franchise dilemma.

saxon22 · Mar 23, 2008

Quote from austinp:

<i>"Guys I have a dilemma. I just had a dinner with my brother and he asked me a question I was not prepared for. He wants me to be a partner in his franchise."</i>

Sax, I just had dinner with my 24-yr old daughter at a place called "Moes"... mexican food served Subway style for those who may not have heard of them. Only the second time I've been there myself.

Food is sub-par at best... most anyone can make better tasting quality at home. But, they serve it fast, prices are reasonable and waiting line was out the door from 6pm ~ 7:30pm without pause.

I'm looking to open some type of food venture myself, passive owner managed (mostly) by my daugher who has years of experience. That said, we're going the independent route and not franchise.

There are some benefits to franchise versus no-name, for sure. But the startup and yearly fees on my end versus "Moes" isn't even close. If our food is good, served fast and priced correctly, name recognition takes on a life of its own.

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Your biggest decision should be what you get in direct benefit of franchise costs versus pure startup. A no-name pretzel store may start out slower traffic than a franchise and you may stumble thru a learning curve versus cookie-cutter approach of franchise.

Would those factors be worth avoiding or paying the franchise fee? Rather than paying a franchise fee, would it make sense to hire experienced manager to learn the ropes? Start small and build bigger on your (brother's) own?

Weigh the costs of no-name versus franchise, and don't rush into any decision. If it's a good idea now, it will remain a good idea into the future.
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Austin,I see your point. The franchise fees are steep and making pretzels is not exactly rocket science. However, if one has never done it and never have had a business of this sort, the helping hand would be welcomed. The question is: Is the helping hand worth the $$$ they want up front and then in monthly %? Thanx for your 2c. Much appreciated

saxon22 · Mar 23, 2008

Quote from 1in10:

Just something to consider, not only will you have the franchise fees, but malls will typically charge a per square foot rent and a percentage (upwards to 10% of profits). Be aware of this.

You should have good margins on your product. For example a medium fountain drink will have a margin at nearly 20x cost.

But it will take alot of soda and pretzels to cover your overhead.
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I was not aware of this! How can they charge me rent and on top of that a % of my profits? I was under the impression that rent is it. Sounds unreasonable. BTW, if one has his own business venture in a mall let's say a Pizzeria, how will the mall calculate my profits? They do not know how much a business is brining in. I could tell them its $500 when i reality it is $1500.

saxon22 · Mar 23, 2008

Quote from nutmeg:

Here's a couple for sale on the net.

http://franchisepundit.com/index.php/2007/08/21/franchise-valuations-an-auntie-anne-example/
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Thank you for the site. Good stuff!

ammo · Mar 23, 2008

i ve been remodeling homes for almost 20 yrs and nov to feb is always slow but its never been this slow, this mortgage,credit card, job mess that the country is in is not a good time to start a small biz,people are not spending,you may have to ride several months of break even or loss before mrkt and biz pick up, check with you local courthouse and see how many biz permits applied for or renewed in last 6 mo-a yr

saxon22 · Mar 23, 2008

Quote from coolweb:

I have experience in valueing franchises...

While auntie annes is a VERY good franchise, you should not be a franchisor mainly because it takes 8% of yoru GROSS.
A very good restaruant grosses around 15% of GROSS, Them taking 8% right off the bat leaves you with 7%

It puts you brother straight into the buying another job category but with tons of headaches with employees and such.

That 8% gross cut is a huge cut off your profit, , its not 8% net but 8% GROSS, keep reminding yoruself that, 8% GROSS, walmart doesn't even make 5% NET , if you are not making money for the month you are still paying 8% GROSS.

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#2 sqft , with an auntie anne, your sqft is around 500 sqft at most, That makes it a class C franchise,
which means you will have maybe 3 employees.

That means yhour brother as the owner will be workign there for life, he will not be able to buy more franchises and build up from there.

You want to own at least a Class A franchise , which allows you to hire more people and leverage your experience.

With a Class c franchise, you are a working stiff.

Class a franchise = 10+ employees where yo ucan hire a manager and become hands off. 3000+ sqft dining areas

Class b franchise = 5+ employees , quiznos

Class c franchise = auntie annes, those cookie shops, 3 employees max, you need to be working there or you won't be making ANY money.
Not enough gross to cover a managers fee.

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What auntie annes is, you are spending $300k to buy yourself a $60k job.

your rbother already has a free $50k job, why is he buying one for $300k?
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auntie annes = great busines

Auintie annes is a GREAT business, don't get me wrong, its a GREAT busines for the franchisors, its a SLAVE business for the franchissees.

I have NEVER seen an auntie annes that didn't get a lot of customers.
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long island city mall , I know that place, good location ,but still, will get you great business, but you will be paying your 8% gross to the franchisor

8% gross = you slave worker that paid $300k to buy a $60k job.

he will not be making more then $60k a year, guaranteed.
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I hear you loud and clear. Looks like you have been around the block when it comes to these types of establishments. Now since class "C" type is a long term slavery and class "A" is the way to make decent $$$$ and have a life of sort, which one would you propose? Which franchises are woth the cost and are financially rewarding enough to dive into?

saxon22 · Mar 23, 2008

Quote from ammo:

i ve been remodeling homes for almost 20 yrs and nov to feb is always slow but its never been this slow, this mortgage,credit card, job mess that the country is in is not a good time to start a small biz,people are not spending,you may have to ride several months of break even or loss before mrkt and biz pick up, check with you local courthouse and see how many biz permits applied for or renewed in last 6 mo-a yr
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You are right, the big R is here and people are slow to spend. Having said that, even those who are on the financial edge have to eat when they go shopping. Last time I went to the mall, there were plenty of folks walking around and the food stalls were as busy as ever.

nutmeg · Mar 23, 2008

Sax,

Did you count the pretzel customers? This would be a good idea at different times and days to calculate potential. Also, I sure would like to know stats on number of customers using the mall, weekly mothly, seasonally. You could come up with numbers of sales based on mall traffic. You need to come up with a futures number.

saxon22 · Mar 23, 2008

BTW guys , sorry for taking so long with answers. ALL of your replays are valuable and have been read an analyzed by both of us. Please,do not be offended by the time lapse since my last posts. Having two kids (2and 3.5) is super time consuming.
Thanks to all for the input and.... keep them coming.

nutmeg · Mar 23, 2008

"Last time I went to the mall, there were plenty of folks walking around"

Don't mean to be a bug but count the people walking around with bags in their hands.

MandelbrotSet · Mar 23, 2008

Quote from saxon22:

I hear you loud and clear. Looks like you have been around the block when it comes to these types of establishments. Now since class "C" type is a long term slavery and class "A" is the way to make decent $$$$ and have a life of sort, which one would you propose? Which franchises are woth the cost and are financially rewarding enough to dive into?
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i'm glad you didn't go for the $100k washout of a deal, the payout sucked ass and it put an inordinate amount of risk on you with additional performance requirements.

now the trick is for you to do what you love and put your heart and soul into that one ... no one can tell you what that is (except i hope it isn't mcdonalds).

let us know when you figure it out.