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JJPHOTO

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Age : 42
Location : Texas
Registration date : 2008-12-03

PostSubject: Franchise Question   Tue Feb 03, 2009 12:08 am

Over the years I've looked at several restaurant franchises and I'm always amazed at the requirements they want. Seems the standard is the franchise upstart (usually around 50K), you buy the real estate, and they want you to have 1 million liquidity and 1 million net worth.

I've personally known many people that have franchises and NONE of them have that kind of cash. We've known two couples that started franchises and aren't millionaires. I also know a guy that came over from India penniless and started a Holiday Inn here... he's now wealthy.

So what's the deal? How are they getting the franchise without having the eleventy billion dollars in the bank? scratch
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Doc Manhattan

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Age : 39
Location : Land of Steady Habits
Registration date : 2008-05-26

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 12:19 am

I imagine you'd secure some combination of loans (including mortgages) and financial backers.

(And I know from Kitchen Confidential that wholesale food suppliers will extend credit to restaurants, since deliveries of food goods don't always jive with when the money comes in. When your suppliers switch to COD terms, your restaurant has basically heard the banshee crying and it ain't long for the world.)
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Justpipes
The Duke
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Age : 58
Location : Randolph County, NC If you don't know, you wouldn't understand.
Registration date : 2007-12-17

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 10:29 am

I don't know about there but one of the biggest hurdles to get by here are health department requirements. I have dabbled in it a little and it can cost a lot of money up front to be compliant. I have a friend who opened a BBQ place 2 years ago and it ended up costing him around $250,000 just to satisfy the health department before they would let him open the doors.
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Puff Daddy
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Age : 53
Location : South of heaven
Registration date : 2007-12-09

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 11:59 am

I got my first job in a restaurant when I was 14, stayed in the business until I was in my late thirties and did just about everything from dishwasher to chef to manager in everything from mom and pop dinnerhouses to chain restaurants to country clubs and even catering for a law school. I learned enough about the business to give you this one little piece of advice - Don't do it. Competition is too great, big corporate establishments make contract buys on everything to keep their costs so far below what you'll ever be able to achieve that you'll never be able to compete with their prices. If you can't compete with the best prices you'd better be unique and damned good - no, amazingly excellent at what you are doing. Even then you will be married to the place for not a lot of profit and every bit of your life will be consumed by keeping the place running at maybe a 2% net profit if you're good and if you're lucky. And in todays economy? Well, don't do it.

If you'd already had a dozen years in the business, had a reputation and some serious skills and knew it was what you wanted to spend every waking moment doing I'd say go for it and God bless ya, but other than that, it's a bad business idea. If you were thinking of picking up a franchise and sitting back while it runs itself I have 2 things to say to you. First, if the opportunity was there somebody would have already snatched that up, a corporate entity no doubt. Second, those types of food establishments don't exist. If you don't put every bit of yourself into it it will fold in short order. The easy money franchise dream is on par with the Amway scheme, yeah, there are a few people who have made money at it, but look at the numbers. You won't.

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JT

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Location : Locust Grove, GA
Registration date : 2008-06-15

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 3:17 pm

Ol' PD ain't one to sugarcoat things, eh? No
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Puff Daddy
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Age : 53
Location : South of heaven
Registration date : 2007-12-09

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 3:52 pm

Well, I don't say that to rain on anybodys' parade, but best that a realistic opinion or two be heard before on dives into that dream. Even if you buy a 'franchise' and it is successful you will still be held to buying from that companies distributor at preset prices (you can't compete locally, only the corporate officers/buyers can do that and you're bound to their plans) and you have to pay the advertising allocations they require of you regardless of whether or not they're necessary in your area. These are just a couple of things out of many that will shackle you to someone elses parameters that define your business model. The truly great, profitable locations are already corporate stores, you as a franchisee get to try to make your way in the 'B' market areas. Sure, it can be done. See the part above about being married to the store. Labor is the greatest expense, plan to do a lot of it yourself.

And don't forget that the leverage to get that franchise license has to be paid back too.

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These are horrible times and all sorts of horrible people are prospering, but we must never let this disturb our equanimity or deflect us from our sacred duty to annoy and hinder them at every turn.
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kilted1
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Age : 56
Location : North Georgia, USA
Registration date : 2009-01-11

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 3:57 pm

I agree with PD entirely on this matter. My youngest brother owns a Coffee House in Rochester, NY which is very popular as a music/poetry venue. House of Hamez It is NOT a franchise however, he and my parents (retired) own the business which is NOT operating on a profit, in fact it is operating at a continuing loss. He will have a completely full house, with people who drink coffee all night but don't buy any food, food that he has to purchase and eventually throw away.

Despite all this, he has tried to continue with the business while trying to find a buyer for it, as you might imagine, no luck there. The restaurant business is so economically dependent on 'good times' that owning one right now would only be a winning venture IF you considered taking your money out of your wallet and setting it on fire too slow an option.
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Carlos
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Age : 60
Location : Chestnut, IL
Registration date : 2007-12-10

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 5:49 pm

You got to be willing to work for nearly free. Spend a lot of hours there, open, by yourself. It owns you.

Our little small town restaurant is still open. Barely. Owned by a couple originally from Mexico. They cook mostly American foods. Most of it's pretty decent. Some great, and some not so great. Two rentals upstairs. But his pocket money is nearly none. Everything goes to the restaurant, or family. He's working and fed. Has a roof over his head. He gets a fair bit of local community support. I told him when he first came to town, that the townspeople think of the place as theirs. He just runs it. Laughing

It's really tough these long cold winter nights. People don't want to get out.

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mark
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Registration date : 2008-07-02

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 6:24 pm

Well I have a close friend that invested everything he and his wife owned to open a small restaurant,,,( not a franchise) experienced exactly what PD and Kilted are talking about and lost everything,,,,,it was a race to become profitable before the capitol ran out,,,they were extended credit by the supply outlets but purchasing in the small quantites needed crippled them,,,paperwork, health regs, payroll, it turned into a 16 hour day and a nightmare,,,,but there are success stories too, if you can find a quirky niche ,,,just my two cents,,,
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JJPHOTO

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Age : 42
Location : Texas
Registration date : 2008-12-03

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 7:26 pm

Yes, the restaurant business is insanely difficult and you're married to it. My grandpa owned a diner and worked near 24/7. Also the failure rate on restaurants is very high. However, maybe it's just where we live, but restaurants thrive and the owners are doing well. I know this because I know those people and have seen them prosper. But let's get this thread back on track shall we? Very Happy



My original question is how are they getting past these outlandish liquid asset requirements? Doc Manhattan mentioned acquiring loans... but does that count towards that requirement?

I'm not looking seriously at a franchise - just have inquired in the past and don't understand how that financial requirement works?
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Justpipes
The Duke
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Age : 58
Location : Randolph County, NC If you don't know, you wouldn't understand.
Registration date : 2007-12-17

PostSubject: Re: Franchise Question   Tue Feb 03, 2009 10:11 pm

JJPHOTO wrote:
Yes, the restaurant business is insanely difficult and you're married to it. My grandpa owned a diner and worked near 24/7. Also the failure rate on restaurants is very high. However, maybe it's just where we live, but restaurants thrive and the owners are doing well. I know this because I know those people and have seen them prosper. But let's get this thread back on track shall we? Very Happy



My original question is how are they getting past these outlandish liquid asset requirements? Doc Manhattan mentioned acquiring loans... but does that count towards that requirement?

I'm not looking seriously at a franchise - just have inquired in the past and don't understand how that financial requirement works?

Silent partners.
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PostSubject: Re: Franchise Question   Wed Feb 04, 2009 11:36 am

You're also likely to find stuff like that the contract you have to sign to get the franchise obliges you to buy essentials like ketchup from the company's distributing operation -- for 20% more than you could get equally good stuff from elsewhere. Then multiply that by everything involved.

You're better off learning stuff like that from people who have been there & done that, IMHO, than chasing a daydream and coming to belatedly realize that the system you've literally bought into is milking you for all you're worth, in both time and money, just as the spreadsheet numbers oblige you to milk your help for all they're worth.

Find three McBurgers "franchise owners" (if you can) and pick their brains. If you can't, consider the possibility that said "owners" may be the poorly paid and overworked employees of investment firms that are holding them hostages by what they'll forfeit if they stop trying to pay off their own up-front 5% "ownership" stakes in a system rigged against them.

Endgame usury finance ("capitalism") is organized predation.

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