Buying into a franchise

Odd_Job

Has anybody got any experiences of this - good or bad?

I'm consistently failing to get work - although always applying, always, always applying - and have started looking into this as an income.

I don't know if this sounds self pitying, but I'm coming to the conclusion that I can't just sit here day after day applying for job upon job without doing something more constructive. Buying a franchise of some kind, before the savings are all gone, seems a proactive move.

But I'm not sure if they're all pretty much a con of some kind. After all, if the business model really does work well, why wouldn't the franchisor or company just invest money their self to expand the business, rather than sell licenses to other people?

I'd appreciate any thoughts, experiences or help on franchises. Thank you.

paulwf

Some of the largest brands are franchises, certainly most of the well known international fast food restaurants are. On the other hand there are some that are bordering on being a con and some that are just not worth the money and poorly run.

After all, if the business model really does work well, why wouldn't the franchisor or company just invest money their self to expand the business, rather than sell licenses to other people?

A small retail or cafe unit can approach £100K to set up. Costa quote costs of £250K to set up a site and they expect another half million ready in your bank as they expect you to roll out 5 cafes in total. So one reason why companies franchise - particularly smaller and less established ones - is that they couldn't expand anywhere near as fast without franchisees.

Franchising can reduce the risk for a company if they get the franchisees to take on leases and hire the staff etc.

A franchisee will also treat their business as their own so will put a lot more effort into marketing it and generally maximising profits. With the best will in the world a manager will only put in so many hours and so much effort, if it is your own company and your own money on the line you will work that much harder. This helps the franchisor as they don't have to micro manage the business.

OP could you please let us know the rough area of franchising you are considering? It is hard to talk about the topic without at least some idea as a franchise could be for drain cleaning, dog grooming, recycling cooking oil, just about anything. Some idea of available funds would also be useful although I understand if you don't want to go into too much detail on that, but a ballpark would be useful.

emmell

My brother (against my husbands advice) sunk all his redundancy money into a franchise selling tools. He had to lease or buy the van from them, equip the van from them and they chose his area to work visiting mainly garages on a cold call basis to try to build up a round.
Some of the items were very expensive so finance was offered to the customers, great idea in theory but the turnover in garage staff meant that someone could buy a £1000 toolbox
and after paying a couple of payments leave their job. The company that owned the franchise didn't lose out my brother did, they wanted all the outstanding money off my brother.
My husband, who's been in sales all his life told my brother that it's very hard to sell anything, let alone expect customers to come to you.
When my brother decided to pack in he owed the company for all the goods that hadn't been paid for on finance, result over £30,000 of debt and no job.
I know all companies aren't the same but I know of three people that have ended up with no wages, debts and no job.
ML.

paulwf

My husband, who's been in sales all his life told my brother that it's very hard to sell anything, let alone expect customers to come to you.

That's a good point about franchises. It's not a case of just handing over £10K or whatever and magically having a business. You need to be able to put all your time and all your energies into it and it has to be an area that you have skills in. You can't just "buy yourself a job" you need to be good at it before you start.

sorryitsme

I would say research, research, research.

My mum purchased a travel franchise and after spending 25k and the business failed in 1 year. Little known to my mum the travel industry was changing to internet based, therefore all the money spent on the shop premises was a complete waste and should have been spent developing and marketing the website of the business. You may find that you have ongoing monthly costs you have to pay the franchiser. Be careful!

montage

Big franchise's like KFC, Costa.. and so on after a very large amount of cash has been invested in them usually turn a bigger profit than the regular stores as they are better managed when the person who's life is on the line is watching from behind the burger stand.

Smaller franchises make no sense to me... why buy into a franchise of a smaller unknown brand. All a franchises has is a larger brand awareness that you pay heavily for but not without rewards.

To give somebody money for the privilege of being self employed, renting their vehicles and selling their products in a so called franchise investment seems a total no brainer... with the emphasis on NO.

If you have some cash and wish to invest it... invest it with the only person who will NEVER screw you over... yourself.

wuckfit

The only people who make money out of franchises are those who are selling the opportunities, not the suckers who bought into the marketing hype and are working 80 hour weeks to barely make ends meet.
For every product you sell, you have to give a percentage of your gross profit in royalties to the franchiser. (that is the difference between your cost price and your selling price. out of that gross profit you have to pay staff, rent rates, etc.)Also you have to pay advertising royalties as well. There will be limits on where you can operate - usually it is stipulated that you open in a busy area. which is an expensive place to lease property, and despite promises to the contrary, they will, in all liklihood, sell another franchise too close to yours, eating into your profit.

millyfrancrisp

I thought about the franchise option as well - I'm looking to get back into work after 6 years of being a full time mum.

I like the look of Pauline May ( specialist clothing for the elderly ). Does anyone have any experience of this company?

paulwf

montage wrote: »

Smaller franchises make no sense to me... why buy into a franchise of a smaller unknown brand. All a franchises has is a larger brand awareness that you pay heavily for but not without rewards.

There is much more to a franchise than the rights to use a brand name. A good business will have been running for quite a few years with all the trial and error that goes with it before franchising. Having systems in place that have taken years to perfect will save wasting a huge amount of money and also increase turnover.

Franchisors can help with site selection and provide support with a strong management team. They can also have much more buying power which in itself can cover the franchise fee.

I probably wouldn't suggest going for a franchise without a strong brand but you are buying into much more than that.

paulwf

wuckfit wrote: »

The only people who make money out of franchises are those who are selling the opportunities, not the suckers who bought into the marketing hype and are working 80 hour weeks to barely make ends meet.

There are plenty of people making good money out of franchises without working excessive hours.

For every product you sell, you have to give a percentage of your gross profit in royalties to the franchiser. (that is the difference between your cost price and your selling price. out of that gross profit you have to pay staff, rent rates, etc.)Also you have to pay advertising royalties as well.

Franchises work in different ways. Paying a percentage of gross turnover is common, as is paying a fixed monthly fee. IMHO it works best where the gross profit margin is high, some retail sectors work on razor thin margins to begin with so it wouldn't be viable, but in other sectors a good franchise will increase profits by much more than the fee.

Advertising royalties usually work in the favour of the franchisee. Instead of having to fund an ad campaign by yourself (usually impossible) 100 franchisees all putting in a small amount can have a huge impact. Generally advertising levies are paid into a not for profit account so the franchisor doesn't profit from it.

There will be limits on where you can operate - usually it is stipulated that you open in a busy area. which is an expensive place to lease property, and despite promises to the contrary, they will, in all liklihood, sell another franchise too close to yours, eating into your profit.

If this happens take legal action. You shouldn't have to though because if you had done your research and also got the franchise agreement vetted there shouldn't be an issue. For example it is a standing joke that there is a Subway on every street corner so nobody in their right mind would buy one.

Vetting of the franchise document before signing is essential, if it stipulates the location check the implications of this first. In general franchises are a higher investment than a standalone shop and they usually make the most of the brand by being in a prime site...this results in a high turnover but of course the risk is higher with a higher rent. If you want a secondary location then there's no point paying good money to use a brand name.

nkr_1234

You can try Subway Franchise since its requires under $200K investment. I know few people own 4 to 5 subway stores