Entrepreneurship & Small Business

is buying a franchise a good investment?

  • Last Updated:
  • Jun 11th, 2018 1:39 pm
Deal Addict
Jan 27, 2011
2108 posts
1176 upvotes
Toronto
If you have cash to burn, why not buy a condo in Toronto, rent it out for 5yrs and sell? It seems like you don't or won't have the time to commit into working a franchise successfully.
Up votes, down votes, they're all votes for me! I thank you!
Deal Guru
Aug 2, 2010
13565 posts
3627 upvotes
Here 'n There
some1not wrote:
Nov 18th, 2017 11:30 am
If you have cash to burn, why not buy a condo in Toronto, rent it out for 5yrs and sell? It seems like you don't or won't have the time to commit into working a franchise successfully.
Oh, as if that's a sure thing, LMAO!!!
Deal Addict
Sep 23, 2007
4489 posts
810 upvotes
My 2 cents:

-If there is a sure way to make money, you can be sure lots of people would have jumped on it already. Like any investment, you don't know the risk exactly. The brand could be managed by morons and they ruin the image. The franchisor can be fair, or they can be vampires sucking you out dry with lots of restrictions and specifications that you absolutely must follow even if unreasonable. Or some bitter food blogger gets all pissy and starts writing negative things about the brand...

-Basically you face uncertain costs and uncertain sales. I guess the costs are semi-predictable franchise law in Ontario says franchisors must provide disclosure documents to outline expected costs.

-I saw a comment about franchises being equated to buying a salary. I would say that's about right. The franchisor has taken the work to set up a system that can guide you. You are basically assuming the risks and pay the franchisor the royalties and designated products. It's really a much more dumbed down version of owning a true business. But if you want to be able to have a career AND business, this is probably the best way.

-What others said about work load is mostly true. Keep in mind that there's no one telling you that you must spend all day at the location. But why would you dump $500k+ and not care? Of course you are going to care. If you are rich enough to not care and go straight to your 9-5 job, then you must be insane. A lot of work can be outsourced. You can hire a store manager to run things for you of course, but this will greatly cut into your profits.

-Comparing against other investments, there's significantly more upside in my opinion. You can run the business well (which is a combination of luck and hard work), Aside from (hopefully) turning a profit from operations, you can also sell the business in the future.

-Picking which franchisor to go with obviously is a key decision. Look at a brand like Tim Horton. They have a location at like every corner now. Many franchisees own multiple shops. I would say TH is definitely a saturated investment opportunity. But it's also a vey well defined business with more clear costs and sales forecasts than other less established businesses. A franchisor who has only been in business for say...2 years, probably hasn't got their whole supply chain worked out to a refined level. Or maybe they haven't reached the stage where they have a concrete operational procedure. It's not common to find some brands with stores giving inconsistent service/products. Whereas Tim Horton has it down to such a science that there's generally very little variation in product quality between stores.

-There are pros and cons to going with an established business vs an up and comer. A newer business would probably have less stipulations and likely lower startup costs.
Deal Guru
Aug 2, 2010
13565 posts
3627 upvotes
Here 'n There
As a franchisee nothing is in your control except how you manage the rules you are to follows. There are many franchisees who basically operate as slave labour. They owe so much for the rent and equipment and franchise fees that they have no choice but to keep working for slave wages to pay off the debt and monthly fees. The great stories you hear about franchisees raking it up are few and far between and many are from those who bought their franchises in the early days.
Deal Guru
User avatar
Mar 31, 2008
10336 posts
1556 upvotes
Toronto
Remember, the Franchisor is in it to make money off the Franchise. You have to follow all the rules, buy all the products, use their services, etc.

Here's one for you. An open invitation to make $$
http://wendelclarks.com/franchising/
Deal Guru
Aug 2, 2010
13565 posts
3627 upvotes
Here 'n There
SK_786 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
1. $1M+ if you want anything decent
2. Easy if you have hard security. Impossible if not.
3. yes, lots
4. no
5. you lose all your $
Deal Expert
Jun 30, 2006
15988 posts
3778 upvotes
Toronto
If you want to get screwed by corporate, go ahead and buy a franchise.
Deal Fanatic
Sep 16, 2004
7981 posts
1155 upvotes
Toronto
at1212b wrote:
Nov 22nd, 2017 11:19 am
Remember, the Franchisor is in it to make money off the Franchise. You have to follow all the rules, buy all the products, use their services, etc.

Here's one for you. An open invitation to make $$
http://wendelclarks.com/franchising/
carmaster wrote:
Apr 1st, 2018 11:10 am
If you want to get screwed by corporate, go ahead and buy a franchise.
Franchisors have gotten greedier and your hard work is a boon to them.
Many once upon a time franchisees in generic stuff like pizza nd wings have shed the Franchisor and gone independent.
They obviously used the Franchise to gain knowledge and experience in the business but he Franchisor got royalties etc.
It can still be done if the price is right and the expectations from Franchisor are reasonable but involves very keen business sense.
Sometimes buying an established franchise by an owner looking to retire may not be bad thing.
these may be fewer than failed franchises and so may go quickly.
If his main reason for selling is retirement vs poor sales and he is willing to be upfront with you to get the sale, you can learn lots on a short period of time.
Plus you can benefit from his initial hard work in setting up/establishing, and negotiating better terms back then, than are available currently through new franchises.
Downside is you'll still need to go through the Franchisor who may reject you or try to change the deal, sweetening it for themselves.
Deal Fanatic
User avatar
Dec 3, 2009
5385 posts
802 upvotes
Toronto
Funny that you all missed the bump post
Remember to be an RFD-er and NOT a degenerate.
Newbie
Feb 21, 2012
20 posts
3 upvotes
GTA
gh05t wrote:
Apr 1st, 2018 12:35 pm

Sometimes buying an established franchise by an owner looking to retire may not be bad thing.

If his main reason for selling is retirement vs poor sales and he is willing to be upfront with you to get the sale, you can learn lots on a short period of time.
Plus you can benefit from his initial hard work in setting up/establishing, and negotiating better terms back then, than are available currently through new franchises.
i think It will be very HARD to find TRUTHFUL answer to that question -Whether an existing Seller (franchisee or not) is selling because He/She is retiring or they are selling a failed business. If financial statements are provided, how truthful can these be?....
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Deal Addict
Apr 5, 2013
3524 posts
971 upvotes
markham
Nitas1410 wrote:
Apr 2nd, 2018 1:03 pm
i think It will be very HARD to find TRUTHFUL answer to that question -Whether an existing Seller (franchisee or not) is selling because He/She is retiring or they are selling a failed business. If financial statements are provided, how truthful can these be?....
generally speaking...its hard to "fudge " figures with a franchise..sales and inventory is usually piped into the franchiser office for purchasing and franchise fees monthly...they should provide or confirm numbers as its in their interest to have truthful financial statements as much as it is yours..
Deal Addict
Nov 22, 2004
1377 posts
362 upvotes
raptors64 wrote:
Mar 31st, 2018 1:43 pm
is boston a pizza good franchise to buy?
Seems like all the new replies ignored the bump post altogether so here goes:

It's a really vague question to ask to provide any reasonable yes/no answer. Is it a recognized brand where people come to eat? Yes. But so many factors are there that you need to consider:
  • Are you looking to start a new location or buying an existing operational one? If the latter, then how are the financials?
  • How's the location/foot traffic?
  • Why is the owner selling? Although this you always have to take with some grain of salt as the seller may or may not be entirely honest about the intentions.
  • Do you have any experience/background in operating a restaurant? Or do you plan to hire some experienced manager and keep it hands off? In both cases, what's your capacity to handle emergencies? Mechanical or appliance breakdown, staff truancy, etc.
  • Restaurants are generally more regulated than other types of businesses so you have to always be on top of hygiene, cleanliness, surprise inspections, in addition to the regular duties.
  • Some franchises are sold without property which would be cheaper since you're only buying the business but not the real estate associated with it. Then you have to factor in the rent you'd pay in addition to other expenses, and be prepared for rent increases. Keep in mind that commercial leases are nothing like residential ones where the LTB favours the tenants. Commercial leases are iron-clad so if you don't abide by the lease then the landlord can choose to enforce its terms. I'm going through that right now with a commercial client of mine.

Don't mean to put you off but just some things to consider. Hope this helps
Heatware: 9-0-0
Realtor @ Royal LePage United Realty
Deal Fanatic
Feb 9, 2009
7388 posts
4358 upvotes
Franchises make no sense now.

It used to be good back in the day... now big corporate businesses come in buying 10-15-20 units at a time. Now franchises want to sell a "territory" and now deal with multiple small businesses.

You can buy smaller establishments but not going to be as profitable.
Banned
Mar 30, 2015
15 posts
Gloucester, ON
1) What would be the total cost to buy the franchise? depending on franchise anywhere from 50K - 1 million
2) How easy is it to get a bank loan? need good credit history, some securities
3) Do i need a down payment for bank loan? If yes then how much? usually for commercial you need about 40% and 1 year operating expenses in the account , this can be anywhere from 100K to 500K or more
4) I would like to continue my full time job and manage the franchise part time, is that possible? as mentioned in previous post, you could but then you would not be really opening a business , it would be considered not profitable and as such would cause too much headache for you
5) What are the risk? alot LOL.... depends on your tolerance

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