Does anyone own a franchise?

[atarianna]

Or know someone close who does? My H and I have considered this as another investment avenue and I am curious about others who have done it.

Start up costs: is the buy in usually just for the "name" or does it also pay for initial fees like the lease of the space etc? The leasing company usually pays for renovation of the space, right?

We are just in the idea stage, so any info or anecdotes are welcome.

[Deleted]

May 23, 2015 6:54:39 GMT -5 atarianna said:

Or know someone close who does? My H and I have considered this as another investment avenue and I am curious about others who have done it.

Start up costs: is the buy in usually just for the "name" or does it also pay for initial fees like the lease of the space etc? The leasing company usually pays for renovation of the space, right?

We are just in the idea stage, so any info or anecdotes are welcome.

I work at the headquarters of an international franchise, and my step-dad owns four franchise restaurants, so I have some insight. You can PM me for more info.

The best place to start is to get on the website of whatever companies you're interested in. They should have information on franchising. Every company will be unique in terms of start-up costs and what you get for your money. The International Franchise Association (IFA) is also a great resource.

In a nutshell, franchising is not good for entrepreneurs who want to do things their own way. Franchising is all about duplicating success in multiple markets, and not breaking from the mold. That being said, that has been a good thing in my family. My step-dad was an overworked, struggling small business owner for 30 years. About six years ago he closed his own business and bought a franchise restaurant. It boomed, and this short time later he now owns four restaurants (three different companies).

There are a lot of perks to franchising. #1 is name recognition. People already know your brand. You will have to pay royalty fees to your company, but your company should have excellent resources in place such as corporate customer service, national and local advertising, training materials for your staff, and legal resources. Essentially, you don't have to reinvent the wheel.

Once you research your company, if you're serious about moving forward the next step is to go to their home office (my company calls it Discovery Day). You'll meet people from each department, and you'll probably have to show your business plan. They'll probably do a background check, credit check, etc. They should also be able to give you a financial outlook for your market (predict your profits for the next several years).

I hope this overview helps!

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[irishbride2]

It also varies drastically from company to company. Some are TERRIBLE for the franchise owners and others are very owner friendly.

Definetly make sure you have rights to an area, not just one store. You don't want to open one and then have them sell rights to a store across the street. Subway, for example, is notorious for this.

But definitely do your research! There are great franchises to own and terrible ones.

[irishbride2]

www.businessinsider.com/what-it-costs-to-open-a-subway-2015-3

This has an interesting breakdown of startup costs (just for one company but its a good place to start)

[winecat]

I met the owner of a Noth.ing Bun.dt Cakes and she was about to lose the downtown area for deliveries because they allowed another franchise to open and gave them that area. It represented a huge chunk of her revenue. Total anecdote I know, but it wasn't something I had thought about when running a franchise.

[4speedy]

One of DH's best friends dropped out of college midway through his first semester and started working at a Burger King. At the time, their group of friends pretty much had the attitude of "poor guy, he'll always be a minimum wage working schmuck..."

joke's on them, he's a multi bazillionair and winding down toward retirement at 46 years old.

He learned the business at BK and started his own ownership with those. I think he owned 5 or 6 of them along the way. He always seemed to have a Love/Hate relationship with BK corporate.

Then he somehow hooked up with Jimmy John's when it was brand new. He opened two or three of those and they did quite well. He developed a good relationship with JJ's corporate and became their go-to guy for entering new markets. He always like to break into a new region by locating very close to a college or university and then working his way across town.

I believe he got up to about 25-30 restaurants in about 5 Midwest states. 10 years ago, he changed his strategy. Since then, he opens new restaurants all over the U.S. He only hires managers who want to become owners. he does a pretty thorough vetting job before he hires his managers, too. The agreement going in is that after 3 years, if the manager meets certain performance goals, there is a transition plan in place (established from the day the manager is hired) so that the manager buys the franchise rights for that location. I think there is a timeframe where my friend steps away from the business but still takes a portion of the profit for a certain number of years. Equity is transferred to the manager each year based on profits. The deal is for the franchise rights and facility only. But my friend retains ownership of the land that the restaurant is built on. He remains the landlord for the property but not the building on it, that is owned by the former manager. My friend has an interest in having a viable tenant on his land and the new owner has someone to share the risk of opening a new franchise with for the first few years. It's a win/win for everyone. I think now my friend only has ownership in 3-4 restaurants at a time but he is a landlord for over 100 more, all that he started.

I'm not sure if this is common in franchising but it's not a bad way to go if you can find such a relationship. You would learn the business without risk of losing all your investment and eventually become an owner yourself. The corporate office of your chosen franchise might be able to put you in touch with an established owner who is willing to go this route with you.

[thumper55]

I've owned 3 stores between 2 concepts. 

My lease was handled a little differently for each location, but I paid all the leases. For a couple of the leases, the franchisor was the lease holder , and I was the sublesee.  The franchisor charged me a "processing fee".    Another thing related to the lease is that the landlord had  35% higher insurance requirements than my franchisor,  so I needed to buy an umbrella policy.  Although the landlord didn't care about auto coverage, my franchisor required me to add it onto my business policy (even though the employees didn't drive as part of their job).  There were other costs and fees that I didn't know about in the beginning.

For renovation, it depends what the franchise agreement is, and what the landlord agreement is. I don't remember what my franchise contract stated.   The landlord agreement was to do a refresh when the lease was renewed.   The improvements weren't specific though, so  I'm not sure what I would have been required to do.  After my leases ended, I only got a short term renewal, so it was moot.