Franchises - which one?

[tvadera]

Hi All,

Has anyone has any exp of owning a franchise?

it could be anything like:
-gloria jeans coffee
-Boost juice bars
- Vendys ice cream
-Car wash
- Any petrol/gas station

What does one need to look into?

How does any one go about finding which one suits your circumstances?
How does one go about the finance? How much dep is required (10% of purchase price)
Structure to set it up?
How to evaluate the numbers when a franchise is up for sale?
Which type of franchise? food, coffee, petrol,etc?
How does the commercial lease work?

I am trying to learn as much as possible about buying an existing franchise,so even the smallest amount of info would help

Thanks

TV

 

[pinkboy]

Calling Geoffw!

pinkboy

 

[Rolf Latham]

Hi All,

Has anyone has any exp of owning a franchise?

it could be anything like:
-gloria jeans coffee
-Boost juice bars
- Vendys ice cream
-Car wash
- Any petrol/gas station

What does one need to look into?

How does any one go about finding which one suits your circumstances?
How does one go about the finance? How much dep is required (10% of purchase price)
Structure to set it up?
How to evaluate the numbers when a franchise is up for sale?
Which type of franchise? food, coffee, petrol,etc?
How does the commercial lease work?

I am trying to learn as much as possible about buying an existing franchise,so even the smallest amount of info would help

Thanks

TV

3 steps back : )

we have financed a few

what is your BOTTOM line purpose for looking to buy a franchise ?

Sell us your idea plan : )

ta
rolf

 

[weg]

Mobile phone shop.

 

[tvadera]

Hi Rolf,

Idea is for wifey to branch out from full time payg job to running a business. I am high income earner, so doesnt make sense to leave my job initially and venture into franchise completely from day1.

Also another dimension to this is Diversification, to have second source of income. Income from a job and income or loss from business.

This would give us an idea of doing a business because currently I am surrounded by all HIGH INCOME PAYG earners, hence feedback for running a business is limited (thank God I have Somersoft forum for that)

Regards,
TV

 

[Ace in the Hole]

Why restrict yourself to a restrictive franchise?

 

[Truly Exotic]

Hi All,

Has anyone has any exp of owning a franchise?

it could be anything like:
-gloria jeans coffee
-Boost juice bars
- Vendys ice cream
-Car wash
- Any petrol/gas station

What does one need to look into?

How does any one go about finding which one suits your circumstances?
How does one go about the finance? How much dep is required (10% of purchase price)
Structure to set it up?
How to evaluate the numbers when a franchise is up for sale?
Which type of franchise? food, coffee, petrol,etc?
How does the commercial lease work?

I am trying to learn as much as possible about buying an existing franchise,so even the smallest amount of info would help

Thanks

TV

sorry to say but out of your list of 5, 3 of them you couldnt have chosen worse

gloria jeans- high setup costs, high franchise costs, poor product saturate dmarket in decline, look where starbucks headed
boost- the horse has truly bolted, the fad is declining
wendys- one near where i worked, owner put in 275k new, 18 months later, put it on the market for 230k, a nother 12 months, down to 80k still unsold
carwash- havent had much experience with them, but how they survive by someone paying 35 a wash while 3 guys go at your car for 15 mins is beyond me, but ive known a few people who have had several, with all doing really well
petrol statiion- had a few chats with the guy who originally started united and he says he couldnt do it again due to lower margins and coles\woolworths petrol, also knew a guywho had a few 7\11s with petrol, he did really well ages ago but decided no more

 

[weg]

If you want some opinions and experiences do a search on franchise/s.

Lots of views to be found - not all good.

 

[lizzie]

Personally I wouldn't take on a franchise ... but it may suit you. Just go in with your eyes wide open to the fact that you aren't buying a business but rather a job - and from what others have said - it's a 12 hours a day, 7 day a week, 363 days a year job.

http://somersoft.com/forums/showthread.php?t=77140&highlight=franchise

http://somersoft.com/forums/showthread.php?t=75701&highlight=franchise

http://somersoft.com/forums/showthread.php?t=69185&highlight=franchise

 

[tvadera]

sorry to say but out of your list of 5, 3 of them you couldnt have chosen worse

gloria jeans- high setup costs, high franchise costs, poor product saturate dmarket in decline, look where starbucks headed
boost- the horse has truly bolted, the fad is declining
wendys- one near where i worked, owner put in 275k new, 18 months later, put it on the market for 230k, a nother 12 months, down to 80k still unsold
carwash- havent had much experience with them, but how they survive by someone paying 35 a wash while 3 guys go at your car for 15 mins is beyond me, but ive known a few people who have had several, with all doing really well
petrol statiion- had a few chats with the guy who originally started united and he says he couldnt do it again due to lower margins and coles\woolworths petrol, also knew a guywho had a few 7\11s with petrol, he did really well ages ago but decided no more

Hi,

List is just a starting point to explore more about each franchise types. Its not a comprehensive list by all means, idea is to find out more from people who have exp of owning/running a franchise business.

Also 1 liners which you have mentioned for each of the franchise is really good, as I said I am just starting out so would absorb all the info like a sponge

Regards,
TV

 

[Rixter]

I am surrounded by all HIGH INCOME PAYG earners,

What's your definition of a High Income Earner

 

[geoffw]

Some answers

How does one go about the finance? How much dep is required (10% of purchase price)

If only! If the institution is aggressively looking for franchise lending you may get 70%. You could finance based on residential equity- but be aware that you may be using a big percentage of your profits to servicing the debt. The term for P&I will be restricted by the term of the lease- so if there's 5 years left it may be difficult to get terms better than 5 years P&I. That can be a big drain on cashflow. But worth it when you sell. Assuming you can sell with a much shorter lease.

Structure to set it up?

Probably a company structure to limit exposure to your personal assets. I have mine as trusts with a corporate trustee. A food franchise has a higher risk than others, so the trust limits the risk to assets within the trust.

How to evaluate the numbers when a franchise is up for sale?

Typically the bank will value as a multiplier of the profit- the multiplier may depend on the line of business. Westpac look at 4x, but can increase that if there's reason to do so.

Which type of franchise? food, coffee, petrol,etc?

That depends on you. Food has a higher risk. But for a well known chain it can ensure a good turnover. Also operating hours may be a consideration. If your business is open longer hours, you may not only be required to be there for hours- you will be on call for those times when you are not there, and often for longer hours than that.

How does the commercial lease work?

There's a lot more people with more experience than me. For me the leases have been fixed term- with options in one case- and an annual increase as determined by the lease. There would typically be a clause requiring you to leave the shop as it was originally at the end of the lease. The tenant is responsible for outgoings. Leases in the big shopping centres can be dynamite, with high rents, big outgoings, and stringent requirements.

 

[Shaneelastic]

Hi Rolf,

Idea is for wifey to branch out from full time payg job to running a business. I am high income earner, so doesnt make sense to leave my job initially and venture into franchise completely from day1.

Also another dimension to this is Diversification, to have second source of income. Income from a job and income or loss from business.

This would give us an idea of doing a business because currently I am surrounded by all HIGH INCOME PAYG earners, hence feedback for running a business is limited (thank God I have Somersoft forum for that)

Regards,
TV

Bit worried about this statement

 

[JWR]

Guzman Y Gomez - not sure if its a long term viable business but good food!

 

[tvadera]

Hi Lizzie,

Thanks have gone through all the 3 threads, all of them were informative and it goes to show that it really helps to have an insider's view of doing business.

Personally I wouldn't take on a franchise ... but it may suit you. Just go in with your eyes wide open to the fact that you aren't buying a business but rather a job - and from what others have said - it's a 12 hours a day, 7 day a week, 363 days a year job.

http://somersoft.com/forums/showthread.php?t=77140&highlight=franchise

http://somersoft.com/forums/showthread.php?t=75701&highlight=franchise

http://somersoft.com/forums/showthread.php?t=69185&highlight=franchise

 

[tvadera]

Thanks geoffw, I have also gone through your thread of selling subway stores. u put 7 years of hard work in those stores, very inspiring and hopefully rewarding (money wise or in other areas)

Some answersIf only! If the institution is aggressively looking for franchise lending you may get 70%. You could finance based on residential equity- but be aware that you may be using a big percentage of your profits to servicing the debt. The term for P&I will be restricted by the term of the lease- so if there's 5 years left it may be difficult to get terms better than 5 years P&I. That can be a big drain on cashflow. But worth it when you sell. Assuming you can sell with a much shorter lease.
Probably a company structure to limit exposure to your personal assets. I have mine as trusts with a corporate trustee. A food franchise has a higher risk than others, so the trust limits the risk to assets within the trust.
Typically the bank will value as a multiplier of the profit- the multiplier may depend on the line of business. Westpac look at 4x, but can increase that if there's reason to do so.
That depends on you. Food has a higher risk. But for a well known chain it can ensure a good turnover. Also operating hours may be a consideration. If your business is open longer hours, you may not only be required to be there for hours- you will be on call for those times when you are not there, and often for longer hours than that.
There's a lot more people with more experience than me. For me the leases have been fixed term- with options in one case- and an annual increase as determined by the lease. There would typically be a clause requiring you to leave the shop as it was originally at the end of the lease. The tenant is responsible for outgoings. Leases in the big shopping centres can be dynamite, with high rents, big outgoings, and stringent requirements.

 

[wobbycarly]

*snip*
petrol statiion- had a few chats with the guy who originally started united and he says he couldnt do it again due to lower margins and coles\woolworths petrol, also knew a guywho had a few 7\11s with petrol, he did really well ages ago but decided no more

The company I work for services the petroleum industry, with 7-11 our biggest single customer in Aus. Interestingly, when 7-11 bought the Mobil sites, purchasers of the new franchises were largely existing franchisees. Must say something about it. But from what I've seen, the 7-11 model does not necessarily promote entrepreneurship; franchisees have very little say in the product mix, store layout, etc.

 

[weg]

The company I work for services the petroleum industry, with 7-11 our biggest single customer in Aus. Interestingly, when 7-11 bought the Mobil sites, purchasers of the new franchises were largely existing franchisees. Must say something about it. But from what I've seen, the 7-11 model does not necessarily promote entrepreneurship; franchisees have very little say in the product mix, store layout, etc.

And that's the thing with most franchises... if you want to boost profits, and have little say about product mix, where you source the product/fittings/equipment, store lay out, etc. how do you grow the business/increase profits?

The way I see it is the control (and big profit) is with the franchisor, not the franchisee.

 

[geoffw]

Guzman Y Gomez - not sure if its a long term viable business but good food!

My wife is Mexican- and we still do Mexican food at the Sunday markets.

Guzman y Gomez is by far the best of any we have sampled- and certainly the most authentic. There will be one opening sometime soon in Civic in Canberra.

There is a Zambreros chain which started in Canberra. The first one in Melbourne will be opening shortly. The food isn't very authentic, but it is popular. The franchisor is a doctor who is using the profits to fight diseases in the NT Indigenous community.

The first Mad Mex in Canberra will be opening soon in Belconnen. Good decor, food not as good as GyG.

I haven't tried Salsas- it's been set up by the Boost Juice founder.

There was another one in Sydney but I can't find it listed now.

While this so far hasn't directly answered the OP- there is a problem with getting into the franchise system. If it's a popular brand (like Subway) it can be hard to get into. The most cost effective way to own a store is to build it- but there are very few opportunities for people new to the system to build a new store- leaving the lower risk but higher cost path of buying an existing store.

A new franchise however can give opportunities which are not available to an established franchise. A franchise like one of the Mexican ones mentioned above which has some sort of track record but with a more limited geographical reach may offer a ground floor opportunity- albeit with a higher risk.

If I was younger with more energy I may have been interested in growing the concept we have in the markets. It has been popular, and we have had especially good feedback from Mexicans in Australia- including an endorsement from the Mexican ambassador. But I'm ready to get out of that sort of system now.

I'm only talking food franchises because that's what I know.

 

[Aaron_C]

The way I see it is the control (and big profit) is with the franchisor, not the franchisee.

But that's exactly how they're supposed to work - as a franchisee you are buying the goodwill of the business so you have to conform and comply with it. They will never let anyone tarnish or undermine that goodwill because without that the business is worthless.