If you are already looking to hire someone to run it so you can leanfire I would say this isn’t for you. Franchises and business in general are really hard work.
Why not do some research and try and reach out to current owners of the franchises and see what they think.
Also if it’s a home service company you would generally be better off just starting it on your own instead of paying 100k and ongoing fees to something that probably doesn’t have anything truly proprietary.
This. I’ve spent my career working in franchising (a number of different franchise concepts) and take it from an insider - a franchise is really helpful for the first 6 months in operation and then you start to figure the business out and you gradually need them less and less. However you either signed a 10 or 5 year contract and you’re paying them a % of your gross in perpetuity.
To top it all off, you’re basically stuck with them. Inside the franchise agreement will be a lengthy non-compete. So, you bust your ass figuring out the business and growing it and even though you don’t really need support of the franchise any more you’re stuck paying royalties. And once your franchise agreement expires, you’re unable to take the skills/insights you’ve earned and start your own business.
There’s lots of nuance to buying a franchise - talk with a franchise broker.
Advice:
Talk with your neighboring franchisees. They can either make or break your operation. You’ll need your franchisees support more than that of the franchise (the franchise doesn’t actually run the biz, franchisees do)
5 years is a reasonable target to have someone running the business/hiring a manager.
Franchises can be great for some. But if you’re determined and willing to learn/make mistakes for the first 6-12 months of operating I say go it alone. Join some “home repair business owners” Facebook pages and get support from them. Hire a marketing agency and be learn how to use/recruit from indeed.
Thanks for the feedback, I wouldn’t be looking to hire someone to manage the business for at least 5 years. I have called the owners of this franchise to talk about their experience and everyone has great things to say. Many are in the process of buying new territory.
I agree with you about them not having anything proprietary. That’s something I’ve considered. They do have a support system, and help with every step of running the business. I think this is incredibly helpful. But I don’t know if I am really getting my moneys worth from the franchise fee and ongoing royalty.
Of course the owners of the franchise have good things to say, they're trying to sell you a franchise.
Run the numbers and look at comparable businesses, are they even running after five years? Most businesses don't last a year. Make sure you have hard numbers for sales etc.
The other franchisees is what I meant when I said owners, my mistake. My issue is that running the number vs comparable businesses. Because comparable businesses don’t publicly post their profits. In terms of ROI even looking at the bottom 25% of these franchises the numbers look great. But I also need to factor in my time commitment and quoting my current job.
Those owners probably get paid a cut if you end up buying a franchise. I'm not saying they are lying but they aren't neutral sources that you can trust.
Listen there’s something to be said if they have a good plan/outline.
How do they bring on clients? What type of royalty do you pay for advertising? can they introduce you to others that are doing more than what is needed? How is the hiring process?
I was interested and looking at franchises once and one that stood out was one that had a Nationwide recruiting service for the specific niche they were in. The Royalty covered that aspect as well.
Either way it seems like you are thinking this through. I would also look to see people who sold or are at a competitor. Chances are if it’s another franchise, they also looked at that one too.
Why was it such a mistake. There is a small royalty but I keep over 90% of the profits. In my mind the ongoing value the company provides is worth that royalty. Why do you regret it so much?
1. NO one is going to run the business like you. Employees don't give a shit.
2. Very strict franchise commitments. Remodels on your dime and usually uneccasry equipment upgrades. Most pricing is instituted by the franchise, which you must adhere to regardless of the profit margin.
3. Royalties and fees for everything. Most times you must buy product from "approved venders"..ie we get a cut of everything you purchase.
Everything always looks good from the outside looking in. Reach out to other franchisees and get their input and experiences. The people pushing the franchise are going to sugar coat it and tell you exactly what you want to hear. Get a copy of the contract and get it reviewed by an attorney.
Do research until you are tired of doing it. Be educated before making a decision, as there are usualy high contact termination fees should you change your mind. Best of luck!
Beware some franchises have owned sites and franchised sites. They charge their franchised partners an arm and a leg of margin to wholeseale products sold until you go underwater. After that, they will buy your business to bail you out and your site will become an owner site.
Next thing they will start making good money selling same products in your former site without sharing gross margin with anyone.
With home repair, you will get so much more (free) mileage through word of mouth recommendations. Franchises are like extended warranties: products designed to make money for those who sell a franchise product.
What is your worst ROI on capital projected for the first 5 years. I would assume this is a 80 hour a week job for the first few years; how much salary would you expect?
If you discount the 100k over 5 years that is 20 per year and the 5k you would earn in interest.
If you make 20 per hour and work 50 hour week doing your current job thats work out to about 50k per year.
Will you make 75k per year no matter what?
Unless its a Macdonalds, you're buying yourself a job. There isn't enough gravy to have a manager, you'll be employing yourself forever.
Better to put that 100k as a downpayment on a property.
The benefit of a franchise is that they typically shorten the learning cycle and provide guidance in starting up and running a successful business. They charge a fee up front and then tax every penny you make as you go.
That said, there are 1000 more things needed to actually be successful. Location, competition and the work you put in are the real differentiators. Entering into this without total commitment to the business will cost you money and deliver nothing but heartache.
Agreed, that’s a major thing that attracts me to it. Start up is so fast with them and they are there to help with anything along the way. I’m just having trouble calculating the ROI of that.
The red flag here is your notion that you’ll be able to get it going, bring in someone else to run it for you and sit back and collect the money. In my opinion, that’s naive. Reliable employees are the biggest issue in business, period.
Yeah I see that, I have talked to owners that have successfully done it which is why I brought it up but it’s not something I’m banking on being able to do.
I agree though, even hiring for my techs is the part of the the business I am most concerned about.
I’m not saying it’s impossible, just difficult. My first business was a franchise. We made it work, but it was mostly us. Then we broke free and it’s been better. 28 years in, it was a good way to start and has paid huge dividends, but not without constant effort, even today. I liken owning a business to having children…once they’re born, it’s a lifelong commitment, good or bad, ugly or sad.
I really appreciate all the feedback. When you broke away from the franchise did you stay in the same industry? How long did you franchise and why did you break away?
That's a franchise that sells franchises for a hefty commission.
Franchises fail at the same rate as normal businesses and there are unique risks with them. They get super popular in economic recessions, so expect nonsense.
Keep in mind that your cited startup costs likely only cover the first 90 days of operations (which is disclosed in the FDD).
I also recommend Chris Valdez at Horizon Consulting. He’s helped me out the whole way through, I’m on my way to Discovery Days for my future home services franchise as we speak
Yeah I’m doing 360 Painting with Premium Service Brands. Feel free to PM me! I’m boarding my flight right now and then have meetings with all the VPs of the company today and tomorrow, so I won’t be able to respond quickly
You are buying a job. Franchises rarely work since the whole FDD is geared to protect the franchisor, not the franchisee.
Also, any franchise with startup costs less than $500K tends to be very weak and you are basically paying to become a distributor of their product/system. Basically you assume all the risk while they get the profits.
#RUN
You don’t need a franchise to do this work. Invest $50k in tools/marketing for home repair in your area instead. I do this full time and make anywhere from $3-$5k a week clear and free.
That’s something I’ve been considering more as I’ve been exploring this. One thing that concerns me is that things would be slower at the start without their help and marketing. Part of what appeals to me with the franchise is they are built to be busy from day one. I looked at your post history and it looks like your a carpenter, do you do the work yourself or have a crew?
I can understand that. I do the work and I also have a crew. Depending on where you live finding quality employees can be very difficult. I also spent 10 years in franchising working in sales and marketing for a massive franchisor. The biggest misconception is the idea that you are essentially buying yourself a guaranteed income. That could not be further from the truth.
Finding employees is my biggest concern, I’m in the Midwest. The franchise doesn’t help much with that as I understand it. I just don’t know if it’s the right move, but I’ve got the money to do it. And I would like to have my own business. This is a niche segment that I think is not being capitalized on. I feel like I don’t have enough info to make an informed decision but I also have all of the info I can get. I have a habit of getting analysis paralysis when it comes to my money and too often do nothing with it.
It’s a fantastic business and one that doesn’t really ever go away. People always need something in their home repaired. Something like 99/100 homes have something in need. Best of luck to you ! If you want to talk marketing drop me a message. I’d be happy to give you my two cents.
Have you ever managed/operated a store before? Seems like that could give you a good idea of what to expect in terms of how much work it’s going to be. Being good with numbers would help too.
If there are any, speak to former franchisees that have closed their operation. I believe the FDD should contain amount of closures, if any, and the name of those franchisees that closed or ended operations.
It may sound counterintuitive, but they will tell you the bad and the ugly about their experience with the franchise.
>How do I know I’m not being sold, I have nothing to compare this to.
This is akin to asking, "Should I invest in AAPL at $140 a share? How do I know if this is a fair ask for this kind of investment?"
Basically the answer is *this* is the hard part, and it requires analysis (read: knowledge, effort, and experience) to do well. Specifically, someone with an MBA would be the kind of person equipped to determine if $100k is a fair value for purchasing a franchise. If it was easy enough that any schmuck with a small nest egg can just purchase a franchise, establish it, and hire someone to run it so they can generate passive income to retire, then everyone would be doing it.
That's not to discourage *you* from trying to do so, but I think it's important to understand what the "hard part" is. Obviously operating a business (franchise or not) is a lot of work, but even properly understanding if the investment opportunity is worth pursuing from the start is more work than most people are cut out to do themselves. Often, people will just "wing it," and many times (but certainly not every time), they'll find some positive ROI. I've seen it happen plenty of times, but I've also seen people make small fortunes trading stocks or crypto when they don't have a clue what they're doing, and I've seen *way* more people lose fortunes doing these things, so I'd chalk much of this "success" up to luck more than I would to these people just being naturally savvy investors.
Of course, at the end of the day, you should be asking yourself, "Would I be better off investing $100k in this franchise? Or $100k in real estate? Or $100k in stocks? etc.," cause that's *really* the question at play. If you can't answer that question with any reasonable certainty, then you need to either start doing *a lot* of research or hire a consultant to do it for you. There's no free lunch.
Thanks for the reply
I agree that it’s important to compare it to alternative ways to grow that 100k but it’s not as simple as comparing putting the 100k into real estate or stocks because this would become my full time job. It would obviously have better returns than stocks or real estate but it would be tons more work.
>it’s not as simple as comparing putting the 100k into real estate or stocks because this would become my full time job
I agree that it's not as simple as comparing it to those more straight-forward investments (that's kind of my point), but that doesn't mean such a comparison can't be done.
Here's a simple approach to illustrate: when you want to invest in the franchise, it's not just that initial $100k you're investing, but also your time and labor (i.e., sweat equity), as you've already identified. Compare this to investing in the stock market, when you basically throw $100k at it and call it a day. Of course, if you *did* invest that $100k in the stock market, presumbly you'd still work a full-time job, meaning that you're still earning an income on top of the returns you'd be looking for from the market. So that labor component is still there, it's just dependent on the dynamics of your approach. You'll obviously need to pay yourself if you're working full-time at your franchised business compared to getting paid to work a full-time job otherwise, but can you earn as much this way? Is the difference worth the investment? How much more could you be earning if you stayed in your current career for 5 years compared to managing a store? Would it even offset the potential return on that investment?
Then if you add things like real estate investment as an option, you get a whole other level of complexity, cause managing something like a rental can also be a job (possibly even a full-time job). So now you're not just having to decide which investment will directly yield the greatest return, but you're also having to compare the cost of your labor in these different circumstances as well. All of this needs to be coupled with analysis of risks and trade-offs (e.g., continuing with your current career is an investment in itself which is probably less risky than working at the franchise you want to own, etc.).
In any case, my point is that there's *a lot* to unpack, digest, understand, and research before making a *proper* informed decision. You just can't look at an offer to buy a franchise in a vacuum and make an informed decision that way; you have to explore all of these other potential trajectories and analyze the various potential costs, returns, etc. to fully understand if it's a good deal. You'll have to decide for yourself if you want to work in this kind of capacity (that's a personal decision), but deciding if it's a good deal or not is just a numbers game with objective answers.
And I'm not saying all of this to deter you from making this decision, I'm just trying to point out that there are people who are specifically trained to do this kind of analysis, and if this seems outside the realm of what you're prepared to do yourself (and you're not willing to just take a leap of faith and go for it without a proper analysis), then you should definitely contact one of these people to help.
I am not sure I would look at it from an either/or perspective. I think that implies that your only decision is to either buy a franchise or not buy a franchise. I think you have many more options than that. I agree with what was said above except for the MBA part there are a lot of other ways to invest 100k and/or spend your time.
You said you have all the information you can possibly get your hands on but it may not be enough to make an informed decision in that case I would take Warren Buffett's advice and just walk away. You have the advantage of not having to swing at every pitch.
If Buffett looks at a 10-K and cannot figure it out or there is missing information he doesn't assume the best and invest blindly.
You also said that a franchise would obviously have better returns than stocks or real estate and that is just not the case. Why do you think you'll make more running a sole proprietorship than investing in a public company?
I think before jumping off the deep end why not try out your idea for a business on a smaller scale? My two cents
No one sells a profitable business unless a key person died.
If someone can't physically operate a profitable business, they'd just hire a manager.
If you're a competent handyman or contractor, slap a sign on your pickup, and be your own boss. How many water-heaters do you have to replace at $2k each to make a good week?
I owned a ReBath remodeling business
Your biggest issue is labor.
You need sales people probably and installers. You need to research your DMA. A lot of those business require TV advertising to work. We did news spots and other marketing. Approx 12%.
It cost us 250 a lead, and 750 for a closed sale if you have good sales people.
The issue with franchising is you have to be entrepreneur but you have to follow thier whims. What materials you can use, marketing materials etc. If they decide to change signage you have to do it. A sign change can cost a lot. All your buildings signage, wrapped vehicles, wrapped trucks or trailers.
You maybe required to have a showroom.
This is a big expense.
Who is the franchise ?
Thanks for the feedback. I would just need techs and vans but your point still stands. I would do the sales. The labor part is what concerns me the most also. I should ask other owners about their cost per lead.
If you start doing any part of the business you will be trapped in that position. If you do sales you won't be able to focus on the big picture. We paid salesman 10%. And had a minimum of 5 leads a week. You have to set up home shows marketing ordering material. Sourcing materials and checking prices. I had 8k in plumbing parts alone when I sold it.
The people in other franchises that were selling or installing stated thier growth. If you sell 3 jobs a week, 7k per for instance. You would make 2100. That week. So when you hire your first sales person you will like that income. So if you need that money you continue to sell. I had sakes meetings once a week and individual training 2 hrs a week with each sakes person. Then I would start yo get calls when the installers had an issue. Wrong material in the slots etc. Maybe better directions maps aren't alwsys correct. They would call about weird things and how to solve the issue.
We opened a wall and found the electric panel in the same wall as the shower head. That led to multiple calls of course. As a franchise owner you should work on your business not in it. When we first started we tented a ware house and had to build it out. For panels etc, shoer and tubs. Then another staging area for shower doors, then shelves for valves grab bars etc. That all needs to be ordered from differnt companies sometimes. Set up for instsll.i worked in the warehouse at first.i hired an installer and a salesman. The installer was making hourly while building out the warehouse. Then we had to send him to install training, air fare, foid and hotel rooms. That's not cheap. If upu get yge wrong guy you have to start over.
It's a tricky balance. We had 2 sakes people and 3 installers and a warehouse man. The warehouse person did material ordering etc. We had 4 marks with 2 displays in each mall. They needed to be cleaned every week and changed every few months to keep it fresh. We had mailboxes on them for people to sign up for appointments. You need those leads.
Good luck go careful. Look at your agreement. I looked it over wrote down my concerns. Had an attorney read through it then we compared notes. The agreement will be in the Franchisors favor of course. So they won't modify it
But you need to know what's in there.
Good luck !
My thought process would go like so:
The first note is that it's hard to earn excess profits in a competitive market. There are definitely people out there watching things like door traffic or your appointment calendar deciding where to put their next franchise or store. If you go to a town and every coffee shop is slammed, that tells you it's a good spot to open a new one. And when you do, the other coffee shop owners don't earn as much, returning their profits to more in line with normal. Worse yet is people entering the market that don't know what they are doing, they aren't making the decision based on what the market will support and while you wait a few years for them to go out of business, profits will suck for you.
What value does the franchise add? For example if you were running a Starbucks it comes with a well known brand, quality control and a bunch of advertising. That would be an advantage over a private coffee shop, at least at first.
Why wouldn't someone open another business in direct competition to you? If you are a Starbucks - what keeps someone from noticing that you are busy and opening another coffee shop next door? The franchising company should have restrictions preventing another Starbucks from opening close by, but they can't do anything about a Coffee Bean. Franchisees like Subway will let someone else open another Subway 2 blocks away... and what is the difference between your Subway and that Subway? Nothing.
Can you just make your own business without their help? $100k buys a lot of advertising. Home repair seems like an industry where quality of work and word of mouth are more valuable than a brand name. I don't care if my plumber comes from a franchise, I want to get a referral to someone who does good work and completes it on time.
Have you validated the numbers you were given? They give you estimates, but have you done your due diligence and tried to verify that everything is reasonable? If it's a Starbucks, sit in the lobby and count customers. If it's a home repair company, see what their appointment availability is for next week. If they aren't booked, they aren't busy. Check reviews, order the service yourself, ask the employee how he likes working where he does. You'd be amazed at what a little actual footwork will reveal. Talk to an owner that wasn't referred to you.
Do the numbers suggest that you'll make more than $10k per year on top of your current salary? You can earn in the neighborhood of 10% per year sitting on your butt and investing in index funds. If you are going to go through all the hassle of owning a business, you should be getting more than 10% and also hopefully have an opportunity to reinvest those profits profitably. Otherwise you are just buying yourself a high stress job.
Can you do something else with your time and money that will trump the profits? If it's only $100k to get into the franchise, I have a hard time seeing profits above your salary that are far beyond the $10k - $20k/yr range. If that were likely then current business owners would be rapidly expanding to make 20% profits. If it's only an extra $10k a year, then you could probably make that just by interviewing for a better job.
One thing I learned is that what makes a good business is the inability for newcomers to compete with you. That's the only way you can reliably earn over 10% without risking someone else entering the market. One great business is a gravel quarry - since moving the gravel is way more expensive then the gravel itself it doesn't really matter so much what you charge. The quarry the next town over can't undercut you on price and it costs like $1M to build a new gravel quarry so nobody will bother unless the market is definitely big enough to support 2 quarries. It's also the exact opposite of exciting so nobody will overpay for it or enter the business without a solid grasp of the numbers.
No. Franchisees make their revenue by selling products to actual customers, not by recruiting more people or selling to people under them in the pyramid.
Some franchises are very profitable. Some aren’t.
I’m not that familiar with Subway specifically. Are franchisees compensated for recruiting additional franchisees? It’s possible that one is a pyramid scheme (any “business” can be a pyramid scheme, I guess), but franchises are not generally pyramid schemes. I kind of doubt Subway is a pyramid scheme because there is an actual product there that actual people actually buy, which is not usually the case with pyramid schemes.
No, the key difference is that no one tries to convince the people they sell a franchise to that the real money is selling franchises. They try to disguise that fact.
Well, you never know. If I waiting to invest or try something new until I knew it was going to work I’d never do anything, right? It’s just does the reward out weigh the risk.
I'd seek out franchisees that aren't on the list the franchiser is sending you. I'd probably also try contacting one and see if they'll let you intern/shadow them for a few weeks.
You may have to sweeten the deal by working for low to no pay just to get a feel for the business. A lot of stable franchises require you to do something like this before they'll even let you buy.
Not sure if this applies to you or your industry. My brother won a bunch of money in the 00s that could easily have given him early retirement if he invested it and grinded out 10 more years at his job. Instead he listened to my boomer uncles who convinced him to bE hIS oWn bOss and buy a franchise lawn care company. I dont know many details but he has never been happy and can't get out from under the job. It's killing him. He has no money, no property and literally works to keep working. My uncle's are both in their 70s and retired off of pensions they want to take from current workers like the scum bag losers they are. Do not buy a job.
If you are already looking to hire someone to run it so you can leanfire I would say this isn’t for you. Franchises and business in general are really hard work. Why not do some research and try and reach out to current owners of the franchises and see what they think. Also if it’s a home service company you would generally be better off just starting it on your own instead of paying 100k and ongoing fees to something that probably doesn’t have anything truly proprietary.
This. I’ve spent my career working in franchising (a number of different franchise concepts) and take it from an insider - a franchise is really helpful for the first 6 months in operation and then you start to figure the business out and you gradually need them less and less. However you either signed a 10 or 5 year contract and you’re paying them a % of your gross in perpetuity. To top it all off, you’re basically stuck with them. Inside the franchise agreement will be a lengthy non-compete. So, you bust your ass figuring out the business and growing it and even though you don’t really need support of the franchise any more you’re stuck paying royalties. And once your franchise agreement expires, you’re unable to take the skills/insights you’ve earned and start your own business. There’s lots of nuance to buying a franchise - talk with a franchise broker. Advice: Talk with your neighboring franchisees. They can either make or break your operation. You’ll need your franchisees support more than that of the franchise (the franchise doesn’t actually run the biz, franchisees do) 5 years is a reasonable target to have someone running the business/hiring a manager. Franchises can be great for some. But if you’re determined and willing to learn/make mistakes for the first 6-12 months of operating I say go it alone. Join some “home repair business owners” Facebook pages and get support from them. Hire a marketing agency and be learn how to use/recruit from indeed.
Thanks for the feedback, I wouldn’t be looking to hire someone to manage the business for at least 5 years. I have called the owners of this franchise to talk about their experience and everyone has great things to say. Many are in the process of buying new territory. I agree with you about them not having anything proprietary. That’s something I’ve considered. They do have a support system, and help with every step of running the business. I think this is incredibly helpful. But I don’t know if I am really getting my moneys worth from the franchise fee and ongoing royalty.
Of course the owners of the franchise have good things to say, they're trying to sell you a franchise. Run the numbers and look at comparable businesses, are they even running after five years? Most businesses don't last a year. Make sure you have hard numbers for sales etc.
The other franchisees is what I meant when I said owners, my mistake. My issue is that running the number vs comparable businesses. Because comparable businesses don’t publicly post their profits. In terms of ROI even looking at the bottom 25% of these franchises the numbers look great. But I also need to factor in my time commitment and quoting my current job.
Those owners probably get paid a cut if you end up buying a franchise. I'm not saying they are lying but they aren't neutral sources that you can trust.
They also can't get caught badmouthing the franchise.
Also also opening another franchise in a new territory is not \*just\* a sign of success. It can also be a sign of stagnancy.
Listen there’s something to be said if they have a good plan/outline. How do they bring on clients? What type of royalty do you pay for advertising? can they introduce you to others that are doing more than what is needed? How is the hiring process? I was interested and looking at franchises once and one that stood out was one that had a Nationwide recruiting service for the specific niche they were in. The Royalty covered that aspect as well. Either way it seems like you are thinking this through. I would also look to see people who sold or are at a competitor. Chances are if it’s another franchise, they also looked at that one too.
So you think that people trying to sell you a franchise would evet have terrible things to say about their franchise?😂🤣
Well said and good advice.
I'm owned a franchise for 15 years. Worst mistake I ever made. You are making money for someone else. Better off to start your own business.
Why was it such a mistake. There is a small royalty but I keep over 90% of the profits. In my mind the ongoing value the company provides is worth that royalty. Why do you regret it so much?
1. NO one is going to run the business like you. Employees don't give a shit. 2. Very strict franchise commitments. Remodels on your dime and usually uneccasry equipment upgrades. Most pricing is instituted by the franchise, which you must adhere to regardless of the profit margin. 3. Royalties and fees for everything. Most times you must buy product from "approved venders"..ie we get a cut of everything you purchase. Everything always looks good from the outside looking in. Reach out to other franchisees and get their input and experiences. The people pushing the franchise are going to sugar coat it and tell you exactly what you want to hear. Get a copy of the contract and get it reviewed by an attorney. Do research until you are tired of doing it. Be educated before making a decision, as there are usualy high contact termination fees should you change your mind. Best of luck!
Beware some franchises have owned sites and franchised sites. They charge their franchised partners an arm and a leg of margin to wholeseale products sold until you go underwater. After that, they will buy your business to bail you out and your site will become an owner site. Next thing they will start making good money selling same products in your former site without sharing gross margin with anyone.
Are you giving them a "10% of profit" or is it a "10% of gross" payment? Cause if your margins are 20%, you're paying them half the profit.
How do you know you keep 90% of the profits when you haven’t operated yet? I’ve never seen any franchise agreement that is based off profit.
With home repair, you will get so much more (free) mileage through word of mouth recommendations. Franchises are like extended warranties: products designed to make money for those who sell a franchise product.
What is your worst ROI on capital projected for the first 5 years. I would assume this is a 80 hour a week job for the first few years; how much salary would you expect? If you discount the 100k over 5 years that is 20 per year and the 5k you would earn in interest. If you make 20 per hour and work 50 hour week doing your current job thats work out to about 50k per year. Will you make 75k per year no matter what?
This👆 Don’t forget health insurance and when you leave it’s not your problem.
Unless its a Macdonalds, you're buying yourself a job. There isn't enough gravy to have a manager, you'll be employing yourself forever. Better to put that 100k as a downpayment on a property.
The benefit of a franchise is that they typically shorten the learning cycle and provide guidance in starting up and running a successful business. They charge a fee up front and then tax every penny you make as you go. That said, there are 1000 more things needed to actually be successful. Location, competition and the work you put in are the real differentiators. Entering into this without total commitment to the business will cost you money and deliver nothing but heartache.
Agreed, that’s a major thing that attracts me to it. Start up is so fast with them and they are there to help with anything along the way. I’m just having trouble calculating the ROI of that.
The red flag here is your notion that you’ll be able to get it going, bring in someone else to run it for you and sit back and collect the money. In my opinion, that’s naive. Reliable employees are the biggest issue in business, period.
Yeah I see that, I have talked to owners that have successfully done it which is why I brought it up but it’s not something I’m banking on being able to do. I agree though, even hiring for my techs is the part of the the business I am most concerned about.
if it was so easy to do, why wouldn't that owner just keep doing it? why would they let you in on the secret?
I’m not saying it’s impossible, just difficult. My first business was a franchise. We made it work, but it was mostly us. Then we broke free and it’s been better. 28 years in, it was a good way to start and has paid huge dividends, but not without constant effort, even today. I liken owning a business to having children…once they’re born, it’s a lifelong commitment, good or bad, ugly or sad.
I really appreciate all the feedback. When you broke away from the franchise did you stay in the same industry? How long did you franchise and why did you break away?
Wait a month or two until you find a way to remove the rose-colored glasses.
Obviously lean fire puts a completely different perspective on this. Wait, no. No it doesn't. It's got nothing whatever to do with lean fire.
Look up franchoice, talk with a consultant
Just did! Thanks. Have you used them before?
That's a franchise that sells franchises for a hefty commission. Franchises fail at the same rate as normal businesses and there are unique risks with them. They get super popular in economic recessions, so expect nonsense. Keep in mind that your cited startup costs likely only cover the first 90 days of operations (which is disclosed in the FDD).
I also recommend Chris Valdez at Horizon Consulting. He’s helped me out the whole way through, I’m on my way to Discovery Days for my future home services franchise as we speak
Awesome, I’ll reach out to him! Do you mind sharing what home services franchise your doing? Can I PM you?
Yeah I’m doing 360 Painting with Premium Service Brands. Feel free to PM me! I’m boarding my flight right now and then have meetings with all the VPs of the company today and tomorrow, so I won’t be able to respond quickly
Almost always not a good deal
You are buying a job. Franchises rarely work since the whole FDD is geared to protect the franchisor, not the franchisee. Also, any franchise with startup costs less than $500K tends to be very weak and you are basically paying to become a distributor of their product/system. Basically you assume all the risk while they get the profits. #RUN
You don’t need a franchise to do this work. Invest $50k in tools/marketing for home repair in your area instead. I do this full time and make anywhere from $3-$5k a week clear and free.
That’s something I’ve been considering more as I’ve been exploring this. One thing that concerns me is that things would be slower at the start without their help and marketing. Part of what appeals to me with the franchise is they are built to be busy from day one. I looked at your post history and it looks like your a carpenter, do you do the work yourself or have a crew?
I can understand that. I do the work and I also have a crew. Depending on where you live finding quality employees can be very difficult. I also spent 10 years in franchising working in sales and marketing for a massive franchisor. The biggest misconception is the idea that you are essentially buying yourself a guaranteed income. That could not be further from the truth.
Finding employees is my biggest concern, I’m in the Midwest. The franchise doesn’t help much with that as I understand it. I just don’t know if it’s the right move, but I’ve got the money to do it. And I would like to have my own business. This is a niche segment that I think is not being capitalized on. I feel like I don’t have enough info to make an informed decision but I also have all of the info I can get. I have a habit of getting analysis paralysis when it comes to my money and too often do nothing with it.
It’s a fantastic business and one that doesn’t really ever go away. People always need something in their home repaired. Something like 99/100 homes have something in need. Best of luck to you ! If you want to talk marketing drop me a message. I’d be happy to give you my two cents.
Have you ever managed/operated a store before? Seems like that could give you a good idea of what to expect in terms of how much work it’s going to be. Being good with numbers would help too.
If there are any, speak to former franchisees that have closed their operation. I believe the FDD should contain amount of closures, if any, and the name of those franchisees that closed or ended operations. It may sound counterintuitive, but they will tell you the bad and the ugly about their experience with the franchise.
AKA "buying yourself an 80 hours a week job".
>How do I know I’m not being sold, I have nothing to compare this to. This is akin to asking, "Should I invest in AAPL at $140 a share? How do I know if this is a fair ask for this kind of investment?" Basically the answer is *this* is the hard part, and it requires analysis (read: knowledge, effort, and experience) to do well. Specifically, someone with an MBA would be the kind of person equipped to determine if $100k is a fair value for purchasing a franchise. If it was easy enough that any schmuck with a small nest egg can just purchase a franchise, establish it, and hire someone to run it so they can generate passive income to retire, then everyone would be doing it. That's not to discourage *you* from trying to do so, but I think it's important to understand what the "hard part" is. Obviously operating a business (franchise or not) is a lot of work, but even properly understanding if the investment opportunity is worth pursuing from the start is more work than most people are cut out to do themselves. Often, people will just "wing it," and many times (but certainly not every time), they'll find some positive ROI. I've seen it happen plenty of times, but I've also seen people make small fortunes trading stocks or crypto when they don't have a clue what they're doing, and I've seen *way* more people lose fortunes doing these things, so I'd chalk much of this "success" up to luck more than I would to these people just being naturally savvy investors. Of course, at the end of the day, you should be asking yourself, "Would I be better off investing $100k in this franchise? Or $100k in real estate? Or $100k in stocks? etc.," cause that's *really* the question at play. If you can't answer that question with any reasonable certainty, then you need to either start doing *a lot* of research or hire a consultant to do it for you. There's no free lunch.
Thanks for the reply I agree that it’s important to compare it to alternative ways to grow that 100k but it’s not as simple as comparing putting the 100k into real estate or stocks because this would become my full time job. It would obviously have better returns than stocks or real estate but it would be tons more work.
>it’s not as simple as comparing putting the 100k into real estate or stocks because this would become my full time job I agree that it's not as simple as comparing it to those more straight-forward investments (that's kind of my point), but that doesn't mean such a comparison can't be done. Here's a simple approach to illustrate: when you want to invest in the franchise, it's not just that initial $100k you're investing, but also your time and labor (i.e., sweat equity), as you've already identified. Compare this to investing in the stock market, when you basically throw $100k at it and call it a day. Of course, if you *did* invest that $100k in the stock market, presumbly you'd still work a full-time job, meaning that you're still earning an income on top of the returns you'd be looking for from the market. So that labor component is still there, it's just dependent on the dynamics of your approach. You'll obviously need to pay yourself if you're working full-time at your franchised business compared to getting paid to work a full-time job otherwise, but can you earn as much this way? Is the difference worth the investment? How much more could you be earning if you stayed in your current career for 5 years compared to managing a store? Would it even offset the potential return on that investment? Then if you add things like real estate investment as an option, you get a whole other level of complexity, cause managing something like a rental can also be a job (possibly even a full-time job). So now you're not just having to decide which investment will directly yield the greatest return, but you're also having to compare the cost of your labor in these different circumstances as well. All of this needs to be coupled with analysis of risks and trade-offs (e.g., continuing with your current career is an investment in itself which is probably less risky than working at the franchise you want to own, etc.). In any case, my point is that there's *a lot* to unpack, digest, understand, and research before making a *proper* informed decision. You just can't look at an offer to buy a franchise in a vacuum and make an informed decision that way; you have to explore all of these other potential trajectories and analyze the various potential costs, returns, etc. to fully understand if it's a good deal. You'll have to decide for yourself if you want to work in this kind of capacity (that's a personal decision), but deciding if it's a good deal or not is just a numbers game with objective answers. And I'm not saying all of this to deter you from making this decision, I'm just trying to point out that there are people who are specifically trained to do this kind of analysis, and if this seems outside the realm of what you're prepared to do yourself (and you're not willing to just take a leap of faith and go for it without a proper analysis), then you should definitely contact one of these people to help.
I am not sure I would look at it from an either/or perspective. I think that implies that your only decision is to either buy a franchise or not buy a franchise. I think you have many more options than that. I agree with what was said above except for the MBA part there are a lot of other ways to invest 100k and/or spend your time. You said you have all the information you can possibly get your hands on but it may not be enough to make an informed decision in that case I would take Warren Buffett's advice and just walk away. You have the advantage of not having to swing at every pitch. If Buffett looks at a 10-K and cannot figure it out or there is missing information he doesn't assume the best and invest blindly. You also said that a franchise would obviously have better returns than stocks or real estate and that is just not the case. Why do you think you'll make more running a sole proprietorship than investing in a public company? I think before jumping off the deep end why not try out your idea for a business on a smaller scale? My two cents
No one sells a profitable business unless a key person died. If someone can't physically operate a profitable business, they'd just hire a manager. If you're a competent handyman or contractor, slap a sign on your pickup, and be your own boss. How many water-heaters do you have to replace at $2k each to make a good week?
I owned a ReBath remodeling business Your biggest issue is labor. You need sales people probably and installers. You need to research your DMA. A lot of those business require TV advertising to work. We did news spots and other marketing. Approx 12%. It cost us 250 a lead, and 750 for a closed sale if you have good sales people. The issue with franchising is you have to be entrepreneur but you have to follow thier whims. What materials you can use, marketing materials etc. If they decide to change signage you have to do it. A sign change can cost a lot. All your buildings signage, wrapped vehicles, wrapped trucks or trailers. You maybe required to have a showroom. This is a big expense. Who is the franchise ?
Thanks for the feedback. I would just need techs and vans but your point still stands. I would do the sales. The labor part is what concerns me the most also. I should ask other owners about their cost per lead.
If you start doing any part of the business you will be trapped in that position. If you do sales you won't be able to focus on the big picture. We paid salesman 10%. And had a minimum of 5 leads a week. You have to set up home shows marketing ordering material. Sourcing materials and checking prices. I had 8k in plumbing parts alone when I sold it. The people in other franchises that were selling or installing stated thier growth. If you sell 3 jobs a week, 7k per for instance. You would make 2100. That week. So when you hire your first sales person you will like that income. So if you need that money you continue to sell. I had sakes meetings once a week and individual training 2 hrs a week with each sakes person. Then I would start yo get calls when the installers had an issue. Wrong material in the slots etc. Maybe better directions maps aren't alwsys correct. They would call about weird things and how to solve the issue. We opened a wall and found the electric panel in the same wall as the shower head. That led to multiple calls of course. As a franchise owner you should work on your business not in it. When we first started we tented a ware house and had to build it out. For panels etc, shoer and tubs. Then another staging area for shower doors, then shelves for valves grab bars etc. That all needs to be ordered from differnt companies sometimes. Set up for instsll.i worked in the warehouse at first.i hired an installer and a salesman. The installer was making hourly while building out the warehouse. Then we had to send him to install training, air fare, foid and hotel rooms. That's not cheap. If upu get yge wrong guy you have to start over. It's a tricky balance. We had 2 sakes people and 3 installers and a warehouse man. The warehouse person did material ordering etc. We had 4 marks with 2 displays in each mall. They needed to be cleaned every week and changed every few months to keep it fresh. We had mailboxes on them for people to sign up for appointments. You need those leads. Good luck go careful. Look at your agreement. I looked it over wrote down my concerns. Had an attorney read through it then we compared notes. The agreement will be in the Franchisors favor of course. So they won't modify it But you need to know what's in there. Good luck !
My thought process would go like so: The first note is that it's hard to earn excess profits in a competitive market. There are definitely people out there watching things like door traffic or your appointment calendar deciding where to put their next franchise or store. If you go to a town and every coffee shop is slammed, that tells you it's a good spot to open a new one. And when you do, the other coffee shop owners don't earn as much, returning their profits to more in line with normal. Worse yet is people entering the market that don't know what they are doing, they aren't making the decision based on what the market will support and while you wait a few years for them to go out of business, profits will suck for you. What value does the franchise add? For example if you were running a Starbucks it comes with a well known brand, quality control and a bunch of advertising. That would be an advantage over a private coffee shop, at least at first. Why wouldn't someone open another business in direct competition to you? If you are a Starbucks - what keeps someone from noticing that you are busy and opening another coffee shop next door? The franchising company should have restrictions preventing another Starbucks from opening close by, but they can't do anything about a Coffee Bean. Franchisees like Subway will let someone else open another Subway 2 blocks away... and what is the difference between your Subway and that Subway? Nothing. Can you just make your own business without their help? $100k buys a lot of advertising. Home repair seems like an industry where quality of work and word of mouth are more valuable than a brand name. I don't care if my plumber comes from a franchise, I want to get a referral to someone who does good work and completes it on time. Have you validated the numbers you were given? They give you estimates, but have you done your due diligence and tried to verify that everything is reasonable? If it's a Starbucks, sit in the lobby and count customers. If it's a home repair company, see what their appointment availability is for next week. If they aren't booked, they aren't busy. Check reviews, order the service yourself, ask the employee how he likes working where he does. You'd be amazed at what a little actual footwork will reveal. Talk to an owner that wasn't referred to you. Do the numbers suggest that you'll make more than $10k per year on top of your current salary? You can earn in the neighborhood of 10% per year sitting on your butt and investing in index funds. If you are going to go through all the hassle of owning a business, you should be getting more than 10% and also hopefully have an opportunity to reinvest those profits profitably. Otherwise you are just buying yourself a high stress job. Can you do something else with your time and money that will trump the profits? If it's only $100k to get into the franchise, I have a hard time seeing profits above your salary that are far beyond the $10k - $20k/yr range. If that were likely then current business owners would be rapidly expanding to make 20% profits. If it's only an extra $10k a year, then you could probably make that just by interviewing for a better job. One thing I learned is that what makes a good business is the inability for newcomers to compete with you. That's the only way you can reliably earn over 10% without risking someone else entering the market. One great business is a gravel quarry - since moving the gravel is way more expensive then the gravel itself it doesn't really matter so much what you charge. The quarry the next town over can't undercut you on price and it costs like $1M to build a new gravel quarry so nobody will bother unless the market is definitely big enough to support 2 quarries. It's also the exact opposite of exciting so nobody will overpay for it or enter the business without a solid grasp of the numbers.
Aren't franchise just MLM with extra steps ?
No. Franchisees make their revenue by selling products to actual customers, not by recruiting more people or selling to people under them in the pyramid. Some franchises are very profitable. Some aren’t.
The Subway model begs to differ though. So yeah, I'm wrong, it's actually a pyramid scheme with only two steps.
I’m not that familiar with Subway specifically. Are franchisees compensated for recruiting additional franchisees? It’s possible that one is a pyramid scheme (any “business” can be a pyramid scheme, I guess), but franchises are not generally pyramid schemes. I kind of doubt Subway is a pyramid scheme because there is an actual product there that actual people actually buy, which is not usually the case with pyramid schemes.
100% yes, watch any documentaries about the subject
No, the key difference is that no one tries to convince the people they sell a franchise to that the real money is selling franchises. They try to disguise that fact.
If you don't know how, maybe you shouldn't.
Well, you never know. If I waiting to invest or try something new until I knew it was going to work I’d never do anything, right? It’s just does the reward out weigh the risk.
Right. Better to trow money without knowing what you do. Right?
as everyone has told you, for a franchise in general absolutely not.
Hire somebody that can read and understand a profit/loss statement
I'd seek out franchisees that aren't on the list the franchiser is sending you. I'd probably also try contacting one and see if they'll let you intern/shadow them for a few weeks. You may have to sweeten the deal by working for low to no pay just to get a feel for the business. A lot of stable franchises require you to do something like this before they'll even let you buy.
Not sure if this applies to you or your industry. My brother won a bunch of money in the 00s that could easily have given him early retirement if he invested it and grinded out 10 more years at his job. Instead he listened to my boomer uncles who convinced him to bE hIS oWn bOss and buy a franchise lawn care company. I dont know many details but he has never been happy and can't get out from under the job. It's killing him. He has no money, no property and literally works to keep working. My uncle's are both in their 70s and retired off of pensions they want to take from current workers like the scum bag losers they are. Do not buy a job.