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Franchises

Discussion in 'Planning Your Business' started by jona, Mar 31, 2016.

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  1. jona

    jona Entrepreneur

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    I would love to hear the experiences of people that have bought franchises and were successful.

    How was the process? What is an ideal franchise to acquire? What are all the drawbacks of choosing a franchise over starting your own line of business?

    How do you spot a franchise that could be a scam? What are the signs?

    Where is a good place to start looking for information about available franchise opportunities?
     
    T J Tutor likes this.

  2. Corazon

    Corazon Entrepreneur

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    Pardon me if this story is on the negative. But maybe we can learn a lesson or two. The franchise for a bakeshop near out place lasted for less than a year. It was owned by a professional player named Alvin Patrimonio and the franchise was from San Miguel, the largest food production company affiliated with San Miguel Beer. The franchise outlet went bankrupt because it did not reach the required amount of sales. In other words, they lacked a thorough market study.
     
  3. pwarbi

    pwarbi Entrepreneur

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    While I don't know a great deal about franchises, the one thing I do know is that you need a lot of capital in the beginning to just apply for one, especially if your looking at one of the well known brands.

    In the town where I live, we don't have any fast food outlets like KFC or McDonald's with the nearest being around 10 miles away in the city. My friend looked into applying for a franchise and was quoted £95,000 start up cost, just for the franchise alone.

    In that £95,000 you got to use the logo and branding, everything you associated with McDonald's but nothing else. He'd have to build a purpose built commercial property, and staff it out of his own pocket and he simply didn't have the right amount of funding to justify it in the end.
     
  4. T J Tutor

    T J Tutor Entrepreneur

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    I haven't ever bought any, but I did run a startup investment company in Las Vegas and a large portion of our business was paring franchisees with investors. We raised over $243 in nine years for 16 companies. All are still in business today and by the original owners.

    The process is not identical with all franchises, though most do follow similar paths which include a complete vetting of the money sources, the applicants, locations, legal teams and accounting teams, as well as business plans, locations, and demographics studies.

    This is too ambiguous a question. This will be determined by research for the locations, demographic and revenue projections, as well as the recommendations from the franchisor.

    In my opinion, there is no way to make this as a comparison. Say you want a bakery and you choose to build the bakery of your dreams. It is very unlikely (pretty much impossible) to find a franchise that would match your ideal bakery. You just can't compare the custom and personal brick and mortar business to a franchised business where the franchisors corporation controls everything about the franchise.

    Due Diligence!

    2016 Top Franchises from Entrepreneur's Franchise 500 List
     
  5. jona

    jona Entrepreneur

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    Well, I've seen much much worse, right now there is a scandal going on of which I can't comment much because it is undergoing a legal process with some Beauty Centers and Clinics that were marketed as franchise opportunities. A lot of people took the plunge and invested a good amount of money into those clinics. Turns out that, not only as you say, the sales projections were all wrong but the people involved were actually cooking the books to make it look like the business was actually growing. It was a very complicated almost ponzi scheme like thing that was going on there. Up until that moment it had never occurred to me that a franchise opportunity could be used to scam people, I don't know, call me naive.
     
  6. jona

    jona Entrepreneur

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    I was ready to tell you that the amount that you posted was very low for a McDonalds but then you clarified that the person had to actually build the property. That sets the actual cost to what I have always heard to be the approximate value of a McDonalds franchise which is close to 1 million dollars.

    Take 2 things into account: McDondalds chooses the location for you, but make no mistake, when they pick a location it is because they have a massive data gathering thing going on about how close people are to the nearest McDonalds all the time using something called a Voronoi Diagram, that's some very fascinating stuff, the thing is that they know exactly where to place each restaurant to guarantee you business from day one, and you will get customers from day one.

    The second thing is that nobody finances the construction of the site or the franchise out of their own pocket money, usually this is either a joint investment or you go to a bank. You are very likely to get credit from a Bank because they know that a McDondals is usually a sure thing.
     
  7. jona

    jona Entrepreneur

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    Thank you T J Tutor, your answer was complete and informative but that link in particular was amazing, I've been browsing that site for about an hour now, specially the low cost opportunities, some of them are as low as a couple of grands. I am actually suffering from some decision fatigue right now because the number of possibilities is quite overwhelming.
     
    T J Tutor likes this.
  8. Corazon

    Corazon Entrepreneur

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    After posting a negative comment, now may I add this positive story of a franchise.

    It is a McDonald's outlet beside the largest mall in the Philippines - the SM Megamall was the largest at that time before the Mall of Asia was built. Owned by a film producer, the outlet was the talk of the town, that it was frequented by movie actos. And it was opened 24/7. That was in the 1980s, no social media yet but the buzz was a trending one that the outlet was always full of customers. Until now, I don't know the truth to that talk about actors frequenting the outlet but it was really good business for the owner.
     
  9. pwarbi

    pwarbi Entrepreneur

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    Oh make no mistake about it, when it comes to making fast food McDonald's might not be the best, but when it comes to making money they know a thing or two.

    You're right when you say that they dictated exactly where the premises should be built, and even which way the drive-thru should face. Not only that, they estimated how many customers that size of franchise would serve daily, compared that to their other premises and looked at how much waste and rubbish would be created so they knew just how many bins to place outside!

    Now that's what you call planning...
     
  10. jona

    jona Entrepreneur

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    Because, for better or worse, a McDonalds is a very secure invesment and a sure thing, that's undeniable, I mean, they are expensive and restrictive but you are almost guaranteed to get your money back, even today when they are actually facing some trouble. If I remember correctly last year was the first time in history where they were forced to close more restaurants that they opened and they are not growing as expected, combine that with the fact that people are choosing more healthier alternatives and they are not in good shape, although I read that they were closing restaurants because they grew too big during the 2008 recession since business increased as people had less money to spend on food.
     
    Corazon likes this.
  11. pwarbi

    pwarbi Entrepreneur

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    When you look at how many franchises they have opened in recent years though, I think it was only a matter of time before it started to dip.

    I'm not saying that's a trend that will continue though as McDonald's is still the most popular fast food in the world, and it certainly is over here in the UK anyway.
     
  12. Corazon

    Corazon Entrepreneur

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    Late last year there was a guest in the office who is a known businessman. He was chatting with the employees while waiting for our president. I was hearing their conversation and it appears that the guy is giving an advice for a franchise instead of opening up your own food outlet. His reason for a franchise like McDonald's is that people already know the taste of food while an unknown eatery has that mystery regarding the food. And then I remember the time when we sampled the newly-opened Japanese restaurant of a friend. It was not a franchise and the food was short of miserable in taste. But if that happens to be a franchise Japanese restaurant then we probably would enjoy the Gyudon and the Gyousa.
     
  13. doodles67

    doodles67 Entrepreneur

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    Although the initial expense can be incredibly high, many entrprepeneurs have had successful franchise experiences. When dealing with a well-known company, you will get business advice, and you don't have to worry about suppliers much. You will be trained in all aspects of the business. Your business will have name recognition.

    This comes at a cost, however, beyond financial costs. You may not be able to deviate from menu items (if it is a restaurant) robe able to carry inventory beyond what the company offers. If you choose to have a franchise, please do your due diligence. Make sure that it is a reputable company. Check the franchise contract to see if you can live with any restrictions. Good luck with your endeavors.
     

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