Tell me about owning a franchise restaurant

In My Humble Opinion
1

My SO and I are very, very interested in running our own business within the next 5 years. While we’d like to own our own bar more than anything, we also recognize that a franchise restaurant is a bit of a safer bet.

We picked up some information about franchise ownership while eating at Quizno’s yesterday, and it’s piqued our interest.

What can you tell me about owning this sort of franchise? What were the start up costs? How hard is it to find people to help you run it? What other questions should I be asking?

Thanks!

2

I’m in my mid-thirties and never owned a franchise. However, my college roomate bought a Dairy Queen right of college. He took a loan for 300,000 and hired highschool kids to run it. He did have a manager - his brother I think.

Sufficed to say, he owns 3 dairy queens now and is a multimillionaire. - :smack: why didn’t I but a franchise! :smiley:

3

On the flip side, I knew a guy who owned a Denny’s. He told me that the profit margins were slim and owned 4 of them to make a living. It sounded like he was just getting by ok, but nothing extravagant.

4

I had a neighbor once that owned 7 Dairy Queens. He was definitely upper middle class but had to work hard at it. Unfortunately, his wife fell in love with one of the female counter workers and left him to be a lesbian. I am not sure if that is typical or not but it is something to watch out for.

MacDonald’s franchises can be extremely lucrative but the start-up money is severe. I have heard it can be over $1,000,000 per restaurant just for the licenses in a busy area and then you still have to pay the corporation for supplies and other things. The one that I go to most frequently is owned by a former sports star. I once knew a lady that had three McDonalds and she was definitely a multi-millionaire.

5

The profit margins on food are not nearly as high as they are on alcohol, particularly liquor, just FYI since you mentioned wanting to own a bar.

If you don’t know very much about running either, I would research both. You might be surprised.

6

I’ve heard that franchising can be great but you have to be the sort of person who is happy following someone else’s rules and procedures. I’m sure different franchises vary in strictness but in general you do it their way or not at all. There is very little room for any sort of creativity of your own.

7

Oddly enough, the only person I know who is a franchise owner is a guy who owns a Dairy Queen as well. He used to own 2 or 3 but now just has one. He is pretty well off, as far as I know.

8

When you agree to become a franchisee, you sign a lot of documents that give the franchiser significant say over how you run your business.

This is both a good thing and a bad thing. It is a good thing because most major franchises are major franchises for a reason, they’re big corporations that know how to make money, and their policies are there so that their franchisees make money (if their franchisees make money, they make money.)

It’s a bad thing because you are going to own a business–and one of the dreams of owning your own business is being your own boss. But you’ll also have development agents/compliance agents at cetera (different companies call them different things) who will come in monthly or sometimes even more to make sure you are complying with franchise policies.

If you aren’t, and you are found in non-compliance long enough they can seize your business, you agree to this when you sign on with many franchises.

Usually compliance isn’t a big issue, especially if you hire someone to manage your store that has experience in that franchise.

Depending on how much money you have, you may need to effectively work at the business as a regular employee.

I don’t have detailed information about every franchise.

I do know that the average revenue per week of a Subway is around $9500. I wouldn’t expect a Quiznos to be much out of that ballpark. That’s around $470k a year BUT that is before you pay all of your staff, factor in your food costs, factor in income taxes, factor in payroll taxes, and of course the other costs of being in business.

A friend of mine who owns multiple Subways says owning one Subway is basically like you’ve bought yourself a job. Depending on the individual Subway you may clear somewhere between $45,000-80,000 a year at that one location. So you’re basically making in a range that is firmly middle class.

While on the topic of sandwich joints, I honestly have a negative view of most of them. Both Subway and Quiznos are guilty of drastically over saturating markets. Remember, the corporation gets their franchise fee on every dollar you make–so to them, it doesn’t matter if they have two stores right next to each other as long as both stores combined make them more money than the one store operating by itself–the fact that the owner of the first store may see his take home get cut in half is irrelevant to Subway/Quiznos (Subway’s fee is 12.5% of sales FYI.)

Other franchisers seem to care a bit more about giving their franchisees a decent exclusive area to operate in so they don’t have to compete as much against other franchisees. Probably the worst thing about Subway/Quiznos is your biggest competition may be other Subways/Quiznos in the area.

I’m not trying to turn anyone against sandwich shops, but I think there is a reason the average person who is a millionaire off of them owns many of them–you have to in order to clear that kind of profit.

Also, generally, the larger your investment the more profit you’ll make in a year. If you become a franchisee for one of the medium-sized pub/eatery franchises, your initial investment will be $500,000+, but you’ll clear more money in a year than probably 7-8 or more Subways combined.

9

Just be careful to look into the ins and outs of each franchise, and the type of relationship between the parent company and the franchise owners. Some parent companies can make life difficult for their franchisees, from oversaturating markets (as described by Martin Hyde) to actively trying to fuck up their franchises.

Here’s a cautionary tale, with Dunkin Donuts as the example.

ETA:

Here’s the link to the original story.

10

My SIL and her husband bought a franchise (a hoagie/sub/deli sort of thing) a couple of years ago. Their two teenaged kids work there, but other than that, they had a terrible time finding reliable help. SIL and her husband would each run the place half the day, which meant they almost never saw each other at home.

Now they’re getting divorced after 24 years of marriage. Both quit their full-time jobs to run the store, and he cashed out his 401K. There’s not enough equity in the business to sell it, and neither one can afford to buy the other out. It’s a bitter situation, for them.

I would be very cautious about going into business with a spouse, partner, SO, just for the sake of the relationship.

11

My first thought was…do either of you have any experience in the bar/restaraunt biz? If not you may want to consider looking into doing so even if its just working a couple nights a week at an Applebees or something. The reality of restaraunt operations are far more complex that it sounds on the surface.

12

IANAM. However, I suspect that anyone who could get a $300k loan right out of college was destined to become a multi-millionaire through genius or privilege whatever they decided to do.

13

One of my best friends is in the franchise pipeline with McDonalds. He and his wife completed the rigorous application/approval procedure *over 3 years ago * and still do not have a store. Part of it is their pickiness over location. They’re from NJ and have been offered opportunities in Nebraska, Kansas and Minnesota. They visited all of these locations and decided they didn’t want to relocate there, for whatever reason. They are willing to move somewhere, but they haven’t been able to work out a deal in an area they would like to live. They have also said that owning one store is like a job,and you really need a few to make the real money.

14

My aunt and uncle used to own a Papa’s Pizza To Go, which is a smaller franchise chain. It was always busy but they were always there. It completely ate their lives. Whenever they found a good manager, they wouldn’t stay long. Mostly, they found bad ones. Thieves, etc. It’s very hard to find good help that you can trust to run the place without you.

15

About a year and a half ago, a Quiznos opened up just down the road from me. A Subway about a block on one side, a Davanni’s (pizza and hoagies (hot subs)) about a block in the other direction.

One of the problems I had with them was their crappy hours. I showed up at 11:20am one morning and they were not yet open. I showed up at about 8:30pm on a Sunday night and they were closed.

When I was in there, I constantly heard about their problems with the high school kids they hired to work there. Not showing, quitting without notice, messing things up, etc. More and more, I saw the harried owner behind the counter.

They lasted about six months.

16

Hmm… you all make bar ownership sound like a much, much better option.

Thanks!

17

Sounds like Prague!

18

I can only speak from my own perspective but I’m sure the situation is similar there.

Some franchises make their money from selling frachises - in other words once you’ve paid for your franchise and you have the keys to your shop they have pocketed their money and aren’t really all that concerned about you or you success. In some cases they actively want you to fail so they can open another one.

Other franchises run a good business. They give you proper training and guide you whenever you need it. They are concerned with the success of their brand and do not want you to fail. You need to find one of these.

How do you do that? Research, research, research. Go speak to other franchisees, make sure they are happy, ask if they will buy again with hindsight.

In the restaurant business a franchise is a good idea, especially for 1st time buyers. The restaurant (or bar) business is tough and most fail. Using a tried and proven concept is helpful but of course doesn’t guarantee success. Just remember it is not a glamorous industry, it is long hours and hard work. You end up working when everyone else is off, so your social life will suffer. Don’t think you’ll be able to socialise at the bar, you won’t have time. And it is difficult to find good management so you will always need to be close to your business to make sure it runs smoothly.

A lot of businesses fail because people think they pump in the money, get a manager and sit back and become rich. This doesn’t work, you need to be there yourself as much as possible or have excellent controls in place. ( this is another area where a franchise will help you as they have operations manuals, standard operating procedures etc.)

I know people who have run a franchise and then decided to go on their own but I also know people who have bought more franchises and become hideously successful. YMMV

19

Also watch the lifecycle of the company. Some business have done great over fifty years (McDonalds, Dairy Queen). Anyone investing in a Cold Stone Creamery franchise who expects his business to be in place seven years later is - in my opinion - taking a huge gamble. Faddish, expensive ice cream won’t have a long lifecycle.

Also, franchising used to be a good way for the franchisee and the franchiser to make money, but a lot of parent companies have gotten more and more greedy - realizing that they can overstaturate markets, sell you a franchise for a ton on money, up their franchise fees - and leave you with a smaller cut.

20

How does it work when a franchise business fails? I’ve seen start up costs of these franchises to be around $250K-$300K. So when people take out huge loans for these things what happens when they fold like I’ve seen so many do?
Do these business owners file for bankruptcy? Does it ruin their credit?
Or can they walk away from a failed franchise with not much of a scratch?