Entrepreneurship & Small Business

is buying a franchise a good investment?

  • Last Updated:
  • Apr 17th, 2017 11:58 am
[OP]
Deal Addict
Jan 3, 2012
1188 posts
25 upvotes
Mississauga

is buying a franchise a good investment?

Hello Everyone,

Just want to understand how everything related to franchise investment works. For example, if i want to become a franchise owner of restaurants like Time hortons, Mcdonalds, Subway etc, how easy is it for someone like me who works 9 to 5 as a Financial analyst and makes around $60-70K? Here are some of my questions:

1) What would be the total cost to buy the franchise?
2) How easy is it to get a bank loan?
3) Do i need a down payment for bank loan? If yes then how much?
4) I would like to continue my full time job and manage the franchise part time, is that possible?
5) What are the risk?

thanks
21 replies
Jr. Member
Jan 3, 2017
118 posts
71 upvotes
1) Franchise costs vary wildly, some cost 1+ million, some cost 50k
2) depends on your credit, and assets
3) Virtually all of the big well known names like the ones you mentioned wants some sort of net worth assessment. If you don't have "x" unencumbered capital as well as a net worth of x you may be disqualified before you even get to the bank
4) They are all different, It depends on the franchise and the scope. Tim Hortons wont let you be an absentee owner or do it part time, Subway may. Every franchise is different.
5) Really? Losing your house, Bankruptcy come to mind
Sr. Member
May 12, 2003
592 posts
116 upvotes
TBH, majority of the benefits of owning the franchise comes from you operating it as well, atleast for the first few years, from there you can buy another franchise and another.

Doubt you could purchase a well running franchise store, be an absentee owner and be successful.
saadt1988 wrote:
Mar 22nd, 2017 10:38 am
Hello Everyone,

Just want to understand how everything related to franchise investment works. For example, if i want to become a franchise owner of restaurants like Time hortons, Mcdonalds, Subway etc, how easy is it for someone like me who works 9 to 5 as a Financial analyst and makes around $60-70K? Here are some of my questions:

1) What would be the total cost to buy the franchise?
2) How easy is it to get a bank loan?
3) Do i need a down payment for bank loan? If yes then how much?
4) I would like to continue my full time job and manage the franchise part time, is that possible?
5) What are the risk?

thanks
[OP]
Deal Addict
Jan 3, 2012
1188 posts
25 upvotes
Mississauga
So what about small franchise then? How easy is it to get one? What exactly and who exactly do I need to contact to buy one?
Deal Fanatic
Sep 16, 2004
6552 posts
634 upvotes
Toronto
saadt1988 wrote:
Mar 25th, 2017 7:34 am
So what about small franchise then? How easy is it to get one? What exactly and who exactly do I need to contact to buy one?
An established franchise depending on what it is may be a good bet.
You have to be lucky to find a retiring owner or one upgrading etc.
A real estate agent dealing in commercial property and may have something to gain will talk much.
You'll probably still need to meet certain requirements of the Franchisor before approval though.
Deal Addict
Feb 9, 2009
3621 posts
1262 upvotes
Alot of them dont make the money they once did.

Lots of Subway franchises for sale all the time. Too saturated. The best locations never go for sale so you get the subpar ones for sale who make it sound like its a great investment (most of the time there is a headache involved).
Deal Fanatic
Sep 16, 2004
6552 posts
634 upvotes
Toronto
Sanyo wrote:
Mar 25th, 2017 9:21 pm
Alot of them dont make the money they once did.

Lots of Subway franchises for sale all the time. Too saturated. The best locations never go for sale so you get the subpar ones for sale who make it sound like its a great investment (most of the time there is a headache involved).
primetimey wrote:
Mar 26th, 2017 11:03 am
You should look to franchise something that is up and coming, not something already established with a location on every corner. (Subway, Tims, etc.)

Example: https://www.freshii.com/ca/franchising
Both great points.
another point off course is limited autonomy.

For example mandatory things like buying all raw materials from the Franchisor, which may further diminish profits.

Franchisors capitalize on the establishment of others hard work in establishing their name by raising the price of Franchises.

Money in hand now is worth more than in the future.

They are smart in doing so also because they know the laws of diminishing returns in a saturated market means they will get less down the road via royalties and the Franchise has better chance of failing.
Deal Addict
Sep 20, 2014
1109 posts
280 upvotes
Mississauga, ON
Anyone find it ironic that a Financial Analyst can't do basic research and put together some insight for himself on this? Lol...

Anyway, personally, I'd avoid a franchise for the following reasons:
1) high amount of capital: anywhere from $500K to $1M is required to start a franchise
2) lack of diversification: all of your eggs are in one basket, e.g. this one business at this one location. Couple that with the high amount of capital, it's horrible from an investment perspective

As an alternative, look into the royalty funds that trade on the TSX e.g. The Keg, Boston Pizza, A&W, etc. It's much more passive as opposed to opening a franchise, think about it - you just dump the capital you would have put in the franchise and get a dividend/royalty ever month.
[OP]
Deal Addict
Jan 3, 2012
1188 posts
25 upvotes
Mississauga
2009M5 wrote:
Mar 26th, 2017 2:03 pm
Anyone find it ironic that a Financial Analyst can't do basic research and put together some insight for himself on this? Lol...

Anyway, personally, I'd avoid a franchise for the following reasons:
1) high amount of capital: anywhere from $500K to $1M is required to start a franchise
2) lack of diversification: all of your eggs are in one basket, e.g. this one business at this one location. Couple that with the high amount of capital, it's horrible from an investment perspective

As an alternative, look into the royalty funds that trade on the TSX e.g. The Keg, Boston Pizza, A&W, etc. It's much more passive as opposed to opening a franchise, think about it - you just dump the capital you would have put in the franchise and get a dividend/royalty ever month.
I'm doing my research as well. But is there a problem if i ask people here for more information?
[OP]
Deal Addict
Jan 3, 2012
1188 posts
25 upvotes
Mississauga
2009M5 wrote:
Mar 26th, 2017 2:03 pm
Anyone find it ironic that a Financial Analyst can't do basic research and put together some insight for himself on this? Lol...

Anyway, personally, I'd avoid a franchise for the following reasons:
1) high amount of capital: anywhere from $500K to $1M is required to start a franchise
2) lack of diversification: all of your eggs are in one basket, e.g. this one business at this one location. Couple that with the high amount of capital, it's horrible from an investment perspective

As an alternative, look into the royalty funds that trade on the TSX e.g. The Keg, Boston Pizza, A&W, etc. It's much more passive as opposed to opening a franchise, think about it - you just dump the capital you would have put in the franchise and get a dividend/royalty ever month.
I read online you can get subway from $100 to 200K? is that incorrect?
Deal Addict
Jul 7, 2004
4428 posts
451 upvotes
Sounds like you've done absolutely no research into this besides make this post. That's never a good start.
Newbie
Mar 7, 2009
14 posts
Cambridge, Ontario
Go to the CFA (Canadian franchising association). Great website. Stop at shoppers and pick up their magazine. It's a wealth of info showing a large breath and depth of opportunities. Attend their trade show and meet with the franchisors.
Member
Feb 15, 2010
414 posts
221 upvotes
Surrey
I believe more critically, you need to determine which kind of franchise you would want to operate/how much you would be able to invest.
There's no point in asking generic questions that will vary significantly by franchise. It's also not useful to provide information about something like Starbucks when you hate coffee and don't want to wake up early and can't even afford the fee. Perhaps, a small pizza franchise would be good as it only operates in the afternoon/evening which would give you time to work your day job and still attend the franchise each day. Etc.

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