Hi all
Just curious if anyone here has purchased a franchise and whether or not they have had a pleasant experience?
Any tips or comments on what you think I should be looking for would be very much appreciated.
I have friends and acquaintances on both sides providing anecdotal pros and cons, but would like to really get into the topic before I make my ultimate decision.
And lastly any franchise recommendations would be very much appreciated.
Thanks!
OK so why a franchise…?
Hey, I'm a somewhat successful OzBargain commenter, but I can aspire to be a Spackbace!
OP has a dream.
spackbace aspires to be JV
Nope
I suspect OP has very low/aspirational standards on how they define "somewhat successful". Sounds like your run-of-the-mill person chasing a get-rich scheme to be honest. Where's that accountant guy who wanted to start a cafe? They can share tips.
Most franchise businesses are in the business of selling franchises. They often have more incentive for you to fail so they can resell your items for profit to the next sucker.
I don't believe that's correct. Any half decent franchise business would hate for someone to fail as the biggest selling point for selling future franchises is demonstrating a happy and stable network.
Any half decent franchise business
Unfortunately these are few and far between. One of the biggest franchisors in Australia is the Retail Foods Group (?). Go look up their recent business history.
Am super clear on current state of franchise market in Oz. But its not correct to present their business model as benefiting from failing franchise partners, that is death for any franchise business. Unhappy franchise partners are LOUD, uncooperative, and litigious- ultimately they will bring you down.
It needs a win-win business model. Anything other than that is death.
@mooney: I don't disagree with what you say. And it's certainly not a sustainable business model (or imo a business model at all). But the facts are that some Franchisors are just… well…. stupid. Again, e.g. Retail Food Group:
https://www.news.com.au/finance/business/breaking-news/retai…
Retail Food Group chairman Colin Archer has retired with immediate effect, a month after the embattled Gloria Jean's and Donut King operator slumped to a $306.7 million full-year loss.
[…]
Mr Archer's exit comes four months after chief executive Andre Nel quit amid the financial fallout of accusations Retail Food Group was badly-treating franchisees.
[…]
The company last month said it now plans to close 250 domestic stores - up from the previously announced 200 - by the end of the 2019 financial year.
So you're right - it does lead to death. And all signs points to RFG currently in the process of said death. This is just the most public one. Of all the franchises I have some knowledge of, whether on the franchisor or franchisee side, the only franchisees who make a decent amount of money (long term, sustainably) are those in markets where they are independently knowledgeable about the industry itself, they themselves have solid experience franchising, and it's not a one-franchise kind of market.
And I'm not even certain more than half make money from the franchise itself. A great deal make money by: starting off a franchise and then selling it, or using the franchisor to build up their customer base and then starting their own business using that as a foundation. Both are fraught with risks, albeit different risks.
My parents bought a franchise (Michel's Patisserie) when they first began offering them. My family had owned cafes before, so had good retail & food experience, and the Michel's product was new and in demand.
Because it was early in the expansion, they were able to get a good store in a good location, and they had a successful business.
They later bought a second store which was much less successful due to a combination of poorer location and some of the gloss coming off the product as it was more familiar/less in demand.
They didn't have any passion for cakes, but were prepared to work hard for long hours, typically 6 days a week and dropping by on the 7th.
I have a couple of acquaintances that bought other franchises. One was Pie Face. They were white collar professionals from the sub-continent seeking 'being their own boss'. They found the work much more than they wanted, the returns much smaller than they hoped, and were generally bitter. Another acquaintance brought a US business to Australia and franchised it. He made a lot of money, but worked hard for 20 years to build it up.
One other guy started a food business with the intention of franchising it. He found that food court rents and other costs were too high, but I understand he is doing OK now with a 'dark kitchen' selling on Foodora/Menulog/UberEats.
In summary, I think if you are asking for a recommended franchise, you have an extremely, extremely high risk of being a sucker and losing your money. Start from the angle of "I want to find a successful business" regardless of whether it is a franchise or traditional model.
And I hope there is a special place in hell for the people who start up low cost franchises that take the redundancy pay of some poor guy who thinks checking pool water or installing cement curbing will ever be anything but below minimum wage work.
just curious, what is the average profit for a franchisee?
I would guess the average is around $60k p.a. assuming the owner doesn't draw a wage.
You're near spot on from what I was told.
plenty go bust; but plenty are very successful. It's as much about the franchisee as the franchiser. I've seen several very successful franchise owners whom live a of luxury and several more make above average wage. The more successful ones I know of have been Autobarn, McDonalds, Bakery chain. The whole business model is based upon selling a successful business model, and I think the majority do just that. Unfortunately the minority tend to garner the most publicity.
some poor guy who thinks checking pool water or installing cement curbing will ever be anything but below minimum wage work.
To be fair, if you think this you really deserve whatever comes to you lol (not just because of the lack of brain cells, but because they're looking for a lot of money on completely nowhere near the required amount of work/skills - effectively ripping off someone in the process.)
Aka.: You can't cheat an honest man.
I know a few people who have purchased franchises, and they have never turned out well. Pattern seems to be long hours, huge stress and not much return.
I do have experience working in one, but not the particular industries I am looking at.
I am hoping to get a mobile service franchise and go with a smaller and tight knit support group.
Realistically I don't really know what I want to do, I've tried many things and working with my hands seems to be my preference. I have also been advised there is a franchise trap of sorts for the low cost franchises and have bee told to do my research.
I've met with a company this morning to discuss a potential franchise and they seem to be a great fit, I've dealt with the founder many times personally so thought I would explore that option.
Spaceback mentioned having experience in the field, I have a somewhat relevant trade qualification and have been very interested in the process when dealing with the founder I mentioned before.
I won't be taking a loan out to purchase due to a two pronged inheritance from a relative, which provides a portion upfront and the rest over the following years and at certain milestones.
The cost of the franchise I'm looking at is roughly 85k including vehicle signage but not vehicle ( allowed to choose from a list of pre owned and cost effective models ). It's a 5 year agreement, with an initial guaranteed income/ support of $1000 a week for the first 5 weeks. Invoicing and bookkeeping is arranged by the head office and there is a 5% gross fee as well as a marketing fee and management fee which add up to roughly 5%.
Very low overheads and expected revenue of 1000-1500 a week for part time and 1500-2500 full time.
The founder of this business said he offers a comprehensive training program and showed me some of the custom machines he had made himself and does an amazing job from personal experience.
I really do believe that this could be the thing for me, but still a bit hesitant.
This actually seems like a very good deal but for the founder of the franchise and not anyone buying the franchise
Please tell me it's not concrete edging.
I did come across that, seemed pretty dodgy.
The website was a pretty big indication.
I don't mean to be offensive, I looked at a lot of franchises that has unique markets and was just a bit shocked at their inclusions.
I won't be taking a loan out to purchase due to a two pronged inheritance from a relative
Going into debt to start a franchise is definitely stupid, but at the end of the day your money is still your money, no matter how you use (or waste) it. Just because it's an inheritance doesn't mean it's any less money, than if you borrowed it, saved up for it, won the lotto, etc.
Don't fall for the trap of the money, some of which you haven't even received yet, burning a hole in your pocket.
I think purchasing a franchise is like buying work. Buying work is a terrible idea unless you bring something special to the table i.e have great experience/ideas related to the industry or are really passionate about the work
Look at it from the point of view of selling your franchise if it is going well in a few years and you are after a change.
Who would pay $85k for a business which will generate an average income? I can go get a job paying an average income and get paid holidays, sick leave, super and somebody else doing all the paperwork.
Or to think another way - could you set up a similar business for under $85k (of course!) and could you hire an expert in that industry for $5k to spend a fortnight with you teaching you what you need to know (almost certainly)?
So what does the franchisor give you for your $85k up front and $10k or more p.a.?
Well the way I was looking at it was more 17,000 a year to make 78000+ less expenses ( about 7300 a year plus assume 10% 7800) ending up around 45,900 on paper. Less gst .
However, I was told that I could claim a percentage of my mortgage repayments and other bills as 'home office expenses' , create a depreciation schedule and various other things that would drastically reduce my income while providing many benefits. I was advised to see an accountant or adviser by a friend to 'model' this and compare the benefits in contrast to regular employment.
I like that all of the paperwork is managed by them, where I'd be able to use my own accountant and claim everything back. I would like to do about 25-30 hours a week, but if the work was there I would be happy to do as much as given.
Any half competent accountant will tell you to run a mile.
You are paying a stack of cash to earn paupers wages. Run, run!
It is very much buying work, I suppose I just liked the idea that I could claim so many expenses and reduce my taxable income and comparatively make more than I would in a basic job.
I am really unsure what to do though, I am somewhat interested in this line of work and know I could never compete starting my own business in the same industry.
I was told by an uncle that I could also take the 5 year deal and start my own business afterwards using the skills and methods learned after adjusting and changing a few things.
Would that even be legal?
Like I wouldn't want someone doing that to me if I was the founder, but things like that apparently happen all the time.
Well the way I was looking at it was more 17,000 a year to make 78000+ less expenses ( about 7300 a year plus assume 10% 7800) ending up around 45,900 on paper. Less gst .
That's a very optimistic reading of it, considering your outlay is upfront (and in cash), your returns are aspirational and completely not guaranteed (other than $5,000 in beginning), you're likely far underestimating your expenses (you mentioned needing a car - do you also need to buy your own tools?), your very optimistic income isn't really high enough to put you in a marginal income-tax bracket that you'll be saving that much in taxes on anything, and you'll probably be working about 2-3x what you'd be doing in a minimum wage job with far more stress and uncertainty and instability.
If you claim a percentage of your PPoR mortgage as a tax deduction you will lose the whole CGT-free benefit - which may be more that you claimed. You definitely need an accountant.
A friend bought Fogo (Brazillian brand) few years back (having 5/6 years experience working for Oporto). Had to work ass off to make money. Still proceeded to buy another store of Fogo in a prime location (Darling Harbor) with equity drawn from PPoR. 2 years on, Fogo got busted. He walked off leaving the keys, with 180K debt. Back to double job just to payoff his debt. Meanwhile property market crashed, wiping off all the perceived equity (he eventually sold it).
Long story short, he was on a suicidal mission!!
Personal story, bought RFG.ASX after a heavy decline. Later on the the company crashed more wiping off my 6K from the stock investment I had. Never I will put a dime in franchisee business.
If you will look for similar horror stories, there will be thousands. I dropped to few RFG stores (Michelle Pat was one of them) and talked to the owner how they are doing. I got such a look that no need to ask more. Found out they employed everyone in the family (even including teenage children) barely just to survive.
Yeah, although I am certainly not a fan of Tracy Grimshaw, I came across an RFG segment on her show.
I knew someone that worked for a Michelle's as well, apparently some of the staff were making more than the bosses and head office were absolutely horrid.
I've heard of the horror stories, but also some success stories.
I'd be fairly early into this business and have my pick of territory, I really want this to be the one as the more and more I think about it this is the industry I'd like to give a go !
As I'd said before though, I know I couldn't go it alone and wouldn't be able to compete if I did.
And lastly any franchise recommendations would be very much appreciated.
LOL. You are in absolutely no position to buy any franchise.
Edit: Okay, ^ was slightly harsh. But don't look at franchises as something special. A good business requires you to have skills and experience in that business, whether it's a standalone or a franchise. Find something you're good at, then consider if it's better to buy into a franchise or start from scratch. Don't start from the angle of "I want a franchise, which one should I pick?"
I'd mentioned that I'd like to get into this industry, but the founder of the franchise effectively is the top dog.
His competitors use pretty shocking methods ( I've used all of the notable ones before) and are overpriced in comparison.
I really would like to give this a go, but I couldn't even keep up with the competitors on my own, let alone the founder. He is a really nice guy, and I know that he is in business to make money but I think I can really do something here or at least get 5 years experience to then launch my own thing. ( If legal)
Sorry, my comment was after I read your OP and not any of your other comments. It looked very much like you just wanted to get into a franchise, any franchise, which is a totally terrible idea.
If you have a particular franchise in mind, then it would be far more useful to ask existing franchisees how they're doing (if you happen to know any through connections) than to ask more general questions which won't help (because every franchise differs wildly). This still worries me though:
I do have experience working in one, but not the particular industries I am looking at.
To me, the most telling question is still: "Would I get into this business whether it's standalone or franchise?" And if it's a "no" for a standalone, I also wouldn't get into it as a franchise because you'll be starting from far too much of a knowledge disadvantage, in addition to the power disadvantage you'll already have vis a vis the franchisor.
No, worries.
I really like the concept and delivery.
I have done my research on this particular industry, and this operator is the best in the country however one other note is that there is one more franchise in another state.
So that is something I should have added from the get go, but I feel that being in the same state I will be given greater access and attention from the founder .
@XBYALT: Ah fair enough. Yeah - research research research. Being in the same state has its cons too - more competition (especially for a mobile franchise that would have very large (exclusive?) working areas) and being in a different state would give you more flexibility to expand/make your own decisions.
But if you're going to need to rely on the founder for training/etc, then yes, probably more pros than cons in that case.
@HighAndDry: Well the founder and and his business partner had actually offered an exclusive territory however had also said they would allow me to operate in all other areas until they have been claimed. Which I found to be very reasonable
They showed me a potential may which based based on council areas, where some had been merged with less densely populated areas which I also found fair.
I think I can make a long term career out of this, hopefully if all goes well I can do it though these guys.
Update: So I met with an accountant this afternoon, they were very much on the fence as they could see the benefits but also pointed out various potentially negative points.
They gave recommendations.
1) Buy in and after the period ends run your own business with your appointed clients.
2) Try to negotiate lower fees and initial price.
3) Avoid and look for something else to do.
It's buying yourself a job. Highly not recommend.
I was advised that there may not be an enforceable restraint of trade , so potentially could be buying myself a job for 5 years and then would be able to do my own thing. However that does sort of impede on the franchisor, and I'm not sure I'd be comfortable doing that although it has been the most recommended course of action.
What do you have experience working in?
This topic comes up time and time again - don't get into it unless you're both passionate about it and experienced in that field.
If you're not both of those things, forget it.
https://www.ozbargain.com.au/node/342029?page=3#comment-5309…
OK so why a franchise…?