My Franchise Experience
- Thread starter Hysteria
- Start date
I looked at buying into a franchise once.
Plan was to buy three stores then place an area manager to keep an eye on the managers so I could be hands off.
Labour market was white hot at the time and isn't much better now in this neck of the woods if you're looking for the lowly paid wage slaves required for the low margin, high volume business this was.
Drilled down the numbers for the first site, almost every figure went up dramatically over what I was told the site would cost to what it was actually going to be.
Walked away and never looked back.
Plan was to buy three stores then place an area manager to keep an eye on the managers so I could be hands off.
Labour market was white hot at the time and isn't much better now in this neck of the woods if you're looking for the lowly paid wage slaves required for the low margin, high volume business this was.
Drilled down the numbers for the first site, almost every figure went up dramatically over what I was told the site would cost to what it was actually going to be.
Walked away and never looked back.
You asked which one lost my girlfriend everything, it was one of the bread franchise's. My girlfriend did not do due market research, the area it was in was predominatly an ethnic area where they do not eat bread!!!!! Poorer socio economic area, so my guess is lots of buying the no brand big supermarket bread adjacent to thier shop.
The Franchise Expo is often right next to the Investment Expo in Sydney. I often have a wander round the Investment Expo and always stray into the franchise Expo. It's amazing the sort of things people will franchise. The franchisors on the stands are always so earnest and the sales spiel is often very compelling. I can imagine people who are a bit disenchanted with their job going in there and being sucked in by a clever pitch. If they leave their contact details, they would then be followed mercilessly I suspect. Last time I was there, the ones who were the slickest and pushiest were 'Signarama'. A big part of their pitch was the fact that they fly people to Las Vegas (I think) for a months training while their store is fitted out.
Could be an expensive 'holiday'.
You would be better off taking a chance on the roulette wheel while in vegas then putting your dollars into a Franchise.
What a terrible story, sorry to hear it 
Just to add to the thread, I know two people who have bought franchises (one family, one associate)
Person 1 bought a well known ice cream shop franchise. That person had previous experience as a Mcdonalds manager, and had also owned/operated a boutique clothing franchise with limited success, but thats another story. Suffice to say, they were sophisticated franchisees.
Franchise chose the site in a place renowned for high rent, and lots of flexible opposition. (lets face it - opening an icecream franchise on a strip with dozens of cafes also selling icecream/gelati with high rent isn't the cleverest business model in the world imo)
Franchise has been running for approx 4 years, with the owners desperately trying to sell at a loss after it became obvious that even with both parents working plus kids as well as any and all relatives they could hire on the cheap, that they were hundreds of thousands in the hole for purchasing a job.
Person 2 (now this is the ugly story) bought a franchise selling a certain kind of car accessory for several hundred thousand dollars. They then leased a site that was built to purpose. After a year of running at a loss, they realised that the business was a no goer and decided to fold, and then found that, within the franchise contract, they were required to stay in business for a certain number of years before being allowed to close down at all, and so ended up paying the franchise out. Total loss in less than 18 months was in excess of one million dollars.
Seems to me that all the money in franchises is selling them.
Just to add to the thread, I know two people who have bought franchises (one family, one associate)
Person 1 bought a well known ice cream shop franchise. That person had previous experience as a Mcdonalds manager, and had also owned/operated a boutique clothing franchise with limited success, but thats another story. Suffice to say, they were sophisticated franchisees.
Franchise chose the site in a place renowned for high rent, and lots of flexible opposition. (lets face it - opening an icecream franchise on a strip with dozens of cafes also selling icecream/gelati with high rent isn't the cleverest business model in the world imo)
Franchise has been running for approx 4 years, with the owners desperately trying to sell at a loss after it became obvious that even with both parents working plus kids as well as any and all relatives they could hire on the cheap, that they were hundreds of thousands in the hole for purchasing a job.
Person 2 (now this is the ugly story) bought a franchise selling a certain kind of car accessory for several hundred thousand dollars. They then leased a site that was built to purpose. After a year of running at a loss, they realised that the business was a no goer and decided to fold, and then found that, within the franchise contract, they were required to stay in business for a certain number of years before being allowed to close down at all, and so ended up paying the franchise out. Total loss in less than 18 months was in excess of one million dollars.
Seems to me that all the money in franchises is selling them.
many but not all franchise systems, go very close to being a Ponzi.
Just in my industry alone just recently Refund Home Loans, many would argue it fell over because of poor management.
I suspect it's more like the franchise couldn't make enough turnover from commissions, and was highly reliant, on selling new franchises to keep the doors open.
But of course I could be wrong
Thanks
Rolf
Just in my industry alone just recently Refund Home Loans, many would argue it fell over because of poor management.
I suspect it's more like the franchise couldn't make enough turnover from commissions, and was highly reliant, on selling new franchises to keep the doors open.
But of course I could be wrong
Thanks
Rolf
Haven't seen you for a while OA - welcome back. Just to add to what you said - lots of people purchase franchises by borrowing money off their property to do so - so the loss is a double whammy as you are still paying interest on the borrowed money long after you sold the franchise.
Thats why I did Aaron. I had a 80k working capital, and borrowed against 2 IP's. These $$$ went up in smoke pretty quick with my store costs blowing out to 480k. 200k over from what they originally quoted.
Normally you have a strip site or a kiosk with the franchise I was associated with. Mine was a strip site, approx 84sqm. Small. But it costs 400k to fit this site out.
Thes site allready had services to the premises, running water, power etc.
I had one sink, there was no cooking equipment, just basic preperation was required.
I received a electricity invoice for $35,000 from the shopfitters. They could not provide me with a detail quote. All it stated was: power points, electrical, lights. (there was 6 flouro lights) This site allready had functioning power
Plumbing: $33,000. I had one sink!! And a cool room. The previous business at the site was a hairdresser with taps, water etc.
Signage: $28,000. Simple menu board with a light box out front.
Tiles: I had 12sqm. Are you sitting down. $9,900. No the tiles werent imported from italy.
But as the Franchisor said to me " your store costs were not reviewed"
I managed to get in touch with shopfitters who were fitting out these stores and they comfirmed it was just do and charge. Obviously they loaded up on the invoices and cashed in. These shopfitters are no longer in business.
I think you should let me know which franchise this is so that I can go do some shopfitting. In 5 years, I'll let you drive the Rolls Royce - just bring it back with a full tank
Is there any way of threatening to take these outrageous fit out costs to the media, perhaps even doing so, but I'm thinking just the threat might get some more money out of the franchisor. I am wondering why they told you you could choose from the quotes, but didn't give you that option, and if that was written in the contract. I'm sure they have covered their butts, but maybe an expose on Today Tonight might get you some hush money.
Yes have def thought about doing this. But I would generally speak about Franchising on the whole, not just go out there guns a blazing. There was some and still are good sites with the franchise i was with so have to respect the partners who are still in the system. There were 4 other partners who had this same problem, and all stores were built around the same time.
This is something I would have to seek legal advice on.
