Buying A Franchise Business

If you look at the fast food places like McDonalds™, Burger King™, Wendy’s™, Subway™, etc., you may think that buying a franchise is better than starting your own business. When you “buy” a franchise, you are actually “renting” a business, you do not own it. Sometimes, you can do really well with a franchise, if you own more than one, or you are in a really hot location (not likely, since most of these are already spoken for). If you do have more than one franchise, you are back to working two jobs, actually MORE than two jobs.

Ok, let’s say you decide that you are going to go for it, you’ve got a few hundred thousand dollars sitting around gathering dust, and you want to do something with it. Actually, if you wanted to go after a McDonalds™ franchise, the cost is over a million dollars, I think it was around 1.5 million last time I checked—and there are none available!

I knew a couple who had 3 Subway™ franchise businesses, in a college town. One was in a great location, the other two were not. they were both working 7 days a week, and netting, after franchise fees and other expenses like employees, withholding taxes, sales taxes, etc, etc, around $100,000 a year, or $8300 a month; $2083 a week, divided by two people, that’s a bit over $1000 a week apiece. Sound good? Divide the $1000 by the average 60 to 70 hours a week they were each working, and you get $15 an hour. Plus, they really did not own the business! It’s a franchise business, and it belongs to Subway.

“It’s My Way, Or The Highway!”

Another problem with a franchise business is that, after paying some mega bucks for it, you have to do it exactly the way they tell you to, or you lose it! You will have to:

• Open and close when you are told to;

• Sell only certain items, NO creative marketing allowed!;

• Sell only for certain prices;

• Only use the franchise owner’s ingredients, recipes, uniforms;

• Maintain certain appearance standards, including personal appearance;

• Interview, hire and train employees according to the franchise owner’s requirements;

• Only do the type of advertising that is approved by the franchise owner;

• Pay royalties every month, even if you don’t make anything;

• Perform at an acceptable sales level, or you lose your franchise;

• Pay for it all.

Sounds and smells like a job to me, actually, worse because you have just dropped your life savings into it.

Here are some of the better known franchise businesses, and the cost to get started in them:

Papa Murphy's™Cash Required $80,000

Pizza Hut™Cash Required $360,000 and a net worth of $1 million. Your total estimated initial investment will be between $1,290,000 and $3,088,000.

Dunkin Donuts™ Cash Required $750,000 in liquid assets and a net worth of $1.5 million.

Logan Farms Honey Glazed Ham™ Cash Required $100,000

Subway™ Cash Required $30,000 - $90,000

The UPS Store™ Cash Required $60,000 - $100,000

Mr. Clean Car Wash™ Cash Required $400,000 - $800,000

Jan-Pro™Cash Required $150,000

Ace Hardware™ Cash Required $250,000

Glass Doctor™Cash Required $50,000

Types of Royalty Fees

The most common royalty calculation is usually based on approximately 5-8 percent of the franchisee's gross sales.That means that the percentage that you pay for the “privilege” of having the franchise business, “comes off the top”, before you deduct any of your costs.

Some franchisers use a different method in calculating the royalty payment; they base it on 6-10 percent of net sales after expenses.

Also, there are a few franchisers that charge a flat fee without regard to sales so, if you have a bad sales month, it doesn’t matter, you still owe the same amount whether you have made any money or not!

As I said earlier, franchise businesses can work for some people, but they are not my personal business of choice.

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