Posted by Frank Chin on June 17, 2005 at 14:41:37:
Eric:
Thanks for the kind words.
This post of yours, and the one you pointed out in the archives on franchising are extremely infomative. I read it before, and I re-read it. Its this type of info that makes CREOnline such a great resource.
Again, thanks for your contribution.
Frank Chin
Quit Corporate America to run a Franchise? - Posted by Robert
Posted by Robert on June 14, 2005 at 14:29:08:
I am about to purchase a pre existing franchise ?Quiznos? located right next to a gas station in a cluttered traffic area making about 700 dollars a day in sales. What I mean by ok area is that there is only one entrance to the place, and that is through the gas station. I believe that it can be more successful under better management. The previous owner owns the building so he didn?t pay rent. He wants to set up a contract with me for 1900/month. He said that I could save 40% on labor and costs if I were to work there myself. The thing is theirs is a piece of land next to it that is vacant which I think if that could be made into a second entrance, but I?m not sure if that is a good idea? Buy land just to turn it into a parking lot? My friend who has a few Quizno stores told me that the store I?m interested in buying is not at the top of the sales list every month nor is he at the bottom. He makes enough, but noting that he can brag about. He is offering me to put down 100k and he will do 50k owner financing.
I’m tired of working in Corporate American everyday for the past 4 years. I?ve been on this site everyday reading all the posts, but I never have the time to get past that because of myself working 8-5 everyday. Do you think it is possible for me to run this Quiznos, and start real estate full time? Is this opportunity good enough for me to quit my job? I would appreciate all the advice I can get from all you folks out there.
Thanks?Robert
Few more thoughts … - Posted by Frank Chin
Posted by Frank Chin on June 17, 2005 at 08:29:36:
Robert:
I had a few more thoughts since the last post. And you asked a few more questions off board about ?what’s wrong with running in to Quiznos a few times a day, and then go about your REI business, instead of working a job and have your boss looking to see if you’re surfing the net?.
I’ll place my comments here, so others could add their insights.
First, you mentioned a figure of ?making $700.00/day?. It sounds like a GROSS figure to me. In other words, that’s the amount you ring up at the register, from which you pay salaries, insurance, rent etc?? You’re NOT netting $700/day, right??
Because if it was net, then the Quiznos would NET about 7x$700 or $4,900/week (round it off to $5,000, and it’ll net $250,000/year. Surely, the seller is not selling the place for only $150,000, i.e. the $100,000 down payment and $50,000 seller financing you described.
I don?t know if you checked the books carefully, but through the years, I known people to use a valuation formula of THREE x NET to arrive at a selling price, at least up in these parts for most service businesses, with inventory additional, and always counting the owner?s earnings as part of the net. With this formula, the OWNER would POCKET $50,000/year, or about $1,000/week before taxes. If you had to pay someone $5.15 to $6.00/hour to work behind the counter, that?ll be deducted from the $50,000.00. For instance, if the Quiznos is open 7 days a week, and you?ll need someone to cover 6 days a week that the owner was working, then it?ll be 6 days x 8 hours x $6.00 or x 52 weeks or about $15,000/year. Add another 20% counting employment taxes. That?ll will run you about $18,000/year, netting the owner ONLY $32,000/year.
And you?re putting $100,000 down to make $32,000/year, not counting benefits???
Off course, many businesses make more than this, but it?ll cost a lot more to purchase. Not all businesses lend itself to leaving the place to a few workers, i.e. running it absentee, as it?ll have to be a certain size, for you to be able to have the systems in place. A few thoughts about this:
-Quiznos will be a cash business. Since it?ll be a franchsise, you?ll probably have a better handle on costs, since the franchisor would insist you make purchase at a certain place, keep books a certain way so you?ll know if the workers are ringing up every purchase or not. For instance, if you hired someone new, and suddenly your purchases remain the same, but sales went down, you?ll know you?re making the same amount of sandwiches, but selling less of them.
If you think having security cameras will deter this, I?m sorry to say some workers don?t care, and don?t think they?ll get caught, and don?t think much will happen when they do.
I spoke to the owner of a local Chinese takeout and he?s no longer open on Sundays because he was tired of working 7 days a week, and when he left the place to run absentee, they only do 15 ?take order sales? on Sundays, as compared to the usual 40 to 50. He said he hid out in the parking lot several Sundays and counted the deliveryman actually making over 40 deliveries, but only found 15 of them were rung up.
Unfortunately, his place is a bit small to have a separate management and records kept for the kitchen that some larger restaurants employ. When my dad was the ?Dining Room Manager? at a larger restaurant, besides tallying up the cash register each night, the management of the kitchen kept separate records of meals prepared and its retail price. Thus, meals prepared should equal meals paid at the end of the day, and the owners have a control over sales being collected.
-Do you plan to be in charge of Purchases?? A truly absentee business relies on staff to know when to make purchases, and have the authority to make the purchases when needed. On the other hand, you might have a problem of ?vendors? overbilling, and staff receiving ?kickbacks? that adds to cost if excessive and not detected. Some owners reserve the right to make purchases themselves, while other keep careful tabs on their ?unit costs?.
-How do you maintain friendly customer service?? I have a ?Carvel? franchise, and a ?Hagen Daz? franchise in my area, a few blocks from one another. The Carvel franchisee owner is there 6 days a week, has a helper most days, and have two young teenagers working the place on Sundays. He?s open from 10:00AM to 11:00PM 7 days a week, and on all holidays ? almost 365 days a year.
I started patronizing Carvel after the Hagen Daz franchise closed. I started taking my daughter to Hagen Daz since she was 2 years of age, as you can buy something there, sit down and eat. Carvel has no sitting area.
But before the end, ?Hagen Daz? employed a young man who was on the phone every single time I walk in there, and kept the phone in his ears while scooping ice cream, and sometimes gets the order wrong because he?s talking on the phone while listening to my order. I noticed less and less customers going there. I know the Hagen Daz is a franchise since it was run by an older man (who told me this), the owner?s brother in law till he left, and I don?t know how much the owner lost in the deal, but I can tell the problem arose from lack of management, and poor customer service.
-A small retail business can be doomed by outside factors. Had a tenant of mine who owned a gas station at a busy location. Then, a road project came about, and knocked his business down by over 50%. Keep in mind most retail businesses have high overhead, such as rent, insurance, and salaries particularly if it?s absentee. He tried to compensate opening the station 24 hours, but his cousin who covers the night shift, was seriously injured in a nighttime robbery attempt.
In fact, I mentioned before my dad lost most of his business when (had the business over 30 years) when he got sick, and went to the hospital for several months. I talked him out of reopening the place as I heard of robberies of small store in the neighborhood, and since cash businesses are vulnerable, he?s better renting the store out as he owned the place.
Just to add, a major highway overpass collapsed several blocks from my dad?s location, and this overpass is adjacent to a major shopping area. It goes without saying that business in the area is dead right now.
I had my own experience with this. About a year ago, they decided to dig up the road in front of my business, dig up trolley tracks that was there over 40 years, and repave the road. The project started in May, and lasted thru October. I noticed a drop in retail business, but fortunately our commercial business increased, and kept us going. Then they were one or two Saturdays that I noticed no customers coming in. Went around the neighborhood the check, and found out they closed the road on both ends to do some repair work, without notifying any businesses.
My conclusion:
Getting a TRUE absentee business is great. But unless you can really run it absentee without workers running off with your money (my local Chinese takeout), or have rude discourteous staff run away your customers (my local Hagen Daz), or your managers inflate bills and get kickbacks (manager at a large company I worked for did that), you?ll be in for a big surprise.
Sometimes, thinking back, sitting there 9:00 to 5:00, getting fringes, not worrying about road closings, is not all that bad.
Frank Chin
Re: Quit Corporate America to run a Franchise? - Posted by Robert
Posted by Robert on June 15, 2005 at 14:22:44:
Thank you everyone for taking the time to read my post.
Re: Quit Corporate America to run a Franchise? - Posted by Frank Chin
Posted by Frank Chin on June 15, 2005 at 08:09:31:
Robert:
I agree with most of what the others said, and add a few comments based on my own expereience.
I worked in the corporate world for over 20 years, and bought an established business nearly 3 years ago.Its a wholesale tire and auto repair place that’s been around over 50 years.
I bought it from a business broker who had a listing of hundreds of businesses for sale. According to them, they only handle businesses that net OVER 100K a year. On the other hand, there are plenty of businesses out there netting less, which he says he doesn’t handle. He names among them ice cream stores, laundromats, eye glass stores (license required).
In selecting a business for purchase, I considered the following criteria:
-I wanted a business that I can run absentee if need be. Reason is I’m also an REI, and I want the flexibility to start, purchase and run another business if I wanted to, not only to make more, but to diversify. If I have to stick around 12/7 making sandwichs to save on labor cost, then when do I find the time to look for deals, or start another and operate another business?? Its almost like your 8:00 to 5:00 problem.
-I thought of franchises, but while it gives me a system, if I never ran a business, but it limits me in the sense that if I thought I can double the business if I also add “Chinese takeout”, I doubt I can do that.
-I wanted something to keep my mind active. My dad owned and ran a “Laundry/Dry Cleaner” when I was a kid, and I helped out. I had no social life till I was 28 and finally left home. During some seasons, like August, business is dead, but because the store is open form 8:00AM to 6:00PM, you got to stick around, even though everyone else is at the beach, and there’s no customers coming after 10:00AM to closing time. I had a home based computer consulting business I ran for a while, and due to the proliferation of hair salons and dry cleaner in my neighborhood (guess everyone is sick of corporate jobs), I walk by these places and see bored owners and worker reading the papers. I could see one guy reading the paper from front ot back, and when I past by hours later, reading the same paper.
-A business big enough that absenteeism won’t sink it. I don’t know if you’ll be doing it with a helper, or have help covering late hours, but service help is notoriously unreliable, and if you’re open 7:00AM to 10:00PM, and expect a helper to cover 5:00PN to 10:00PM you may find a call at 4:55PM saying he or she won’t be in.
Just as an example, I’m sitting at my office at the shop this morning even though I was going to be home doing paperwork because we did lot of “ethnic” advertising in “Chinese” newspapers which this past year added to the buiness tremendously. While I staff my office with Chinese speaking personnel starting at 9:00AM, my Chinese mechanic, who should start at 8:00AM, shows up at 8:30. So I’m here just in case, and fortunatley I was here at 8:00AM yesterday morning, and I took care of two Chinese speaking customers before my help arrived.
-While making sandwiches yourself saves on labor costs, and if your personable, creates good will, the down side is the buiness would be in big trouble if you get seriously sick. After owning the business for over 30 years, my dad had to go to the hospital for several months, and the business is almost all gone.
I looked at several businesses before selecting the one one I bought. And the deal is the buyer is allowed TWO WEEKS to come by, sit there, and observe how the business runs.
Also the buyer is allowed to look at tax returns, utility bills, checking accounts info etc. In some cases, you can take a look see, but they don’t give you copies.
In some businesses like laundomats, water and utility bills give you more of a handle on the actual health of the business, because its a number that can’t easily be fudged.
My assessment of your situation.
You’ll be bored stiff after a few months. Being in a service business myself, and some customers can be @ss%%%, you’ll be saying “I want to do REI, and I can’t because of this 8:00 to 5:00 thing”
Frank Chin
Re: Quit Corporate America to run a Franchise? - Posted by Eric C
Posted by Eric C on June 14, 2005 at 22:55:44:
Hi there Guy -
I agree with the other poster about the wisdom of getting a trial period, but three days simply isn’t enough time to make an informed decision.
Or, maybe it is. Depends on your point of view, I guess.
I like franchise businesses - a lot. I like their cash, their systems and procedures, and their valuations. They are marketable – not a small thing, I can tell you.
At the same time, I think you need to do some serious research before committing your future to this enterprise.
There is a world of information at your fingertips by way of the Internet. There is even a surprising number of posts regarding franchises and business in general on this site.
Read the franchise documents and then read them again. Make sure you understand EXACTLY what will be expected of you to remain in good standing.
Here’s the bottom line: There is no doubt that well run franchises make money for both the franchisee and the franchisor (if you don’t know which you are, read those docs again), but the key words are “well run”. Not all are.
Choose carefully. Again, a trial period is ideal. It allows you to find out whether you’re cut out for this type of operation or not. Why not get a job with one of these if your really serious?
Have you personally dealt with unhappy (and/or unreasonable) customers on a daily basis?
Does your stomach lurch at the thought of being sued by a troublesome (and perhaps mentally unstable) employee?
Have you ever had the pleasure of explaining to your family (or loved one) why you can’t afford a new car, or home, or… because you needed every penny you could scrape up to meet this week’s payroll?
Are you prepared to give up any pretense of a normal life to run your business 24-7?
Do you know how many ways the IRS (and other government agencies)has to make your life uncomfortable? Think SE taxes, payroll taxes, unemployment taxes, OSHA, health inspections, fire codes, … you get my drift?
There are more questions that need answers, but these should get you thinking.
Good luck,
Eric C
Re: Quit Corporate America to run a Franchise? - Posted by Chris (WI)
Posted by Chris (WI) on June 14, 2005 at 22:36:01:
Sounds like a job to me. Meaning it won’t run itself and the pay off is nothing more than a good job. Maybe your friend who has several Quiznos would say differently. How much a year do you need to make? If you can average $30K per deal on flipping houses, how many houses per year do you need to flip? Spend nights and weekends looking for deals. Flip few to get your feet wet and then do it full time. Maybe start off with Lonnie Deals. Good stuff.
Re: Quit Corporate America to run a Franchise? - Posted by Sailor
Posted by Sailor on June 14, 2005 at 14:45:33:
Ask the seller to hire you @ minimum wage for 3 days so you can test-drive the biz from the bottom up. By the end of a (very) long weekend you’ll know if you still want to leave the security of your job–
Tye
Re: Few more thoughts … - Posted by Stephanie Garrett
Posted by Stephanie Garrett on August 01, 2005 at 21:28:14:
(917) 557 - 5570
251 E Kingsbridge Rd apt 4N
Bronx, New York 10458
Stephanie Garrett
Objective To experience a new employment while obtaining a professional outlook on life.
Experience 2004?2005 Bally Total Fitness Portchester, NY
Sales Representative
? Making daily accurate appointments.
? Giving tours around the facility and explaining equipment.
? Work with clients to meet fitness goals.
2003?2004 Burger King Bronx, NY
Cashier
? Taking customers orders, and preparing their meals with in minutes.
? Making sure customers are satisfied.
? Maintaining a clean and professional look aspect.
2002?2003 Rye Playland Rye, NY
Ticket Taker
? Measuring all children making sure they meet the height requirement.
? Taking exacted amount of tickets and checking to see if the ride is secure.
? Returning all tickets at the end of my shift.
2000?2002 Madison Square Boys & Girls Club. Bronx, NY
Receptionist
? Answering multi-line line telephone.
? Updating membership information and filing it alphabetically.
? Keeping a daily entry and exit record.
Education 2004?Present Bronx Community College Bronx, NY
? Fulltime student.
? Seeking an Associate Degree in Business Administration and Management.
Volunteering Dependable participant in walks against AIDS and Breast Cancer Since 2000.
Reference available upon request.
Re: Repeat performance… - Posted by Eric C
Posted by Eric C on June 15, 2005 at 15:29:45:
Hi Robert -
As you can tell, there’s a lot of interest both pro and con on this issue.
Let me repeat - I like business operations. I like the cash. I like to solve problems. I am very good at developing a plan and making sure it gets executed properly. And I’m paid very well to make sure these things (and others)work.
Your questions are good ones and there are always more that you should be asking – better now than later, right?
This isn’t the first time we’ve discussed this topic either so here’s a link to a thread that should interest you.
http://www.creonline.com/commercial-real-estate/wwwboard5/messages/1529.html
Enjoy.
Take care,
Eric C
Re: Quit Corporate America to run a Franchise? - Posted by Sailor
Posted by Sailor on June 15, 2005 at 12:29:12:
Frank wrote: “I looked at several businesses before selecting the one one I bought. And the deal is the buyer is allowed TWO WEEKS to come by, sit there, and observe how the business runs.”
Excellent advice; mine was only 3 days because I figured by the end of the 3rd day doing fast food for $5.15 an hour not only would any prospective buyer not only have some participant-observer experience for dealing w/future employees, but that 3 days was probably enough to convince almost anyone that fast (as it is jokingly referred to here in NC) food is not an easy path. If any buyer can last behind the counter past 3 days, he/she might really have a calling. If so, such persistence definitely requires more time behind the scenes prior to taking the $$$ plunge.
Frank, your thinking is spot on–
Tye
Great Post! - Posted by Eric C
Posted by Eric C on June 15, 2005 at 10:11:39:
Hi Frank -
Great, great post!
I think you made your points better than I made mine.
One of the reasons I like franchises is their transparency.
Franchisors pretty much make that mandatory. Good bookkeeping systems and methods for each and every process are a direct result of needing accurate records to properly calculate franchise fees.
Your point about being able to sell is a good one. Most franchises have restrictions about how and to whom you can sell. Some even include buy-back rights (first-refusal)for the franchisor.
On the other hand, its because of these things that franchises are more attractive to the majority of folks out there in the marketplace.
For every franchise business, there is a valuation formula. Doesn’t matter whether or not it is a McDonald’s, TCBY, Curves, or even a Quizno’s – there is an estabished formula for valuing these things and for buying and selling them. Understand that there are some variations to the formula, but by and large there is both a floor and a ceiling.
You can still pay too much, but you have to work at it.
Records of every type are available to you. Real numbers not someone’s back of the envelope scribbles.
Policies and procedures are given to you as well. Believe me, most novice business owners need these more than they believe.
Robert, Frank’s advice is right on the money – for Frank. And maybe for me, for Ray, and some others on the board.
We’ve all been there and done that. More than once.
Frank brought both his corporate finance experience as well as his real estate expertise to this transaction. Notice how well he defined what he wanted. Heck, it’s been operating sucessfully for 50 years!
He also knew what he could add to this business to make it even more profitable.
Not everyone could do that. Fewer still would even recognize it’s importance.
Bottom line?
There’s some good advice here; the kind that is hard won and paid for in blood, sweat and tears.
In the end, it’s still up to you. And that’s the most critical point of all.
In a corporate environment, you are shielded from the harsh reality that is the marketplace. I know, you don’t believe that, but it’s true.
What you will become is entirely up to you. There will be no corporate headquarters, or human resources department, no marketing people, no folks who write the training materials or do your marketing reports. No finance committee, no stockholders, no cubicle cronies.
Just you.
It can be the most rewarding thing you ever do or it can drive you to despair.
One thing you can be sure of, it ain’t for sissies.
Take care and good luck,
Eric C