Franchising What are some of the worst Franchises ??

Or every farm/agency which engages backpackers

 

The franchise owner was my accountant for a brief period of time - I found him over enthusiastic for my liking. Also charged like a wounded bull and lived very richly accordingly.

Big write up in the Newcastle Herald - and the whole process sounded really dodgy as the franchisees were all financial clients of his. I honestly can't understand why these "experienced business owners" got sucked in so badly (well, I can but ... ).

 

have never understood this youghurt/frozen milk stuff franchise,

there seems to be a newbrand popping up in every shopping cetnre every few months, they all look the same, personally, for $5-7 for a small tub of yoguhurt where they charge for every topping , can make it expensive,

I was in bali recently, and there was one of these whose base price was $2, I was a bit typsy and went overboard with the lollies and it was $25!

got me untipsy very quickly!

 

A lifetime ago,I signed a lease for a shopping center for a food business,and I became friends with a lot of the other business owners including franchise owners

it didnt help that the entire area was struggling,but I got the vibe that most of the franchise owners were pretty oblivious to the reality,and most were like "oops,we are struggling, it wasnt supposed to be like this"

I was friends with fancy fillings,Cold rock, muffin break, wendys owners

I used to go by , how many coffees/ meals you needed to sell per hour/day in order to break even,even for my business that figure seemed quite high,but fortunately,I was able to hit the BEP every week,
but I heard other store owners being on rental payment plans

and a few years after I had finished,with their rents going up,the number of competitiors had doubled too!

hospitality is a tough game,I would not recommend anyone to go into it,
sure if you do well or get lucky, hold on to it and appreciate it

 

I have advised clients not to do deals in some locations but the shiny $$$$ in their eyes are too bright. When they start failing, you provide more advice and they still ignore it or don't act on it. IMHO the risk is way too high for many foodies & the ability to modify the offer in line with changing markets is very low - geez who would have guessed that you can't sell xyz all day or that 5 extra coffee shops/moving an anchor would impact your turnover.

 

Food businesses are one of the most toughest,with highest number of failures,but due to the low barriers to entry and these silly reality tv shows on restaurants,food and cooking,everybody wants to get in.Unfortunately reality is very different

 

A lot of restaurants are only open for dinner and only have a small seating capacity. Even if they filled every seat Thursday - Sunday they still would be barely scraping by. I wonder if people do their figures properly before getting into these businesses.

 

In my experience if its a franchise,they are promised or lead to believe theyre going to do a decent figure which will be profitable.

And if its a own business,they have a more "everything will work out" type mindset

Which i guess isnt a bad mindset.
No point going into a business expecting to lose

 

Townsville couple’s $400,000 Michel’s Patisserie disaster

What a mess!

 

I'm talking to someone about a potential joint effort to start/takeover a retail premises in my area.
At first I was asking about potentially operating as a franchise with paying a percentage of sales to use his brand and experience/strategy.
However he's now keen to have more control so we've spoken of JV options but difficult to agree on structure and we'd rather avoid legalities where possible.
Ultimately (now) he is interested in me potentially bringing capital.
I'm looking for ROI, not so much building a business and recouping setup costs.
So a potential scenario is me putting in capital in return for a percentage of sales to me. This is almost a reverse franchise arrangement, or really me investing funds with the return being variable with sales.
Is this something you are aware of being done elsewhere?
Any feeling as to percentage of sales that might be equitable?

 

Any reason he's not going to see a bank?

 

I dunno. Sounds fishy and odd to me

 

One issue to be very very wary of..... Many unskilled people see a shop as their only way to earn income. They are unskilled or prohibited from gaining employment ie illegals, visa etc. So they take on low paid stuff. And you them compete with them. Its a chase to the basement. The only one who makes $$ is the master franchise who sells you all product and dictates term and also takes a slice of sales. Not profit.

This is the problem with loads of retail franchises. Its people investing to buy a promise that pay other peoples wages and is lucky to pay them a wage or produce any for of return on the capital invested. You end up paying kids to work and rent to a centre and work 70hrs a week.

I would be wary of anything like a JV. Thats a partnership. You can be liable for their past and current losses and they may just need your $$ to survive. You are a lender of last resort when all other finance has been spent. When your cash is gone the locked roller shutter will be all thats left.

 

Excellent post, Paul.

And a bunch of RFG shareholders would do well to have it printed and attached to their mirror, so they can read it again each day.

Furthermore, a basic rule of thumb for any prospective Franchisees:-

1. Any Franchisor who is asking of a % of turnover as a franchise fee should be immediately denied, and

2. The Franchise Fee should only EVER be a % of Gross Profit (or EBIT).

ie. If the Franchisee is not making money, then neither is the Franchisor.

And if the Franchisor decides to load the cost of Inventory (as some have been accused of in the Inquiry) then the Stock Turns will go down, which logically will cause cash flow problems in due course.

 

I dont think franchises that dont take a % sales dont exist.
Happy to be corrected

 

If that isn't a massive red flag to taking out a franchise, then I don't know what is.

The very first question a prospective franchisee should be asking is "If I'm not making a profit, are you?", and if the answer is "Yes", then the answer should be "See you later!".

And @TMNT , your response is a laser focused observation on the high risk of the franchise industry.

 

I m going to put a spanner and say i think its a bit unfair (including me) to paint as all franchises as evil,

if Mr franchisor is providing the branding, systems etc. they should be entitled to something, are you suggesting that they make no profit?
something like a % of the actual profit by the franchisee would be appropriate in theory

im sure mcdonalds is no different , and its a license to print money, and I know they scruitinse their franchisees but at the end of the day, they arent brining much to the table except money, reliability etc

 

I'm not suggesting the franchisor makes no profit at all, for the systems they are providing.

However, my point is that a % of sales as a fee directly contradicts any brochures, websites, PDSs that showcase success, "partnership", demand for the product by smiling customers, and happy relaxed staff, where the reality might be a lot different, as running a small business is a tough gig, not a cupcake party full of hugs and puppies.

% of sales means that the franchisee, following the franchisors' systems and branding, suffers some detriment when profitability is low or negative.

If the franchisor is concerned about their brand or system, then the franchisee must be profitable by definition. If not, then the franchisor has a lot more skin in the game if they are on a share of profit, as opposed to a share of sales, and the franchisee has a lot more "reliability", to use your description, in regards to the franchise process.

As an ex-McDonalds shareholder, McDonalds has an outstanding time-tested almost bulletproof business opportunity for any prospective franchisee, however they are really a second to none property investment company, with a fast food business tacked on....

And, yes, I regret selling my stock.

 

years ago, I did some thinking and came up with the same view as you, a % of turnover would mean that the franchisor makes a crapload of money no matter how bad the franchise went, so its very unfair and unmotivating, and lets ot forget the fact that you have to buy supplies from the head office, which they tack their profit on, youd think that due to economies of scale they should get a screaming bargain, but time and time again we hear that franchisees are charged well above whole sale rates and arent allowed to source else where

on the other hand if the agreement was franchisor gets a % of the PROFIT, then their profits would be reduced if the franchisee was running their operations poorly,

so its a catch 22