Entrepreneurship & Small Business

Thinking About Buying A Franchise

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  • Jun 11th, 2015 10:43 pm
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Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
Supahhh wrote: This "rule of thumb " is a utter fallacy. The pricing of the business, depends on many other factors , such as the type of business , how much skill is required to run it, owner involvement required, actual profit it makes ( the same type of business would be evaluated different if it makes 40k vs 120k ) etc.
oh yeah he runs lots of businesses up in fort mac. the guy is a genius.
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
TrevorK wrote: That sounds like an absolutely horrible business. You don't even have to factor in all the other costs besides labour and rent, and you are already virtually losing money. That's without even calculating costs like CPP/EI/Worker's Comp on each employee, etc.

When I was growing up the franchised food restaurant I worked at aimed for an 18% labour cost - 18% of total sales goes to labour. Every business will be different, but it gives you an idea of where other successful franchise businesses are at with labour cost.


I just googled Treats, the franchise you are looking at. When I read their page, they make it seem like it is $185K for a franchise, so if the owner is asking $40K it must be absolutely horrible. I wonder if it's more just to get rid of the responsibility for a bad lease?
http://www.treats.com/franchises_company.php
As well, like with other franchises there is a transfer fee. Make sure you understand who is paying this.
yeah ive looked at these costs and the sale prices are rediculous. you're better of saving up for a tim hortons or a mcdonalds or a subway because everything else seems to bleed money.
Sr. Member
Apr 2, 2009
851 posts
232 upvotes
justaskthescientician wrote: If you could get that gross up to 20-25,000/month, then you'd be doing well.
No he wouldn't, not even close. Even at 25k gross he's not making much with 7k rent.

Food costs 35% = 8,750
Rent = 7,000
Royalties 8% = 2,000

You have $7,250 gross left over before employees wages plus the employer portion of the CPP EI. Not to mention other costs such as hydro, insurance, repairs/ maintenance, accounting fees, bank fees etc etc.

Based on $25k monthly gross OP would be lucky to pull in 1-2k month unless he was there open to close and cut his employes costs in half. Even then it's not worth it as he would be working 80 h weeks for 40k a year before taxes.

That rent is ridiculous, in comparison my brother owns a small takeout only restaraunt. He grosses about25-30k month and his rent is 900/ month. He's about 72k / year better of than you would be already just in rent alone
Deal Addict
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Feb 24, 2015
1032 posts
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Fort Mac, AB/Lambton…
colossk wrote: No he wouldn't, not even close. Even at 25k gross he's not making much with 7k rent.

Food costs 35% = 8,750
Rent = 7,000
Royalties 8% = 2,000

You have $7,250 gross left over before employees wages plus the employer portion of the CPP EI. Not to mention other costs such as hydro, insurance, repairs/ maintenance, accounting fees, bank fees etc etc.

Based on $25k monthly gross OP would be lucky to pull in 1-2k month unless he was there open to close and cut his employes costs in half. Even then it's not worth it as he would be working 80 h weeks for 40k a year before taxes.

That rent is ridiculous, in comparison my brother owns a small takeout only restaraunt. He grosses about25-30k month and his rent is 900/ month. He's about 72k / year better of than you would be already just in rent alone
I was assuming that the OP meant 7000/year in rent. 7000/month for a small restaurant is ridiculous, unless it has frontage on Times Square. We will have to wait till OP clarifies.
Member
Jul 11, 2009
377 posts
240 upvotes
Don't buy a Treats. The entire chain is circling the drain. They were big in Ottawa years ago, before Tim Horton's went nuts on expansion. Then came Starbucks, then came McDonald's McCafe . Country Style is pretty much gone and I am surprised there are any Treats left. They will go gone soon too.
Deal Fanatic
Sep 23, 2007
5654 posts
2168 upvotes
I have some experiences in trying to get into franchising. I have a partner. Some random comments.

-It's nice to think about the operating revenues and costs, but the first thing you should know is that every franchise has their own set of rules. Some give you flexibility. Most don't. For example, they will control where you buy your ingredients and supplies and usually you have to pay a higher price.

-There are a lot of costs to starting it up, and it'll be good to get a business loan. Talk to your bank. In addition to the operating costs, you also have to pay a franchise fee, all the renovations costs, and equipments. You'll also need to have some working capital. For a lot of franchises, you have limited say in renovations, meaning you have limited control on how much renovations will cost.

-In addition to franchise fee, you have to pay them a royalty. Also, the franchise fee may be for a fixed term and you need to pay again after expiry. This depends on the franchisor.

-This will seem obvious but worth stating. The more famous and established the brand, the more expensive and picky the franchisor will be. Getting a starbucks opened for example like likely cost you $1M. If you got into Tim Hortons before they opened a million stores, chances are good you're happy. If you get into Tim Hortons now, it's expensive and they are cannibalizing like mad by opening a zillion stores.

-There are obviously bad franchisers who don't give a crap about franchisees. Visit Pacific Mall and count how many bubble tea stores there are from the same brand. Some franchisers just want to take your franchise fee and let you deal with the rest. If possible, speak to existing franchisees before you put any money down.

-If you get a business loan, you'll need to be personally liable. This can be scary. Don't bother starting a franchise business (or any business) if you don't have the financial resources to handle setbacks. It'll also be a huge time commitment if you do everything yourself. So not only do you have to be financially endowed, you need to have the energy and motivation to tackle problems. You're guaranteed to have arguments with employees, franchiser, customers, and vendors.

-Franchisors don't accept everyone. For Tim Horton, you must not be working, and you need exactly 2 partners. For many restaurant businesses, they require you to have restaurant management experience. There are some franchisors out there who'll accept anyone as long as you have the money.
Deal Expert
Jun 30, 2006
21133 posts
9788 upvotes
Toronto
Don't buy a Subway franchise. It's a sinking ship.
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
justaskthescientician wrote: I was assuming that the OP meant 7000/year in rent. 7000/month for a small restaurant is ridiculous, unless it has frontage on Times Square. We will have to wait till OP clarifies.
the more you post the more your credibility goes down the drain..

do you know how much rents are in Toronto???? ???????
Deal Addict
User avatar
Feb 24, 2015
1032 posts
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Fort Mac, AB/Lambton…
daivey wrote: the more you post the more your credibility goes down the drain..

do you know how much rents are in Toronto???? ???????
Your misunderstanding ruins my credibility??? OP's location: Ottawa. Way to look stupid.

And get that knot out of your panties. We disagree over some matter and now you're after me in every thread. That's a chick move.
Deal Addict
Nov 26, 2011
2184 posts
252 upvotes
Ottawa
It seems I guess it would be better to make my own business instead of franchise. I guess costs would be low. I believe I have a perfect vision for a business which would be a restaurant located near downtown with its main goal of being a take-out/delivery joint. The reason near downtown is because you would have a greater population to cater to. Also near downtown lets you expand the business as you have access to the quebec border, east and west highways, and that business can grow very quickly once it gets settled due to location.

Anyone know where to search for places to build your own restaurant.
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
justaskthescientician wrote: Your misunderstanding ruins my credibility??? OP's location: Ottawa. Way to look stupid.

And get that knot out of your panties. We disagree over some matter and now you're after me in every thread. That's a chick move.
Are you kidding? Does not it matter what city you are in Any prime location is going to have rents north of 5000 a month. Ottawa toronto Montreal. Doesn't matter.
Newbie
Jan 17, 2014
50 posts
5 upvotes
daivey wrote: Are you kidding? Does not it matter what city you are in Any prime location is going to have rents north of 5000 a month. Ottawa toronto Montreal. Doesn't matter.
Bull*****. I am in a prime location in kelowna, corner unit with a patio, 1850 sf, sales grossing 45k per month and my rent is 3000 per month. Unless you are in a location that can gross 60k+ per month your rent should not be over 4k per month. If you are paying more you did not negotiate hard enough. I am looking at another nice location that should do about 30k per month but I will only sign if I can negotiate around 2500 rent per month. If I cannot get that rate I will walk away. There are many horror stories about businesses that pay way too much on long term leases and go under and are stuck in useless leases. Stick to your guns and only settle for what your business can pay and only sign for 5 years to start.
Member
Aug 5, 2012
435 posts
398 upvotes
Toronto
BarryY218 wrote: Bull*****. I am in a prime location in kelowna, corner unit with a patio, 1850 sf, sales grossing 45k per month and my rent is 3000 per month. Unless you are in a location that can gross 60k+ per month your rent should not be over 4k per month. If you are paying more you did not negotiate hard enough. I am looking at another nice location that should do about 30k per month but I will only sign if I can negotiate around 2500 rent per month. If I cannot get that rate I will walk away. There are many horror stories about businesses that pay way too much on long term leases and go under and are stuck in useless leases. Stick to your guns and only settle for what your business can pay and only sign for 5 years to start.
Just wondering if your lease has ever been renewed, I am sure there a lot of people willing to pay twice or triple of what you are paying now for the location, if sale grossing 45k per month. By the rule of thumb, you should be making around 20k net profit per month.
Deal Addict
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Feb 24, 2015
1032 posts
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Fort Mac, AB/Lambton…
daivey wrote: Are you kidding? Does not it matter what city you are in Any prime location is going to have rents north of 5000 a month. Ottawa toronto Montreal. Doesn't matter.
This place is doing 15-20k/month sales. You really think it's in a prime location? That's typical weekly sales for a moderately busy coffee shop.

Why would OP even be considering this if it is indeed 7000/month?
Deal Fanatic
Sep 23, 2007
5654 posts
2168 upvotes
masoud100 wrote: It seems I guess it would be better to make my own business instead of franchise. I guess costs would be low. I believe I have a perfect vision for a business which would be a restaurant located near downtown with its main goal of being a take-out/delivery joint. The reason near downtown is because you would have a greater population to cater to. Also near downtown lets you expand the business as you have access to the quebec border, east and west highways, and that business can grow very quickly once it gets settled due to location.

Anyone know where to search for places to build your own restaurant.

A commercial realtor can help you find a location. Location is definitely the most important thing in my books for a restaurant. The easiest would be to find a vacant spot. However, when you think about it, a vacant spot is probably a bad spot. If business was good, the owners wouldn't have closed down right? If you're serious about a good spot, you're probably looking at business takeover. Basically you find people who put up their business for sale. You pay them a sum of money to vacate and depending on the terms you may get their equipment/inventories. At the same time you need to work with the landlord. Very often the landlord can raise the rent. Unlike residential tenancy, there's no regulation on commercial rent amounts.

Doing it yourself vs doing a franchise will definitely lower the startup costs. The major downside is simply reputation, and marketing. Franchises have an established brand and you're basically paying for the right to use that brand. Some franchisors can also help you find locations.
Newbie
Jan 17, 2014
50 posts
5 upvotes
roosterOON wrote: Just wondering if your lease has ever been renewed, I am sure there a lot of people willing to pay twice or triple of what you are paying now for the location, if sale grossing 45k per month. By the rule of thumb, you should be making around 20k net profit per month.
Yes, i renewed last year and took on more space, i now have another 5 years with 2 five year options, minimal increases.
Not sure whose 'thumb' you are referring to but expected net profit is 15%, industry standard. Closer to $6800 net per month.
Keeping a close eye on all your percentages is very important. Cost of goods 40%, labour max 25% ( I hold mine at about 22%), rent around 7%, etc
Going over dramatically in any one area can kill a business, especially when your net, before taxes, is only 15%, on average.

Location is key and can make or break you but even if you only have a mediocre location, a really hood product or service can pull people to you. Focus on your brand, what unique qualities you can bring and never, ever sacrifice your vision
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
BarryY218 wrote: Bull*****. I am in a prime location in kelowna, corner unit with a patio, 1850 sf, sales grossing 45k per month and my rent is 3000 per month. Unless you are in a location that can gross 60k+ per month your rent should not be over 4k per month. If you are paying more you did not negotiate hard enough. I am looking at another nice location that should do about 30k per month but I will only sign if I can negotiate around 2500 rent per month. If I cannot get that rate I will walk away. There are many horror stories about businesses that pay way too much on long term leases and go under and are stuck in useless leases. Stick to your guns and only settle for what your business can pay and only sign for 5 years to start.
yeah, well $3000 a month is more realistic than $7000 a year in rent. i don't know much about kelowna.
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
roosterOON wrote: Just wondering if your lease has ever been renewed, I am sure there a lot of people willing to pay twice or triple of what you are paying now for the location, if sale grossing 45k per month. By the rule of thumb, you should be making around 20k net profit per month.
yeah i dont know much about kelowna. but pretty sure people on queen street in toronto are probably paying about 3x times that if not more and probably grossing a tad bit more to break even.

$6000 profit for a coffee shop after expenses/wages, is pretty damn good.
Newbie
Jan 17, 2014
50 posts
5 upvotes
daivey wrote: yeah i dont know much about kelowna. but pretty sure people on queen street in toronto are probably paying about 3x times that if not more and probably grossing a tad bit more to break even.

$6000 profit for a coffee shop after expenses/wages, is pretty damn good.
Kelowna is an and coming market in BC, high real estate calues, beautiful weather, mild winters. Lots of retirees and lots of tourism. No major industries but lots of coffee shops, restaurants, tourism based attractions, a huge set of lakes. Lots of $$$ flow through the area but it is a tough market. Rents can be expensive but are certainly nothing like robson street in vancouver or yonge in toronto.
My advice? Stay away from those places. Find a good location in a smaller center or on a major traffic/pedestrian route depending on your business. Open in an area you know, one that is vibrant and growing. You dont need 100000 cars or oeople going by every day. You need a niche where a few hundred come in your door, thats it.
Penalty Box
Dec 27, 2013
8003 posts
4050 upvotes
Toronto
BarryY218 wrote: Kelowna is an and coming market in BC, high real estate calues, beautiful weather, mild winters. Lots of retirees and lots of tourism. No major industries but lots of coffee shops, restaurants, tourism based attractions, a huge set of lakes. Lots of $$$ flow through the area but it is a tough market. Rents can be expensive but are certainly nothing like robson street in vancouver or yonge in toronto.
My advice? Stay away from those places. Find a good location in a smaller center or on a major traffic/pedestrian route depending on your business. Open in an area you know, one that is vibrant and growing. You dont need 100000 cars or oeople going by every day. You need a niche where a few hundred come in your door, thats it.
yeah for sure.

how much did it cost you to get the place started/up and running?

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