jobs...one in which you can't leave the stress at work.

Restaurants are where nest eggs go to die. There are dozens of horror stories you can read in papers or online. Friend isn't selling at a nearly 200k loss out if the goodness of her heart.






Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #15 on: January 22, 2021, 09:40:14 AM »
Restaurants are where nest eggs go to die. There are dozens of horror stories you can read in papers or online. Friend isn't selling at a nearly 200k loss out if the goodness of her heart.

Unless you have personal experience running a restaurant, run away screaming. If you have extensive personal experience managing a restaurant, approach with extreme caution.

Totally understand why she's selling it for nearly a $200k loss.
As to your question, I was GM for Mcdonalds for >5 yrs but that was in 2005.
Whenever I make a business decision, I always relate to a worst case scenario.
Even in a pandemic year, it barely made a loss. The potential is there.
I love the products there. The food, drinks are top notch quality and very good word of mouth from people who have visited the restaurant.
I think it can make a profit this year but yeah that's with me putting a lot of effort into the restaurant.
If things return to normal(let's say 2022), I can be mostly hands-off and the store can generate $50k-$75k income for me.

Probably my biggest worry is that minimum wage will go up to $15/hr.
Florida already passed a bill to increase minimum wages but that's $1 each year until it hit $15 in 2026 but Biden is trying to make the $15 minimum right away. It this were to occur, we would take a huge hit. Labor would go up 50% instantly.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #16 on: January 22, 2021, 09:47:49 AM »
I totally understand the hardship of running a small business especially a restaurant but I would like you know what people think about the situation financially ?? The big positive I see in this situation is that we can get in the business for a relatively small amount. $125k to get into this franchise is very cheap. Look at the fees from their site.

Here's what people have already said about the financial aspect of this deal----

The quickest way to have $500,000 from the restaurant business is to start with 1,000,000. When Sonic came to our city, lines were long, place was packed for 6 months. 2 years later, they are all closed. You would literally be buying yourselves jobs...one in which you can't leave the stress at work.

Restaurants are where nest eggs go to die. There are dozens of horror stories you can read in papers or online. Friend isn't selling at a nearly 200k loss out if the goodness of her heart.

Those are just general answers without being specific.
If someone posted this thread I'd probably jumped in and say the same thing.
Financially, i would argue that getting in a a fairly successful franchise(so far anyway) for 40% of what it would originally cost. (arguing from my wife's perspective anyway). I'm alre4ady a NAY in this situation.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #17 on: January 22, 2021, 09:52:06 AM »
LOL. When i sit down and have lunch with my wife today, I have to tell her it's all been NAY. Not one YAY yet.

BTW my friend had already hired a realtor to put the business up for sale @ $150k. There's a 12% realtor fee.
She can get out of the contract for $1000 within 1 week. She's offering this to us at $130k. I won't buy it it $130k. If my wife is really dead set on buying it, I would offer $120k and I don't even know if she would take that. There is a $5K franchise transfer fee too.

tooqk4u22

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #18 on: January 22, 2021, 10:11:14 AM »
LOL. When i sit down and have lunch with my wife today, I have to tell her it's all been NAY. Not one YAY yet.

BTW my friend had already hired a realtor to put the business up for sale @ $150k. There's a 12% realtor fee.
She can get out of the contract for $1000 within 1 week. She's offering this to us at $130k. I won't buy it it $130k. If my wife is really dead set on buying it, I would offer $120k and I don't even know if she would take that. There is a $5K franchise transfer fee too.

Not sure I will go Yay - but:

- You have experience and knowledge of the industry
- it is a big price cut (negating the poster who said you get $500 by investing $1,000 bc already happened)
- If owner did put in $300k and netted $50k for doing almost nothing (granted at peak) that is a 16.7% passive return, that's pretty good.  Now if you can get that with upside as market recovers then that's not to bad.   
      ***** Two main problems with this point is
                1.  whether or not she paid a manager or not, if not then $50k peak not worth it. 
                2.  this seems to be more of a take out type place that should have thrived in a covid environment like most other QSR places. 

Also think about what the lease obligations and remaining term are.

ericrugiero

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #19 on: January 22, 2021, 10:19:51 AM »
It sounds to me like buying this business for $125K is a good deal.  You can make some good money and in the future it could be fairly hands off.  Or, if you make it more profitable you could sell it for much more than $125K.  The down side is that it will require hard work right now when you are preparing to FIRE.  Another challenge is that the pandemic isn't over.  How long until the business is back to "normal".  It's really a decision in what you and your wife want to do.  Does she realize the amount of work it will take?  Is she willing to do most of it since it's her dream and not yours? 

former player

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #20 on: January 22, 2021, 10:24:49 AM »
Dr Fauci is saying life might be back to something getting nearer to normality by next autumn, but even then not full normality.  So maybe factor that in to your consideration.

uniwelder

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #21 on: January 22, 2021, 10:35:48 AM »
- If owner did put in $300k and netted $50k for doing almost nothing (granted at peak) that is a 16.7% passive return, that's pretty good. 

From the OP, it doesn't sound like the owner had a positive return.  The business cost 300k and she has made 50k profit in the first year of operation.  If she's selling for 130k, I think that means she'll be losing 120k total on this venture.
  Sorry, I'm comparing apples to oranges.  Tooqk4u22, yes your math is correct, but this kind of math doesn't seem appropriate for a sinking ship scenario

@Jack0Life --- where does your 120k offer come from?  Is it because its less than what the owner wants?  If she originally offered to sell at 140k, would you have thought 130k is the magic number to counteroffer?
« Last Edit: January 22, 2021, 10:45:21 AM by uniwelder »

Rhinodad

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #22 on: January 22, 2021, 10:38:08 AM »
I think some of the questions to ask,

What percentage of sales are cash?
Whose software/hardware is used for register/payroll/inventory?

Is software/hardware proprietary?
Were "the books" audited?
What was the salary of the previous manager?
With the net $50k, how many managers did the store support?
What level of skill is necessary to operate the store? (Do they actually have to cook anything, or just prepare?)
What is the percentage of sales back to the Parent?
What does the Lease look like? Is it a personal guaranty?

draco44

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #23 on: January 22, 2021, 10:56:02 AM »
I was thinking "Hell No" until this part:

I was in the McDonalds business for yrs and GM for >5 yrs so I know how to run a quick service restaurant. Like I was saying, I'm 50/50. I have never had a small business before. My wife have had many small businesses but only in her native country which is why she loves the idea.

After that part I was thining "Okay, but why?" It seems like you'll be devoting a lot of hours to something that will probably have fairly small returns relative to your overall net worth.

Agreed 100%.
Mostly for my wife's sake. She wants to quit her job and this is what she dreams of. Running a small business.

What is it that excites your wife about the potential to run THIS small business? If she's started small businesses before, what is stopping her from doing so again now on her own? And what killed her past businesses? Just the relocation of moving to a new country, or something else that might impact the chances of a new business' success? For the money you'd be paying your friend for this franchise, it sounds like she could try starting 50 projects of her own and seeing what sticks.

Others mention that your own experience in the food industry may be a plus, but it seems like only your wife is super excited about this franchise idea. You say you might even take your old job back, leaving only your wife to manage it. Therefore I don't really think your experience should be a deciding factor. If this is your wife's dream, would she be prepared to handle this operation on her own? If the only way she is willing to be a small business owner is by purchasing a business from someone else, that to me is a red flag that her heart may not be 100% in this dream.
« Last Edit: January 22, 2021, 10:58:03 AM by draco44 »

YttriumNitrate

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #24 on: January 22, 2021, 10:58:55 AM »
Agreed 100%.Mostly for my wife's sake. She wants to quit her job and this is what she dreams of. Running a small business.
Well, as someone who has spent $60,000+ on a hobby business that has made hundreds of dollars over the last decade, I'd say go for it.

Just make sure you set a hard cap on how much of your own money you will throw at the business before selling/walking away.

partgypsy

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #25 on: January 22, 2021, 11:32:40 AM »
Rhino dad is asking the right question. Owning a franchise is a different beast than owning your own business, where u get to call the shots. I think your wife needs to do a lot more research into the business, both ingo and outgo, leases, and what kinda of fees, training, food needs to be purchased from parent company. Franchises are set up to make the parent company money. It is an unknown whether this makes money for the franchisee. And there is less rooom to maneuver, change things if operating a franchise. I'm not saying nay. I'm saying, not enough info. Ps. In our town a franchise boba tea place opened. I dk the numbers but they seem to be doing well, may be a lower initial investment situation.

Villanelle

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #26 on: January 22, 2021, 11:57:11 AM »
So you want to spend $120k to buy yourself the right to work 60 hours a week and *hopefully* eek out a "small profit"?

How does any of that make any sense?  "Small profit"?  You'd likely make more, with less risk, by putting that money in equities (maybe even in bonds).

It sounds like your wife is bored and she wants to spend 10% of your savings to purchase herself a hobby, and one that she can't just opt out of for a week or few days if she's tired or sick or burned out.  I would explore with her *why* this is so desirable to her, since clearly it isn't the finances (or at least it isn't that if she's looking at it clearly).  A small craft business (like an Etsy shop) or a volunteer position would potentially scratch the same itch, once you dig down and figure out what exactly is itching.  Does she understand that owning a franchise isn't really owning her own business?  Depending on what exactly about owning a small business appeals to her, this may not even end up meeting that desire, and yet you'd be risking a significant part of your savings, committing to long hours, and buying an investment that may perform worse or far worse than a conservative equities portfolio.

Finances for the first 6 months of a place, when there is buzz and people are excited are pretty meaningless.  I would ignore those entirely.  "Line out the door" in the first weeks means nothing. 

Why is your friend selling the business?

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #27 on: January 22, 2021, 12:08:27 PM »
LOL. When i sit down and have lunch with my wife today, I have to tell her it's all been NAY. Not one YAY yet.

BTW my friend had already hired a realtor to put the business up for sale @ $150k. There's a 12% realtor fee.
She can get out of the contract for $1000 within 1 week. She's offering this to us at $130k. I won't buy it it $130k. If my wife is really dead set on buying it, I would offer $120k and I don't even know if she would take that. There is a $5K franchise transfer fee too.

Not sure I will go Yay - but:

- You have experience and knowledge of the industry
- it is a big price cut (negating the poster who said you get $500 by investing $1,000 bc already happened)
- If owner did put in $300k and netted $50k for doing almost nothing (granted at peak) that is a 16.7% passive return, that's pretty good.  Now if you can get that with upside as market recovers then that's not to bad.   
      ***** Two main problems with this point is
                1.  whether or not she paid a manager or not, if not then $50k peak not worth it. 
                2.  this seems to be more of a take out type place that should have thrived in a covid environment like most other QSR places. 

Also think about what the lease obligations and remaining term are.

Thank you for the insightful answer. You actually look at the details I posted. 
The potential I see is this is a very hip and popular place for young adults/kids. This place is very popular in every city it has opened.
My friend originally opened this another person and that person bowed out early so she was left as the sole owner. She has a regular job making a lot of money so this was a side business that she was expecting help. With a normal job, she couldn't devote much time into the restaurant so it degrade over time.

1) answer to #1. She has someone taking care of the place for her getting paid $12/hr
2) answer to #2. I don't know enough about the place during Covid but I assume closing for 2.5 months didn't help with the situation.
- About the peak. 2019 wasn't peak. The peak was the first 1/2 year in 2018 when it was jam packed. I am very curious to know what was the sales in half of 2018.

I think from my wife's perspective, she wants to build it up to where in 2 yrs, it can be a relatively passive business earning $50k-$75k. I mean it's not a bad end goal for a $125k investment.  For me, I just want to retire and do nothing. LOL.

HBFIRE

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #28 on: January 22, 2021, 12:11:04 PM »
I would respect your wife's desire to do this as long as she really understands what she's getting into.  Running a business can be immensely satisfying.

The biggest question for me is, how much time investment would it require.  Time is the biggest cost involved, not the purchase amount.  I've seen you throw out some estimates, but I do wonder how accurate they are.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #29 on: January 22, 2021, 12:20:06 PM »
- If owner did put in $300k and netted $50k for doing almost nothing (granted at peak) that is a 16.7% passive return, that's pretty good. 

From the OP, it doesn't sound like the owner had a positive return.  The business cost 300k and she has made 50k profit in the first year of operation.  If she's selling for 130k, I think that means she'll be losing 120k total on this venture.
  Sorry, I'm comparing apples to oranges.  Tooqk4u22, yes your math is correct, but this kind of math doesn't seem appropriate for a sinking ship scenario

@Jack0Life --- where does your 120k offer come from?  Is it because its less than what the owner wants?  If she originally offered to sell at 140k, would you have thought 130k is the magic number to counteroffer?

Originally I heard rumors that they wanted to sell to family members for $100k. We joked that if nobody wants it, I'll take it.
Then she went out and got a realtor which will cost 12% to sell the business but priced it at $150k.
She then heard that we were interested and she said she has 1 week to get out of the realtor contract for $1000.
We talked to her and it was offered to us for $130k. I told my wife I would give her the green light if we can negotiate it down to $120k. I won't budge from my $120k price. There is also a $5k franchise transfer fee.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #30 on: January 22, 2021, 12:27:38 PM »
I think some of the questions to ask,

What percentage of sales are cash?
Whose software/hardware is used for register/payroll/inventory?

Is software/hardware proprietary?
Were "the books" audited?
What was the salary of the previous manager?
With the net $50k, how many managers did the store support?
What level of skill is necessary to operate the store? (Do they actually have to cook anything, or just prepare?)
What is the percentage of sales back to the Parent?
What does the Lease look like? Is it a personal guaranty?

Those great questions and I will put those to my list when we visit the restaurant today.

What percentage of sales are cash? Don't know
Whose software/hardware is used for register/payroll/inventory? Don't know

Is software/hardware proprietary? Don't know
Were "the books" audited? Don't know
What was the salary of the previous manager? It's a fairly small place. 2 people in front 1 people in back. She paid the main 2 $12/hr to run the place properly when she's not there. She said she come and visit the store for 1 hr each day.
With the net $50k, how many managers did the store support?
What level of skill is necessary to operate the store? (Do they actually have to cook anything, or just prepare?) Very easy process. Most fried stuff. The drinks are probably more complicated.
What is the percentage of sales back to the Parent? 6% franchise fee. 2% marketing fee but they suspend the 2% as of right now. I will have to ask the parent company more on that.
What does the Lease look like? Is it a personal guaranty? The lease has another 1.5 yrs left. There is a clause in the contract that let us renew the lease for 5 yrs and another 5 yrs after that. 11.5 yrs total.

uniwelder

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #31 on: January 22, 2021, 12:31:20 PM »
- If owner did put in $300k and netted $50k for doing almost nothing (granted at peak) that is a 16.7% passive return, that's pretty good. 

From the OP, it doesn't sound like the owner had a positive return.  The business cost 300k and she has made 50k profit in the first year of operation.  If she's selling for 130k, I think that means she'll be losing 120k total on this venture.
  Sorry, I'm comparing apples to oranges.  Tooqk4u22, yes your math is correct, but this kind of math doesn't seem appropriate for a sinking ship scenario

@Jack0Life --- where does your 120k offer come from?  Is it because its less than what the owner wants?  If she originally offered to sell at 140k, would you have thought 130k is the magic number to counteroffer?

Originally I heard rumors that they wanted to sell to family members for $100k. We joked that if nobody wants it, I'll take it.
Then she went out and got a realtor which will cost 12% to sell the business but priced it at $150k.
She then heard that we were interested and she said she has 1 week to get out of the realtor contract for $1000.
We talked to her and it was offered to us for $130k. I told my wife I would give her the green light if we can negotiate it down to $120k. I won't budge from my $120k price. There is also a $5k franchise transfer fee.

It sounds like your price is emotionally based then. Generally not the best way to make business decisions.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #32 on: January 22, 2021, 12:32:04 PM »
I was thinking "Hell No" until this part:

I was in the McDonalds business for yrs and GM for >5 yrs so I know how to run a quick service restaurant. Like I was saying, I'm 50/50. I have never had a small business before. My wife have had many small businesses but only in her native country which is why she loves the idea.

After that part I was thining "Okay, but why?" It seems like you'll be devoting a lot of hours to something that will probably have fairly small returns relative to your overall net worth.

Agreed 100%.
Mostly for my wife's sake. She wants to quit her job and this is what she dreams of. Running a small business.

What is it that excites your wife about the potential to run THIS small business? If she's started small businesses before, what is stopping her from doing so again now on her own? And what killed her past businesses? Just the relocation of moving to a new country, or something else that might impact the chances of a new business' success? For the money you'd be paying your friend for this franchise, it sounds like she could try starting 50 projects of her own and seeing what sticks.

Others mention that your own experience in the food industry may be a plus, but it seems like only your wife is super excited about this franchise idea. You say you might even take your old job back, leaving only your wife to manage it. Therefore I don't really think your experience should be a deciding factor. If this is your wife's dream, would she be prepared to handle this operation on her own? If the only way she is willing to be a small business owner is by purchasing a business from someone else, that to me is a red flag that her heart may not be 100% in this dream.

This is much easier to get into than starting one on her own.
We would just need to take over. Employees already in place. She has she has $10k worth of inventory so we just need to jump in and streamline it in any capacity that we can.
Operation is super simple. This is like a 1 compare to running a McDonalds if it was a 10.
She only quit her business because I married her and she came to the US with me. She told me last night this was "her childhood dream" to have a business in America. How can I argue that ?? LOL

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #33 on: January 22, 2021, 12:32:49 PM »
I don't know much about buying businesses, but have you worked out the numbers with an accountant?

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #34 on: January 22, 2021, 12:33:22 PM »
Rhino dad is asking the right question. Owning a franchise is a different beast than owning your own business, where u get to call the shots. I think your wife needs to do a lot more research into the business, both ingo and outgo, leases, and what kinda of fees, training, food needs to be purchased from parent company. Franchises are set up to make the parent company money. It is an unknown whether this makes money for the franchisee. And there is less rooom to maneuver, change things if operating a franchise. I'm not saying nay. I'm saying, not enough info. Ps. In our town a franchise boba tea place opened. I dk the numbers but they seem to be doing well, may be a lower initial investment situation.

Thanks. taking all that into consideration.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #35 on: January 22, 2021, 12:40:33 PM »
My friend originally opened this another person and that person bowed out early so she was left as the sole owner. She has a regular job making a lot of money so this was a side business that she was expecting help. With a normal job, she couldn't devote much time into the restaurant so it degrade over time.

1) answer to #1. She has someone taking care of the place for her getting paid $12/hr
2) answer to #2. I don't know enough about the place during Covid but I assume closing for 2.5 months didn't help with the situation.
- About the peak. 2019 wasn't peak. The peak was the first 1/2 year in 2018 when it was jam packed. I am very curious to know what was the sales in half of 2018.

Peak shouldn't be first 6 months, so possible flag or really faddy.

As far as other owner, do they have a claim?  Did current owner actually buy other out or have legal docs showinv transfer of ownership?  Did current owner actually invest $300k or was it split with other such that the sale is actually getting full investment back?

Still not sure I understand why current owner would want to sell for 50% discount if truly passive and just one year down.....I mean the $50k net in 2019 should cover the 2020 negative cash flow if put back in.   Originally you said it was mostly passive but now it is too much work without original partner? Also did they get any PPE loans last year?   

Assuming all is on up and up, you get all Financials, etc  and you still really want to do it I would do it with a combination of down payment (30%), and installment loan from seller spread over 5 years, which helps ensure they are truthful bc still have money at stake.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #36 on: January 22, 2021, 12:49:47 PM »
So you want to spend $120k to buy yourself the right to work 60 hours a week and *hopefully* eek out a "small profit"?

How does any of that make any sense?  "Small profit"?  You'd likely make more, with less risk, by putting that money in equities (maybe even in bonds).

It sounds like your wife is bored and she wants to spend 10% of your savings to purchase herself a hobby, and one that she can't just opt out of for a week or few days if she's tired or sick or burned out.  I would explore with her *why* this is so desirable to her, since clearly it isn't the finances (or at least it isn't that if she's looking at it clearly).  A small craft business (like an Etsy shop) or a volunteer position would potentially scratch the same itch, once you dig down and figure out what exactly is itching.  Does she understand that owning a franchise isn't really owning her own business?  Depending on what exactly about owning a small business appeals to her, this may not even end up meeting that desire, and yet you'd be risking a significant part of your savings, committing to long hours, and buying an investment that may perform worse or far worse than a conservative equities portfolio.

Finances for the first 6 months of a place, when there is buzz and people are excited are pretty meaningless.  I would ignore those entirely.  "Line out the door" in the first weeks means nothing. 

Why is your friend selling the business?

So you want to spend $120k to buy yourself the right to work 60 hours a week and *hopefully* eek out a "small profit"? For this year 2021 YES. Long term in 2 yrs we envision a relatively passive business earning $50k-$75k year. That's not bad for a $125k investment. Again it's a scenario we are "hoping" whichmakes it intriguing.

How does any of that make any sense?  "Small profit"?  You'd likely make more, with less risk, by putting that money in equities (maybe even in bonds).
I'm doing all that which is why our NW is quite nice right now. Basically we would use the $125K above $1million to invest in this business VS traveling and enjoying ourselves for 2+ years. I mean I'm a NAY on this. I'm looking at this purely from a financial perspective so I can give more insights to my wife. I don't want to dash her "dream" without doing more research on it.

It sounds like your wife is bored and she wants to spend 10% of your savings to purchase herself a hobby, and one that she can't just opt out of for a week or few days if she's tired or sick or burned out.  I would explore with her *why* this is so desirable to her, since clearly it isn't the finances (or at least it isn't that if she's looking at it clearly).  A small craft business (like an Etsy shop) or a volunteer position would potentially scratch the same itch, once you dig down and figure out what exactly is itching.  Does she understand that owning a franchise isn't really owning her own business?  Depending on what exactly about owning a small business appeals to her, this may not even end up meeting that desire, and yet you'd be risking a significant part of your savings, committing to long hours, and buying an investment that may perform worse or far worse than a conservative equities portfolio.
Yeah, I gave her the green light at $120k if we can talk the price down but I told her it would be her decisions and she really need to think through all the pro's and con's before making a decision.


Finances for the first 6 months of a place, when there is buzz and people are excited are pretty meaningless.  I would ignore those entirely.  "Line out the door" in the first weeks means nothing. 
If you run this place right, it's a constant source of revenue. We visited one in Houston a couple of months ago and they are still packed. That place has been opened since 2017. Not the same comparison because of locations but the revenue can be sustainable.

Why is your friend selling the business?
I stated this in early post. She started this with a family member 50/50. I think she was expecting more help from that person and maybe some help from her husband but it's just her.
They just want to get rid of it. Her husband makes like $200k and she also has a normal job making over $100k I'd imagined. The other person still have a 50% share so both of them are taking the loss 50/50 so it's more like a $90k loss. She did make money in 2018 and 2019 so that loss is minimized more. I'm pretty sure she got some money from the government in 2020 for small business supplements.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #37 on: January 22, 2021, 12:50:35 PM »
Assuming that you did buy the franchise - you and your wife need to have some pretty detailed discussions about what your involvement will be. You want to retire and not work. If you end up working  lot of hours on this, then you may start to resent your wife.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #38 on: January 22, 2021, 12:59:03 PM »
Before I start my reply let me tell you my wife comes from a family of restaurant owners that everything they touch turns to gold.  I'm talking single locations that have been in business over 40 years and net over 5 million a year.  With that said no way in hell I'd own a restaurant.  My FIL works 6 days a week 12-14hr days and for the past 40 years has taken one week off a year and he owns the place.  His brother owns 8 different restaurants and it's even worse!!!  He will tell you the worst thing about owning a restaurant is the employees.  They will steal you blind.  If they aren't stealing money out of the register they are giving food away free and most the time they are doing both.  My FIL pays his employees very well and gives out nice bonuses and they still rob him blind.  My wife's family has hinted that they want me to take over the family business.  No way in hell I'm giving up my cush job where I work 15 days a month that comes with 6 weeks paid time off awesome health benefits and a great pension to be a slave owner to a restaurant.  No amount of money is worth it.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #39 on: January 22, 2021, 01:03:04 PM »
My friend originally opened this another person and that person bowed out early so she was left as the sole owner. She has a regular job making a lot of money so this was a side business that she was expecting help. With a normal job, she couldn't devote much time into the restaurant so it degrade over time.

1) answer to #1. She has someone taking care of the place for her getting paid $12/hr
2) answer to #2. I don't know enough about the place during Covid but I assume closing for 2.5 months didn't help with the situation.
- About the peak. 2019 wasn't peak. The peak was the first 1/2 year in 2018 when it was jam packed. I am very curious to know what was the sales in half of 2018.

Peak shouldn't be first 6 months, so possible flag or really faddy.

As far as other owner, do they have a claim?  Did current owner actually buy other out or have legal docs showinv transfer of ownership?  Did current owner actually invest $300k or was it split with other such that the sale is actually getting full investment back?

Still not sure I understand why current owner would want to sell for 50% discount if truly passive and just one year down.....I mean the $50k net in 2019 should cover the 2020 negative cash flow if put back in.   Originally you said it was mostly passive but now it is too much work without original partner? Also did they get any PPE loans last year?   

Assuming all is on up and up, you get all Financials, etc  and you still really want to do it I would do it with a combination of down payment (30%), and installment loan from seller spread over 5 years, which helps ensure they are truthful bc still have money at stake.

Some of your questions I posted.
The other partner has been out of operations for a while now. She now just want to get stakes back and she told my friend she's willing to take a $100k loss. So the lowest she can sell it for is $100k but of course she wants to maximize the price as much as she can.
She and her husband are very well-0ff. They have another business that are far far more profitable than this one. To this day, we still don't know why she got into this in the first place when she clearly doesn't need to.
I don't want to give out more details but she did have another business that she sold off last year too. The woman just love running businesses I guess when she doesn't need too as she has a very nice normal job.

I mean I would love to hold out and get this for $100k but she did sign a contract to list the business already and it cost 12%. I don't think this will ever get below $120k if she does list the business with a realtor.
It's really bad timing for me. I've already set up for FIRE and my wife sees this opportunity and she's so damn excited. Hard for me to kill her dream. I'm looking this purely from a financial standpoint. I know the hours that will be involved.
And NO she won't take payments. I'm pretty sure she can sell this in the open market considering how much it cost to get into this franchise.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #40 on: January 22, 2021, 01:08:00 PM »
Assuming that you did buy the franchise - you and your wife need to have some pretty detailed discussions about what your involvement will be. You want to retire and not work. If you end up working  lot of hours on this, then you may start to resent your wife.

I hear ya but if I don't give this opportunity fair consideration the resentment from my wife starts now. LOL

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #41 on: January 22, 2021, 01:12:35 PM »
Will your wife like baby sitting a bunch of incompetent teenagers?  With this type of restaurant ie: counter service that is all you will be able to hire.  Even the managers that would work at a place like this will need a lot of hand holding etc.  What is the business plan if minimum wage gets increased to $15 an hour?

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #42 on: January 22, 2021, 01:14:26 PM »
Your friend owns 100% of the business now right? You aren't just buying 50% of it?

edit: I see now you replied that other person owns other half but this offer is for 100% of the business and both owners are in agreement to sell at a loss?

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #43 on: January 22, 2021, 01:18:01 PM »
Before I start my reply let me tell you my wife comes from a family of restaurant owners that everything they touch turns to gold.  I'm talking single locations that have been in business over 40 years and net over 5 million a year.  With that said no way in hell I'd own a restaurant.  My FIL works 6 days a week 12-14hr days and for the past 40 years has taken one week off a year and he owns the place.  His brother owns 8 different restaurants and it's even worse!!!  He will tell you the worst thing about owning a restaurant is the employees.  They will steal you blind.  If they aren't stealing money out of the register they are giving food away free and most the time they are doing both.  My FIL pays his employees very well and gives out nice bonuses and they still rob him blind.  My wife's family has hinted that they want me to take over the family business.  No way in hell I'm giving up my cush job where I work 15 days a month that comes with 6 weeks paid time off awesome health benefits and a great pension to be a slave owner to a restaurant.  No amount of money is worth it.

I hear ya brother.
Been married for almost 10 yrs now and I keep having to hear her business ideas shooting off from times to times. I know she's into it. I'm 100% against running a business. I'd rather work and leave my stress at work.
I was GM for Mcdonald's for a while so I know about the constant worries that are involves. I don't miss it.
It's like my wife has an itch that won't go away. If i don't let her scratch that itch, it won't ever go away.
I'm looking at this as a minimum risk investment so if she really want to scratch that itch, I'll give her the green light. Even if it goes sour, I still think I can transfer the store for little loss. All the equipment inside the store were bought new.
We are meeting her at the store later on today for a tour.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #44 on: January 22, 2021, 01:19:10 PM »

She and her husband are very well-0ff. [...] To this day, we still don't know why she got into this in the first place when she clearly doesn't need to.

Does your wife not see that this applies to you and her just as much as it does to your friend and her husband?

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #45 on: January 22, 2021, 01:23:46 PM »
Will your wife like baby sitting a bunch of incompetent teenagers?  With this type of restaurant ie: counter service that is all you will be able to hire.  Even the managers that would work at a place like this will need a lot of hand holding etc.  What is the business plan if minimum wage gets increased to $15 an hour?

That is a big issue that we are discussing now. Biden is trying to raise the the minimum wage to $15 right now in his latest relief bill. It's a huge deterrent.
I was GM at McDonalds so I know all about the hand holdings and the constant turnovers. It's an easy operation so we only need 2 front and 2 back. From what she told us, she has 2 people that keep the place running when she's not there(which is most of the time) so it should be a relatively easy transition.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #46 on: January 22, 2021, 01:27:17 PM »
Your friend owns 100% of the business now right? You aren't just buying 50% of it?

edit: I see now you replied that other person owns other half but this offer is for 100% of the business and both owners are in agreement to sell at a loss?

YUP, the other partner is willing to take a $100k loss and she pressured her to sell the place.
I guess she's trying to get a little more out of it. She's trying to get $130k which would make it a an $85k loss for each of them but again, they make money in 2018 and 2019 so those losses are reduced. I'm only willing to buy for $120k if it gets that far.

Jack0Life

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #47 on: January 22, 2021, 01:33:50 PM »

She and her husband are very well-0ff. [...] To this day, we still don't know why she got into this in the first place when she clearly doesn't need to.

Does your wife not see that this applies to you and her just as much as it does to your friend and her husband?

LOL, I keep telling her that.
She hates her job and is planning to quit soon. Our plan is to use any money over $1 million to travel and enjoy ourselves. But she got this weird itch and I can't just blow her off.
I told her, why wouldn't she want to just take sometime off and unwind yourselves but she sees this as a great opportunity.
When we first discussed this, I keep throwing out the negatives and she kept defending it. I realized then that she's really into it and I can't ignore her wants.
We been close to divorce because I would tell her NO NO NO a lot without putting thoughts into it whenever she brings up something. I'm trying to be a good husband now. LOL

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #48 on: January 22, 2021, 01:50:37 PM »
This is not going to be an easy business to run, if it was, the current owner would not be wanting to dump this at a loss. Even people that don't need the money do not dump profitable businesses that run all by themselves. She's created a situation where you are under pressure to make a quick decision and the ONLY things she's telling you are all super positive. Right there is a huge red flag. If it is so stable, so profitable, so easy to run... why is she selling it?

There are concrete examples that this is not a really good idea for you or anyone really that the other posters hit upon. Restaurants are not a great hobby business for someone that doesn't dearly love running a restaurant. I worked as a manager many years ago... I would never in a million years consider them a place I'd want to own or run. The shit I had to deal with from the workers, theft, dealing with customers, the mess, the ordering, the cleaning... oh hell no. I'd honestly be looking for ANY other type of business.



The thing that is most concerning for me isn't a "good/bad business opportunity" question. This is a relationship question, and your wife is being unreasonable and wants you to support her pipe dream - no matter what cold hard facts are being brought up.

Your wife does not appear to have any food sales/restaurant management experience; that's all you. She hates her current job and this business sounds like an easy pivot for her and she's romanticized how she could use this place to solve all her problems, and only wants to see the good things and hear nothing of the bad and you are suspecting that unless you go along with this she will be angry with YOU for denying her. She is going to shift the blame for her feeling trapped in her current position, her anger and boredom, her upset with the work situation as your fault because you denied her this amazing wonderful opportunity that can't possibly fail.

Oh just read the latest and this turns even more into a relationship/communication thing than about money or work. The fact that you've been close to divorce should not mean you just give in and waste this money to placate her. This may turn into a "we do this or we are getting a divorce" situation and then it should be really blatant to you both this definitely IS NOT a business decision - it's a test she may not even realize she's making you take to prove you care about HER more. It's not rational, and I don't see a way forward without her facing up to what she is doing here, and realizing that she's conflated buying this business as both a fantasy job for herself and a test of your unquestioning loyalty.

There has to be another choice between Stay At Job She Hates and Buy THIS Business. It is not an either this or nothing proposition.

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Re: Chance to buy a restaurant franchise(Zero Degree). Yay or Nay.
« Reply #49 on: January 22, 2021, 02:09:17 PM »
This is not going to be an easy business to run, if it was, the current owner would not be wanting to dump this at a loss. Even people that don't need the money do not dump profitable businesses that run all by themselves. She's created a situation where you are under pressure to make a quick decision and the ONLY things she's telling you are all super positive. Right there is a huge red flag. If it is so stable, so profitable, so easy to run... why is she selling it?

There are concrete examples that this is not a really good idea for you or anyone really that the other posters hit upon. Restaurants are not a great hobby business for someone that doesn't dearly love running a restaurant. I worked as a manager many years ago... I would never in a million years consider them a place I'd want to own or run. The shit I had to deal with from the workers, theft, dealing with customers, the mess, the ordering, the cleaning... oh hell no. I'd honestly be looking for ANY other type of business.



The thing that is most concerning for me isn't a "good/bad business opportunity" question. This is a relationship question, and your wife is being unreasonable and wants you to support her pipe dream - no matter what cold hard facts are being brought up.

Your wife does not appear to have any food sales/restaurant management experience; that's all you. She hates her current job and this business sounds like an easy pivot for her and she's romanticized how she could use this place to solve all her problems, and only wants to see the good things and hear nothing of the bad and you are suspecting that unless you go along with this she will be angry with YOU for denying her. She is going to shift the blame for her feeling trapped in her current position, her anger and boredom, her upset with the work situation as your fault because you denied her this amazing wonderful opportunity that can't possibly fail.

Oh just read the latest and this turns even more into a relationship/communication thing than about money or work. The fact that you've been close to divorce should not mean you just give in and waste this money to placate her. This may turn into a "we do this or we are getting a divorce" situation and then it should be really blatant to you both this definitely IS NOT a business decision - it's a test she may not even realize she's making you take to prove you care about HER more. It's not rational, and I don't see a way forward without her facing up to what she is doing here, and realizing that she's conflated buying this business as both a fantasy job for herself and a test of your unquestioning loyalty.

There has to be another choice between Stay At Job She Hates and Buy THIS Business. It is not an either this or nothing proposition.


Kinda says it all! +1

 

Wow, a phone plan for fifteen bucks!