saxon22, How old is your bro? What does his wife do? If he's young, then the risk may be worth taking if he buys a scalable franchise. I doubt he is young though if he's saved up 200k on a 50k/year job. If his wife is not working or not making much then perhaps she can help manage the business while he keeps his job. Your bro already has a 50k/year job. And if he's only working 40 hours a week and the job isn't that stressful then he's got a pretty good deal. His risk is: (1) giving up a low stress 50k/year job for a high stress 50k/year job managing his own business; (2) giving up a lot of his life as he works nights and weekends managing his business; (3) dealing with employees that quit abruptly or don't show up - employees are the biggest headache in every business; (4) not being able to reenter the corporate world once he leaves because they are looking for submissive yes men beurocrats and not entrepreneurs. Why don't you just teach him how to trade? Just kidding. Even without any trading - a conservative investing approach can net him 8-10% a year on average. And if he can't make that kind of return over the next 25 years then whatever franchise he has probably isn't going to do that well either.
I think itâs a losing venture too. It would be cheaper to buy him the FedEx route. You can own it and when he decides to quit sell it. They are both slave jobs but after all cost a good route will make 70k.
You own the pretzel stand franchise and can sell that too (probably not for as much as you paid for it, since the reason you'd be selling it is cuz it's doing poorly) Which is a reason I recommended the OP structure his loan as a bond. If his brother defaults on it (by failing to make an interest payment), it's easier for the OP to recoup his money, since he can force a sale of the business. It'll be at a fire sale price, but a 300K franchise can probably easily recoup > the 100K loan value.
Its ok. I wasn't calculating correctly. I took my close to 600% return and divided by the 6 years. With compounding, its a lot less than 100% per year. I had one year that was 330% overall, and it really skewed the average. But anyway, I don't think you are really taking a good view of the risk. If I recall correctly only about 10 or 15% of new businesses survive more than a year or two. If your brother is that gung ho on the idea, he should go borrow the other $100k. I had a friend that bought a Papa Johns pizza franchise and lost everything on it. Its not a fun thing to see happen. He'd asked me before hand to go in on it, and I'm lucky I didn't. There are just too many things you don't know waiting to jump out and ruin it for you. He lasted about 8 months before shutting it down.
After weeks of investigation. My brother have decided to abandon the franchise business in general and pretzel gig in particular. It looks good on paper and the folks selling it make it sound like a sure thing and ticket to financial paradise and total freedom. So far my 100k is still intact. I appreciate all the input from you guys and I see that a lot of you have been around the block. Once again thank you for all the input. Since the pretzel gig is out of the question, another alternative is the route business. While researching for the franchise eldorado, my brother and I have dug a little deeper into the idea of buying a route. What do you guys think of it??? I am also going to start a separate thread with a similar question to possibly draw a bigger participation.
You are to the point painfully I might add. However, could you provide facts, and or reasoning behind your reply.
I'm an old man and have been around a lot of franchers and franchisees specialising in coin operated stuff. IMO the only people who make money in those operations are the people selling the franchises. Keep in mind that franchisers are off loading the risks, the liabilities, the maintenance, insurances, employee hassles etc etc. Ask yourself why they do it? Many big franchisers have both company owned operations and franchisees. Now which operations do you think are the more profitable? Regards, ETU.