Adventures with lyrical - buying a business

Mkopec1 said:

Now granted certain locations are better than others, etc. but this is in no way to become wealthy. The problem he says is that he has to buy subway shit which is sold at a markup, instead of shopping around for cheaper suppliers. For example meats, cheeses, veggies etc... Another thing thats fucked up is he is forced to spend a certain % every year for marketing

Click to expand...

Supposedly the power of being part of a franchise is that your combined buying power of all the franchisees is supposed to result inlowerproduct costs, not higher. However, it is not uncommon for the franchise to negotiate kickbacks from vendors for themselves that hurt the franchisees. The % every year for marketing is in every single franchise agreement no matter the chain. It"s a standard practice.

opiate82 said:

Supposedly the power of being part of a franchise is that your combined buying power of all the franchisees is supposed to result inlowerproduct costs, not higher. However, it is not uncommon for the franchise to negotiate kickbacks from vendors for themselves that hurt the franchisees. The % every year for marketing is in every single franchise agreement no matter the chain. It"s a standard practice.

Click to expand...

Yeah, sometimes you end up with shit like this between franchisees and the parent company:Tim Hortons Lawsuit | Financial Post

I work at Subway HQ, so if you have a specific question let me know. So far most of the subway related information has been pretty false.

The problem he says is that he has to buy subway shit which is sold at a markup, instead of shopping around for cheaper suppliers. For example meats, cheeses, veggies etc... Another thing thats fucked up is he is forced to spend a certain % every year for marketing

Click to expand...

The shit is sold so cheaply that you wouldn"t want to know what the cost is per sub. Your friend is also an incorrect since he buys his supplies from from a coop owned by the franchisees, not subway corporate.

Another thing thats fucked up is he is forced to spend a certain % every year for marketing

Click to expand...

Not that fucked up...its 4.5% of gross sales for marketing, and allows him to benefit from nationwide advertising in just about every corner of the country.

Thanks again for all of the info. Aetos ? I know some of the info/figures provided were off. In a bit under 10 years, my father-in-law went from running a copier business and working 40 hours + a week making maybe 40k a year to now owning 3 subways, he does the food delivery himself, but besides that he just tans at home, hangs out with his dog, and shoots out e-mails. He has two stores paid off now, one is pretty low and nets just 35, but it?s small and runs itself easily. The other nets 45, and his new store (just opened last year) is looking closer to 50, so once he pays that off he will essentially have tripled his income, and he spends most of his days at home, except for an hour or two 3 days a week for the deliveries, and of course when he goes down to schmooze because he loves the attention.

I know this isn?t a lot of money for some of you, but it?s pretty good for him, and he didn?t even start until his kids were grown up, which makes me realize that this is something we really need to get in on now.

If its your first location you can"t get into the mindset that it"s a cash register for you to show up and take money out of. It is a business like any other and requires the same amount of work to get started. That being said once established and set up properly it can run itself just about

Im on the finance side of things so I can see on a more detailed level how each store does, location is a big part of it. I think the average figure right now is about 2k a week after expenses. I think that"s fairly good money. Obviously the big money is in being a multi-unit owner. I was just looking at a guy that owns 10 subways all non-traditional locations(inside gas stations) and makes a killing.

I"ve been approached by a family member to help him as he expands his sub shop business. The franchise is based in a a different part of the state, we have the territory rights to a whole new area. It"s a local franchise that has very generous terms for it"s franchisee"s. The name is respected locally, but there is almost no advertising outside of corporate couponing that isn"t reimbursed so he has to eat the margins. He currently has 1 shop and will be opening a second within the next month or two. He wants me to come in and run a 3rd and put in a management structure/model to accommodate future growth.

However. While i like the franchise agreement and the flexibility, the lack of an advertising campaign and the extreme variance in daily/weekly sales figures has me very skeptical. I"ve also never had to manage multiple locations, each with pretty different competitive/geographic environments. It"s a regionally established brand with a loyal following and a good product.

Thoughts? Potential pitfalls i should look more into?

Aetos said:

If its your first location you can"t get into the mindset that it"s a cash register for you to show up and take money out of. It is a business like any other and requires the same amount of work to get started. That being said once established and set up properly it can run itself just about

Click to expand...

For sure, I skipped the tough years where his first store was at a gym, which failed horribly (not sure why he thought that was a good idea). He ended up moving to a second location but he took the loan out for the bare minimum and ended up maxing his credit cards by putting payroll and a number of other expenses on them. It wasn"t until 4 - 5 years later that he finally paid off the loan and was starting to see some profit. I wasn"t really apart of their family through alot of that, but my wife certainly remembers it, and I"m hoping we can learn from it.

We"re still young, early - mid twenties, but why not start now. Again, who knows if we"ll actually get approved for the loan, and depending on how much money they want down, that could pose a problem, but my wife"s Dad has offered financial support, so who knows. I realize that for at least the first 4 - 5 years we really don"t be seeing profit. I"m doing alot of talking, but no action yet really, basically planning our next steps at this point - I"ll keep you all informed. Thanks again for the input and advice.

Ryoz said:

For sure, I skipped the tough years where his first store was at a gym, which failed horribly (not sure why he thought that was a good idea). He ended up moving to a second location but he took the loan out for the bare minimum and ended up maxing his credit cards by putting payroll and a number of other expenses on them. It wasn"t until 4 - 5 years later that he finally paid off the loan and was starting to see some profit. I wasn"t really apart of their family through alot of that, but my wife certainly remembers it, and I"m hoping we can learn from it.

We"re still young, early - mid twenties, but why not start now. Again, who knows if we"ll actually get approved for the loan, and depending on how much money they want down, that could pose a problem, but my wife"s Dad has offered financial support, so who knows. I realize that for at least the first 4 - 5 years we really don"t be seeing profit. I"m doing alot of talking, but no action yet really, basically planning our next steps at this point - I"ll keep you all informed. Thanks again for the input and advice.

Click to expand...

Im no expert on the franchising end of it but I do know that there are a number of lenders that we work with and it"s not terribly difficult to get a loan for a subway restaurant since the failure rate is so low. I know IPC does loans to franchisees and I think there"s two more.there are a few HQ employees that also have stores. Its definitely one of the easier franchises to open. Franchise fee is low, 15k, though royalty is slightly higher than the average. The people I know with stores open them, get them established and start over again. Like lyrical said with 4-5 stores you will be very we"ll off and not require much work.

While it does take work to open one, everything you need ti learn you are taught, and there"s always someone to ask. In terms of advertising its split between local and national. And os close to $1 billion dollars.

Kais said:

However. While i like the franchise agreement and the flexibility, the lack of an advertising campaign and the extreme variance in daily/weekly sales figures has me very skeptical. I"ve also never had to manage multiple locations, each with pretty different competitive/geographic environments. It"s a regionally established brand with a loyal following and a good product.

Thoughts? Potential pitfalls i should look more into?

Click to expand...

I try not to get to caught up in the daily/weekly sales trends at my places. I look at same month comps to get an idea of where I am at (August this year compared to August last year). Something like a really nice sunny weekend can kill sales for me so comparing on a daily/weekly basis usually doesn"t yield me anything meaningful.

As far as being an outer market for a joint ad fund, as long as they are spending the money you put in back into your market I wouldn"t worry to much about it. If the franchise is flexible they may be willing to kick you back some money to spend on local store marketing (LSM). Without knowing how big the chain you are referring to is, it"s tough to know how much buying power they have with respect to advertising. Couponing is relatively cheap and easy to implement. Things such as television get very expensive.

Tmac47 said:

Thanks. He"s actually agreed to do it for ROI (angel). I asked for an initial $11,000 investment with $3,000 monthly costs and he was down. He just wants me to send him a report with his expected returns.

So, I guess all it comes down to is determining what sort of % we want to see him getting and for how long. If we get 75 agents, we"ll be in the black, so there"s a lot of room for growth.

---

In other news I have a meeting with a pretty big name in Braves baseball about another website idea, so it"ll be interesting to see how that plays out.

Click to expand...

See if you can partner up with real estate schools in different areas and possibly offer unique discounts for each one. I"ve got a few interesting ideas for you, if you"re interested send me a message.

I"m interested more in this concept of becoming a franchise owner.

Is it really that easy to just pick up and play?

I"ve been looking it over, and reading this thread - what seems odd to me, is clearly you"re going to need to manage it, but you"re going to net 40-50k a year. Most people I would imagine make more then that at their "normal" job.

Chaotic said:

I"m interested more in this concept of becoming a franchise owner.

Is it really that easy to just pick up and play?

I"ve been looking it over, and reading this thread - what seems odd to me, is clearly you"re going to need to manage it, but you"re going to net 40-50k a year. Most people I would imagine make more then that at their "normal" job.

Click to expand...

Hopefully you can get to a point where you are not involved in the day-to-day management of your locations and you have more than one. So your "40 hours a week" job is basically taking care of all the book-work for several locations. Can take years to get to that point though.

The problem as I see it is if you hire anyone other than family, you have to be prepared for theft. Shit, even some family will steal from your ass. Trust me I worked a lot of fast food in my younger days and I saw it all. When I moved into management and got involved in day to day bookkeeping, I even saw worse shit. Like this one manager taking the whole last hours earnings and pocketing them, voiding all the orders. And this is the shit you will encounter.

Most of the people you are hiring are no talent ass clowns, minimum wage ass hats which are not too swift and honest. And if they dont steal your money, they sure as hell will steal your product. Either way you will get screwed by just being the "book" guy and having someone else run your day to day operations.

I think its really a pipe dream to have 3-4 restaurants like that just "run themselves" while you reap the rewards sitting in your mansion by the pool. It takes hard work, long hours and watching your people like a hawk.

My wife"s cousin owns a bakery. One of the ones which specializes in wedding cakes and cookies and such. Its highly successful, and they are very well off, but the due and his wife also work 12-16 hr days to pull this off. They work their asses off to make it all work. I once asked him why he doesn"t just let someone else manage it and him just step aside, after all its what most people would do with a highly successful and established business, right? He told me that there is no one trustworthy enough that he knows and the business would all just fall to shit. To me its just not worth it. Yeah, he pulls down some bank, but he cannot enjoy any of it because he works his ass off.

No small business owner ever just "sits in his mansion raking in the money." Even if they aren"t in the store managing the day-to-day operations they are working out of an office full time taking care of all the back end stuff necessary in order for the business to run. I have 2 locations, I do not manage either of them, work out of my home and still have more than a full time job just handling the back end stuff.

You are right in that you do need to be prepared for theft. If you are not going to be in the store watching every dollar go in and out of the till you need to be anal about your cost controls. I"ve had to deal with my fair share of thieves throughout the years. The guys taking money out of the tills are actually fairly easy to catch. If cash is constantly missing you can track that down quick. If you have an issue where people either aren"t ringing stuff into the system and/or are voiding orders, you"ll see a spike in your food costs and coupons as well as a drop in your daily cash deposits. I can usually track that type of stuff down with bookkeeping alone but I also have a surveillance system I can use as well.

Basically as long as you stay on top of your cost controls and investigate any variance no matter how slight, you can will usually nip any problems like that in the butt without having to be at the stores from open till close. I"ve actually "caught" other owners who were not reporting all their sales to the franchise (to avoid fees) when looking over their books while investigating possibly buying their locations.

One of the best ways to discourage theft and fraud is making it quite obvious that you are reviewing every single fucking piece of paper that goes in and out of the office. Every bank statement, invoice, payment, or transfer has my initials on it. I certainly don"t check every invoice in detail because it"s literally 4-6 inches worth of supplier invoices a month, but I do at least make sure that no one"s buying plumbing fixtures for their house or tools on my accounts, or if they do that it"s being deducted from their payroll.

Thankfully we don"t deal with cash at all though.

I"m glad more and more people, at least on these forums, are opening their eyes to the difficulties of running a small business. There is no easy money. It takes a lot of time, effort, and above all,risk. No matter how well you think you"ve planned on opening a business, how many business models you"ve run.....you just never know how it"s going to turn out until you actually start the business.

The absolute most difficult thing I"ve discovered about running a business is finding good people. As many of you have already mentioned, if they aren"t trying to steal from you, they are trying to cut corners as far as how much they work, or lie to you about being sick so they can play hookie. There is no way to prevent this, but the best deterent I"ve done is to pay the people who do work hard and who you can trust top dollar. Other employees see that and have something to trive for. Make employee income tied into performance - the harder someone wants to work, the more they make. Of course, this doesn"t apply to minimum wage people, and those are usually the ones you have to worry the most about.

I"ve said this before on the other thread.....I like Buffet"s idea of increasing the tax rate on the "super-rich", meaning those making over $1,000,000. What I don"t like is Obama"s plan to increase the tax rate on those making over $200,000 ($250,000 as a couple). That"s right where a lot of small business owners are. The only thing that is going to do is either 1) deter people from starting new businesses (why take on all that risk?), or 2) prevent them from growing their companies (work twice as hard trying to expand just to end up making 20% more money? No thanks)....which means fewer new jobs or positions created. They would be better off taking a government job they can"t get fired from with a nice pension than risk opening up a business that may not survive, and even if it does, get taxed into the ground.

I think Lyrical touched on that a lot earlier in this thread when he was talking about aligning the employee"s interest with the company"s. It makes sense (to me, as a bschool student) but almost every company I"ve worked for has not implemented it in a very effective way.