posted
Has anyone here ever had experience opening a franchise of an established business? (Fast food, Gymboree, Muffler shop, anything?) Ever gone so far as to attend a pitch meeting? I'm seriously considering going to one and I'd like some input on what sort of things I should ask?
Posts: 6394 | Registered: Dec 1999
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posted
Don't know anything about it. Usual caveats about getting a lawyer to explain forms before signing, etc.
I will saying owning your own business is one of the most rewarding and frustrating experiences around. You also have to do it for the right reasons - and one of those reasons is to build more wealth than you could otherwise with the capital investment.
Good luck - I hope it works out. Franchising has a somewhat bad reputation, but many people are happy franchise owners.
posted
My cousin opened a Chik-fil-A after having managed one for a few years. It was an "okay" experience, but there were several downsides.
1) Corporate rules were inflexible -- have to be in order to maintain brand standards. That means that you can't go beyond their operating parameters even if doing so would save your business. Chik-fil-A, for example imposes "family values" on their franchisees and will take away your franchise if you open on Sundays. My cousin's store was in a mall. two busiest days would've been Saturday and Sunday. He could only have the place open on one of those. Of course, the mall didn't adjust his rent accordingly.
2) Location is everything. Seriously. Chik-fil-A places make money almost everywhere they open. The mall-based ones don't do as well, apparently. But there are other things too.
3) He got royally ticked off with the fresh-out-of-college "consultant" that the company sent to "help him." It was such a joke. She'd never operated ANY store, let alone a Chik-fil-A store. She had no experience with anything. But the company sent her so he had to listen. It was pretty demoralizing.
4) The franchising corporating WILL be paid. Some places (like Chik-fil-A, but not many others) guarantee a minimum income. Most do not. But you get their bill whether you're making ends meet or not. And you'd better pay it or you'd better be ready to sell, FAST! Ruthless? Well...maybe they aren't sharks circling, but you can believe that failing franchisees aren't their favorite bunch of people to work with. Read that contract carefully and see if there are escape clauses that protect your investment as well as theirs.
5) Sometimes local conditions demand advertising and promotions that are outside what the company is normally willing to do. Find out if they have rules expressly barring you from using the logos, etc. in your own local ads or promotions, or limit the kinds of things you can associate their name with. You probably can't sponsor wet T-shirt contests or have McStripper night at the local nudie bar to drum up business. But they might bar you from other seemingly wonderful things that would promote your business.
7) Ordering stuff can be a hassle. You use their suppliers even if better ingredients can be had for less money locally. My cousin had a problem with stale buns (or so his wife said). They couldn't hire a local bakery -- the Chik-fil-A buns are proprietary and a part of the meal...
8) Figure out who is responsible for major maintenance on the building. Seriously weird stuff. My cousin's store was in a mall. Chik-fil-A owned all the fixtures, counters, equipement, etc. He had a vent fan go bad. He had to pay to fix it.
So, that brings up another thing. If you are buying an existing franchise, the condition and expected life of the equipment will be important. When you're just starting and cash flow hasn't quite caught up to initial expenses, one bad Hobart mixer can ruin your month.
9) Hiring people and keeping them is a pain. Seems no kid wants to work in these places anymore. They don't need your minimum wage job. They don't want to smell like grease all the time. The uniforms are like an invitation to get beaten up. Whatever it is...hiring people is difficult.
10) Firing people. Are you ready to do this? It's horrible. And because you've probably had to hire some "iffy" people in the first place, now you have to worry about retaliation.
On the plus side. He did have fun. And he had Sundays off. He eventually got a great manager to work for him and that took some of the pressure off.
Posts: 22497 | Registered: Sep 2000
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Bob, have I told you lately that you are one of my favorite hatrackers? Your post is invaluabe. I've printed it out and I'm taking it with me to the franchise meeting next week.
The franchise is a food one. I don't want to say which one just yet, but it's one I really like myself. Every one I've been in has been really clean and the ingredients have always been fresh and tasty. There isn't a single one near me that I know of and the chain is actively seeking franchisers in my area.
I'm at a point in my life where I wouldn't miss my current job at all. I know there are many perils to opening a business, but if push came to shove, my mom is covering the mortgage on my rental property and Chris could cover the mortgage on the house we live in. We might be eating ramen noodles and playing cards for diversion for the next year, but I don't think we would be homeless. And there are no kids to support and the cats are cheap. Posts: 6394 | Registered: Dec 1999
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"Ordering stuff can be a hassle. You use their suppliers even if better ingredients can be had for less money locally."--Bob
This is one of the main profit streams for the franchising corporation. Sometimes it's a serious rip-off, either you buy over-priced crap from the corporation, or else through their suppliers with the suppliers kicking back profits to the corporation. But like Bob says, often you're trapped into certain suppliers by contract.
When I was a manager at Blockbuster, we had to pay more than $500 per month for computer support, which we rarely needed. Watch out for monthly expenses like this in a franchise contract.
Posts: 6316 | Registered: Jun 2003
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Heh. Seriously though, Papa Johns has never done it for me. All of the ingredients seem to be of fairly high quality, but they come together to make what tastes to me like a very mediocre pizza.
Posts: 16059 | Registered: Aug 2000
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posted
Yeah. And they make artificially margerine flavored dipping sauce. o_O That's just . . . just . . . there are no words.
Posts: 9866 | Registered: Apr 2002
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posted
I was a manager at Papa John's, too. Plus 2 other franchises. Huh, I've gotten around. Anyway, what ticked me off about them was, they would advertise that they use "fresh" dough, when the dough was made out-of-state and shipped.
I guess it was fresh in the sense of not being frozen, but still, that's pushing the definition.
posted
My favorite pizza franchise is probably Godfathers, followed by Donatos. I haven't had Dominos in about 18 years, but I remember it as being crap. Given that I'm going off of fairly ancient memories, though, I could be wrong about that.
I agree that local pizza places are often a lot better than the franchises.
Posts: 16059 | Registered: Aug 2000
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If it's Quiznos, RUN. We got to know the former owner of the Quiznos near our house, and he got out because it was so difficult to make a decent living after the franchise fees were paid. I don't wonder anymore why Quiznos sandwiches are so much more expensive than Subways.
My parents owned three PIP stores in Seattle for a while. Their experience with being franchise owners was not great. The company changed hands while they were owners and the corporate turmoil was hard on them. Ultimately they ended up losing everything, but part of that was being way overextended. If they'd stuck with the original store they started with and not bought the additional two territories, they'd probably have done very well. Make sure that you're not undercapitalized. In a rapidly growing economy you might do okay but a downturn could kill you if you don't have the capital to ride it out.
Posts: 5948 | Registered: Jun 2001
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posted
Karl - I would hate to discourage you, because I do firmly believe in the small business owner - it's what has made our country great.
But, I have many, many horror stories of things that caused us to shut down. And not on the list was "couldn't make enough money or didn't have enough business." We are still turning down people who call us.
I'll spare you the horror stories, and just list a few things that you might not have thought of but should consider.
If this is a place that delivers - please consider that in some states (and you'll need to check and see if it's the case in yours) tax is owed where the delivery is made, because that's the point of sale. So if your business is located in Town A but also makes deliveries to town B, then you must keep track of the amounts sold to people living in Town B and make separate tax payments to that town. That also means having a business license in both town A and town B, and those licenses can get pricey.
You'll want to find out how you're supposed to handle payroll - does the franchise owner process payroll and taxes or is there a central office that does it?
Same story on insurance - who pays the workman's compensation and liability? If this is a restaurant there is a pretty high workman's comp rate - since injuries like accidentally cutting yourself or slipping on floors are pretty common in that business.
Don't forget unemployment - and realize that the first time someone files a claim your rates will start to go up and they won't ever come down. Since your business will be one that has high turnover rates, your rate will be high to begin with. Actually that's true of everything - You'll be audited by your workman's comp and the state unemployment office periodically, and they'll never adjust your rate downward. Not to mention they like to make the rate increases retroactive and send you a bill for thousands of dollars you now owe because your business has grown since the last audit.
Again on unemployment - a lot of people don't realize that state can take money from your account even if someone doesn't work for you anymore. In other words, if Bob works for you two years, then quits, then gets a job at Burger World and is laid off two months later - the state will take all the unemployment contributions from Burger World, but when they run out of money (because he wasn't there long enough to contribute much) guess where they'll come to get the money for the rest of Bob's unemployment? Your account.
In low-paying, entry level jobs turnover is huge, and staffing issues are going to take up a huge portion of your time. Trust me when I say this is not fun. Expect calls from shift managers saying someone didn't show, and they can't handle the shift, which may result in you having to leave home and go work for a while.
Vacations - they are pretty much non-existent. Even when we did go on vacation, when we got back it took two weeks of working long hours and dealing with tons of stress to either solve the problems that took place while we were gone or catch up on work that didn't get done. Not to mention that the phone rang constantly while we were on vacation anyway - employees calling to ask for advice on how to handle something, angry customers wanting to know why one of our employees didn't show up at an appointment, then a phone call to find out where that employee was. You get the drift.
On the positive side - there is a tremendous amount of pride in building a business and seeing it be successful. There is a lot of personal satisfaction out of giving jobs to people that really need them, especially when those people reward you by becoming a productive and valued employee.
In closing, let me leave you with a saying that is framed in our home office:
The only thing more overrated than natural childbirth is the joy of owning your own business.
I realize this is not a positive post - but it's better to know these things up front, I think. I do wish the best of luck, you're one of my favorite jatraqueros and I'd love to see you be happy with a successful business. Posts: 14428 | Registered: Aug 2001
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posted
I know Bob mentioned it before, but it can really make the difference between a good experience and bad experience if you find a good manager to work for you. One of the most fun jobs I've ever had was as assistant manager to a franchise owner. There were two of us, and we helped him do the books, hire people, come up with ideas for advertising, make up schedules, etc etc. Unfortunately, I left to go to college, and the other assistant moved to Florida. A year later, the owner sold the store. He said it became too much for him because he had nobody to rely on.
Moral of the story, be prepared to work 7 days a week from opening to close for a long long time, unless you can find a couple managers to hire who you can trust completely.
Other than that, good luck! I hope it works out for you.
posted
Oh, one key thing, pay decent wages, especially to managers. It'll save you a lot of hassle in the long run.
The regional blockbuster franchise owners (they own all the blockbusters in a large belt across southern indiana, pretty much) pay dirt. Starting wages are $5.25 for people without video store or management experience, and not much more with either. There's a 50 cents an hour pay raise after a few months, and then a small pay raise every year. When one becomes an assistant manager, one is usually making around $6.75/hr, if one is lucky.
In my town, bloomington, they just have pretty high turnover problems, but because its a college town little else. In the other towns, though, their managers tend towards being either incompetent or stealing from them, because anyone who is competent goes elsewhere. These are not people short on cash, the franchise makes them millions and millions in profit every year. The profit on a single rental is 40 to 60%, on average. They put hardly any time (and actually aren't all that competent themselves, a lot of their success is due to the extremely hard working district manager).
On the topic of the district manager, he supervises all their stores (7 or 9, I forget which), and puts in around 60 hours a week at minimum. His pay is a bit over forty grand a year.
Posts: 15770 | Registered: Dec 2001
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posted
Thanks for the tips, Belle (and everyone). That is good stuff to consider as well.
Jeniwren, what area was the Quiznos in? Was it rural or metro? And what do you think a "decent living" meant to him? I ask because a friend of mine is looking into a franchise for a different company (a Gymboree type thing) and one franchise owner was telling her how "well you have to own 2 or three to make a decent living" but they tend to average 80-100k net (after payroll, insurance, taxes, etc). Just one 80K salary would be a lot more than I make now. Just trying to put some perspective on it.
Also, does anyone know what a typical franchise fee is (besides the startup fee?) I know one franchise is 6% of gross (the gym thing) and the one I'm looking into is 25K startup franchise fee and 7% of gross plus 4% advertising (local and regional combined).
posted
Karled, Doug own(ed) 3 Quiznos territories. The one he sold was marginally profitable after the franchise fees were paid. It was located in a very busy upscale outdoor mall in Bellingham. B'ham has a population of about 60,000. There is another Quiznos in B'ham in the busiest area of town and it does okay according to Doug.
His most profitable store was in a somewhat rural area on the main thoroughfare through Oak Harbor (which is on an island). It was on the route to the ferries. He still owns that one, I think. He said that of all the Quiznos stores in the state of Washington only the top third were profitable at all. I don't know what he considered a decent living but he didn't strike me as someone who needs $80+ to be happy. We didn't know him that well though so I could be wrong.
Of course all this is second hand. My impression of the store since he sold isn't all that positive. The prices have gone up and the quality gone down. If I were looking at a franchise, I'd probably be more tempted to get into DiBello's (if they even sell franchises, which I don't know -- their sandwiches are fantastic and they don't have a west coast presense, whereas Quiznos is *everywhere*) or In-and-Out Burger (again, don't know if they are a franchise, but they have a great business model and are only in California, plus their food is pretty good, very fresh).
Posts: 5948 | Registered: Jun 2001
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posted
Yeah, I checked...In and Out is a family owned business. No franchise. But they are in Arizona and Nevada now, and their website says they open 10 new stores a year. They're never going to make it to Washington at that rate.
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I know that around here, Quizno's has been advertising heavily for interested new franchise owners (having meetings to answer questions, etc).
I frequent the various Quizno's here, so I know some of the owner/operators. A couple are great, and are doing well. One - the owner is such a jerk that I won't go back in there -- but they are always busy (downtown).
posted
Yeah, I'm with you, Strider, though their quality is not what it once was. They closed all the Boston Markets in my state, and I was seriously bummed. They made my Christmas and Thanksgiving dinners SOOOOOO easy.
Posts: 5948 | Registered: Jun 2001
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Now that Subway toasts, I like them better than Quiznos. And I greatly preferred Quiznos before.
Posts: 26071 | Registered: Oct 2003
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posted
Nope - same price. 3.99 for any 12" right now if you buy a drink. Usually I don't want a drink, but it still makes it $0.50 cheaper. If someone is buying a 6" in line, they luck out.
Posts: 26071 | Registered: Oct 2003
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