Choosing a franchise opportunity?

[Twisties]

There are any number of resources out there on the web for locating franchise opportunities. Many of them seem to low ball initial investment requirements (are they paid per referral click?), some you got to wonder what they do with the screening info you give them.

 

Most are organized around three major criteria:

 

General Location, Investment Budget, and Industry.

 

Not sure those are all the appropriate criteria. I might consider various aspects of the franchise business structure and terms important too, for instance.

 

How do you pick a franchise opportunity?

[Matts_12GS]

Jan,

I went through the review of several (about a dozen) franchises a few years back based on an idea for a concept. My partner and I looked at a lot of different factors in the franchise equation.

 

In our instance it was a wine/beer establishment.

 

What we found to be be limiting factors were:

 

1. limits on how much we expand on the franchise's concept

We wanted to sell microbrews/imports along with wine but nobody had or allowed for that kind of deviation within the first few years.

 

2. limits on which suppliers we could actually use for products

there were 4000 wineries in CA the year we started our store. We wanted to stock about 400 labels. No franchise allowed us to source outside of what they sold.

 

3. costs/fees based on percentages of sales.

If we sold the average first year projected revenue that the prospectus stated, we would have spent more in fees to the franchisees than we actually invested in starting the store out of pocket.

 

4. fixtures were dictated by the franchisee and we could not source them to match the local area.

 

Given our concept, much of what I showed above is the reason that we decided to go it alone.

 

Feel free to PM me any questions you might have and I'll answer them the best I can.

[Twisties]

Thanks Matt!

 

Were you able to screen that information on-line, or did you need to get into discussions with each offerer? What information sources did you use for initial screening? I guess in your case since you had decided on an business type from the get go, the screening was perhaps not as critical a step.

[David]

We found the same thing as Matt, when my wife was considering a franchise.

[Matts_12GS]

Thanks Matt!

 

Were you able to screen that information on-line, or did you need to get into discussions with each offerer? What information sources did you use for initial screening? I guess in your case since you had decided on an business type from the get go, the screening was perhaps not as critical a step.

 

Jan,

 

We found a bit of it on line but most of it came in the information packages we requested from the franchises that seemed most aligned with our vision/desires.

 

If you have not already, check out entrepreneur magazine. They usually keep a ton of information on franchises. Much of the magazine is marketing fluff, but there are some good bits in each issue. I haven't subscribed in ages, but I recall it being a good resource.

[bayoubengal]

Jan

 

I've done some research on franchises, centered around UPS Store.

 

What I found was that the franchise fees were absolute, but the revenues to pay them were not. I looked and looked and found many unhappy franchise owners and virtually no happy ones, mostly poor taste fromt eh after-affect of the MBE buyout. Many of these issues would likely not afftect other franchises, I just share it to show that information is out there. Find a good sampling of guys who have done what you want to do. Do nothing on excitement and emotion.

 

No substitute for DD...

[Dave McReynolds]

My experience after having dealt with a number of franchises over the years, as their CPA, is that it is a pretty good deal for the franchisor, but not so much for the franchisee.

 

In a nutshell, as a franchisee you're working as a manager for the franchisor. You're subject to all the limitations that any manager-employee would have on his freedom to change things in the business, if he would like to try a new way of doing things. You might get a performance bonus if the business does well, but you don't have the benefits or legal protections of being an employee, and you do have the risks of losses or going without pay if it doesn't do well.

 

Given the choices of being an employee-manager with a performance bonus for a successful company, a franchise owner, or an independent businessman, being a franchise owner would be my last choice.

[Twisties]

If the alternative to a franchise is to take a job in a business like the one you are considering in an attempt to learn the ropes, and presuming the cost of that experience is one year of opportunity loss, would you do that before accepting the costs of franchising? How long do typical franchise agreements last? I have seen folk drop the franchise after a few years and go independent (obviously any non-compete clauses would need to be understood and accounted for).

 

In addition to access to intellectual property, what about the value of franchise marketing and purchasing power, access to supplier networks, and ease of business establishment?

 

It certainly seems that although advice on this board is uniformly negative (publicly and in PMs), a very large number of folk find franchising to be a profitable approach to business. It is not unusual to see franchisees expand to multiple stores, or even multiple franchises. They must see value in it. Why?

 

For me, I have plenty of general business experience. I worked in an ice cream shop in HS, worked in and managed several 7-11's (including with a deli and a gas station in three different States). But the last 25 years I have been a chemist. Yes, I have managed projects in a large corporation, and laboratories in a smaller firm (and been a regulator too). But I want nothing to do with the environmental chemistry field now.

 

So how to translate general business experience to a new enterprise where I don't have current knowledge of the field? Oh, and I am done as an employee. I would do it short term to learn, but not as a goal.

 

BTW, the 7-11 I worked at in NJ was a franchise. The owners had it two years, bought another, and then in another year sold both and opened a new supermarket. They had some family backing, but I am given to understand that the profit and experience of running the 7-11 was critical. If it worked for them in the 70's why wouldn't it work for me now?

 

As another point, the control issue is important to me. I would want to sell my photographic prints in any food service, gallery, or book shop, or other appropriate type business I might go into. I want a solid business behind that sideline though. I am also thinking of other opportunities that would not be conducive to the prints, but they would be a personal plus, and my motivation is probably important to maintain.

 

My main goals: Work on my feet, work mostly indoors, succeed. Working with hands is good, but computers are ok too, some of the time.

 

What is success? Make enough money to pay myself a decent salary and benefits, and enough profit to cover the lost opportunity cost of a medium risk investment in securities. Get within two-three years to where a manager is capable of running the business, at least for a few weeks at a go. Most nights and weekends off after one year.

[John Ranalletta]

IMO and experience, there are two reason a company creates franchises:

• The opportunity or prospect for success is so low, it does not want to risk its own capitol and wishes to transfer the risk to the unsuspecting franchisee
• The franchisor cannot reasonably expect to hire an employee/manager who is willing to work the large number of hours for so little

[Whip]

Jan

 

I've done some research on franchises, centered around UPS Store.

 

What I found was that the franchise fees were absolute, but the revenues to pay them were not. I looked and looked and found many unhappy franchise owners and virtually no happy ones, mostly poor taste fromt eh after-affect of the MBE buyout. Many of these issues would likely not afftect other franchises, I just share it to show that information is out there. Find a good sampling of guys who have done what you want to do. Do nothing on excitement and emotion.

 

No substitute for DD...

 

 

 

Great advice!

 

 

[Whip]

IMO and experience, there are two reason a company creates franchises:

• The opportunity or prospect for success is so low, it does not want to risk its own capitol and wishes to transfer the risk to the unsuspecting franchisee
• The franchisee cannot reasonably expect to hire an employee/manager who is willing to work the large number of hours for so little

 

 

True Dat!

[Dave McReynolds]

There have certainly been examples of successful franchises. I remember when we used to envy those who had picked up a few of the early McDonalds franchises. They picked up the franchises for a few thousand dollars and were selling them for hundreds of thousands. However I notice in the news over the last year here in Sacramento that two different people have declared bankruptcy who each owned multiple franchises: one who owned a number of Burger King franchises and another who owned a number of Jack in the Box franchises (I think each owned around 10 franchise locations). The franchises may not have been the cause of their bankruptcy - maybe they got overextended in other ways, but obviously the franchises didn't turn out to be the pot of gold they expected them to be.

 

Over the past few years, I have had clients who bought franchises in Quick Printing, Florist, and Pita Pit. Uniformly, they found that the hours required to make any money were far beyond what they had anticipated. The Quick Printing and Pita Pit franchises lasted about a year or so, while the florist stuck it out more than five years before they threw in the towel. Pita Pit is interesting, in that I loved the product: a healthy and good tasting alternative to a fast food lunch, but Pita Pit was apparently not very good at setting up the franchises to succeed.

 

Off the top, I would say that all three individuals who went into these franchises seemed a lot like you, Jan. They seemed energetic, were willing to invest a significant amount of their own capital, wanted to learn the business, and had a clear desire to succeed. At some point, each decided that it wasn't happening for them, and evidently decided that there was no bright light at the end of the tunnel.

 

Of course, this is as much a failure of the franchisor as the franchisee. The franchisor did not have a successful business model, or was not capable of selecting people who had the right potential to succeed (or didn't care, as long as the people fronted the franchise fee).

 

Looking back at these three examples, I guess the best advice I could have given my clients in retrospect would be to interview a number of franchisees who have been in business for enough years to get over the early bumps, and try to visualize yourself in their position. Pick your own franchisees to interview as opposed to letting the franchisor pick them for you. It would be instructive to pick some who are struggling, and imagine whether you would be able to turn the operation around.

 

If the opportunity were available, I would go to work for one of the franchisees at entry-level wages, just to get an inside look at what's going on. 6 months of lost opportunity costs on what I could otherwise earn seems like a good deal to me to get some OJT and perhaps save myself from losing a franchise fee later on. I realize that these franchises are supposed to offer you training in whatever it is that they do, and it is certainly in their best long-term interests if you are successful. But their primary short-term goal is to collect your franchise fee and get another location up and running. Of course, the legitimate ones hope your location will be successful, but I don't think any of them can really offer you much more assurance than that.

[graydude]

My main goals: Work on my feet, work mostly indoors, succeed. Working with hands is good, but computers are ok too, some of the time.

 

What is success? Make enough money to pay myself a decent salary and benefits, and enough profit to cover the lost opportunity cost of a medium risk investment in securities. Get within two-three years to where a manager is capable of running the business, at least for a few weeks at a go. Most nights and weekends off after one year.

 

Now franchise that Jan and I'll be your first customer

[Huzband]

Howz about you be a true entrepreneur & start your own business, hmmm?

 

You'll be ahead of the game with regard to franchise guidelines, & you can set your own perimeters.

[Francois_Dumas]

 

What is success? Make enough money to pay myself a decent salary and benefits, and enough profit to cover the lost opportunity cost of a medium risk investment in securities. Get within two-three years to where a manager is capable of running the business, at least for a few weeks at a go. Most nights and weekends off after one year.

 

Wow! When you find a way to do that,let me know please

[tallman]

Howz about you be a true entrepreneur & start your own business, hmmm?

 

You'll be ahead of the game with regard to franchise guidelines, & you can set your own perimeters.

 

 

Another option, one that could work out well, or not.

 

It's been 40 years since I managed a fast food/Dairy Queen brazier franchise.

DQ had something like 11 consecutive quarters posting a loss when I began working there.

Our store nearly doubled sales volume in a short time.

One day suits literaly walked in unannounced during lunch rush coming into the back of the restaurant.

I threw them out.

 

ooops, turned out to be a bigwig from the hinterlands who wanted to know what we were doing.

I was doing some simple marketing, catering to different groups, after school (teens), then families (drive by on the way home/would put up a specific bargain on the marquee).

I'd put rock on during the afterschool period (3-5) then change to classical and run the hooligans (who consumed mass quantities of soda and fries $$$$) out.

I also bought some items (like bananas) from nonfranchise vendors (who were gouging).

Then late night I'd put on the campus radio station and advertise a late night special that would draw in the stoners from the University. (I can still see some, like a scene from Night of the Living Dead, pushing up against the glass doors and windows, screaming for Ice Cream, after we closed).

 

Well, Mr. Bigwig didn't take too kindly to my running him out and put a wrench in the monkeyworks.

Every little thing had to go through the Mother ship after that.

Predictable outcome, sales fell off.

The formula they gave franchise owner would make money IF labor costs were kept below staff levels needed to run the place.

So if you did the work of 4 people you got the pay of one.

Sounds good, right?

 

Like I said, a long time ago but I didn't see anyone embracing change even though the proof was in the bank deposits.

 

Good luck.

 

Were thinking of a food truck for retirement.

That way BMWST can have their events anyplace and no problems getting good meals.

As long as everyone likes PB & J.

[Twisties]

Organic PB (stir it) on fresh whole wheat with organic raspberry or peach jam please.

[John Ranalletta]

If you can, choose a business that moves, handles, packages or trades money or intellectual property, solving physical inventory issues.

 

Choose a business where the customers are government financed or subsidized, i.e. student loans, windmills, EVs, mortgages for a steady flow of funds.

 

Choose a business where customers pay you for what you know, not what you do. Knowledge businesses can be run from a mountain chalet, hamburgers require wearing an apron and standing at a cash register.