Photo Credit: http://www.eightsolid.com

In June of 2003 I opened my first franchised pizza store here in Michigan. I went into partnership with my best friend from college. We had worked for 18 months planning our business, finding the perfect location, learning about the pizza business (him a lot more than me, as he went through the training program), etc. Our timing could not have been better! We opened with a bang, were having a lot of fun, and making some pretty good money too.

FAST FORWARD A COUPLE OF YEARS…Me and that same partner have now purchased a 2nd pizza store franchise from a struggling franchisee. We have went into partnership with his father on two sandwich shops and a “Starbucks type” coffee franchise…(but much cooler than Starbucks!) ANYWAYS…My partner lost interest in the pizza business. He was married now and the late hours sucked for him (besides, he was a morning person anyways…he loves to get up at 4:30 AM to go bass fishing, crazy, I know!) This love for the morning made the coffee business a perfect fit for him, but the bottom line is that the pizza stores were going down hill and he wanted out.

In 2005 my younger brother and I bought him out of the two pizza franchises, and my brother took over the day to day operations of the stores. He was just out of college, and had no trouble putting in the long and late hours of the pizza game. In less than a year, sales were up 20% at our original store, and 40% at the second store that we purchased. They were highly profitable again and life was good.

In 2007 we were approached by another franchisee who owned 3 pizza stores in Michigan. He wanted to buy our stores. He paid a lot less than we had originally wanted, but we eventually sold him the stores and walked away with a nice profit. This franchisee now had 5 pizza stores in Michigan. I don’t know the story, or what happened, but that guy who bought our pizza stores closed up all 5 of his stores about a year later. Which leads me back to the title of this “long winded” post…Is a Pizza Franchise a Good Investment? THE ANSWER, IT DEPENDS!

In the town I live in, we have seen about 10 pizza stores close over the past two years.  I believe this is directly related to the $5 Little Caesars “Hot N Ready” Pizza.  It is hard to compete with a OK pizza for $5 in Michigan, even if you are selling a GREAT pizza for only $10.00.  Little Caesars has changed the industry here in Michigan for sure, and probably in other states too.  So in the Mid West today, I would be very cautious about investing in a pizza franchise! 

Depending on where you live though, population density, competition, average age, and number of households…a pizza business can be very fun and profitable.  You REALLY have to do your homework though.  There is TONS of data that needs to be sifted through in determining if any restaurant will be successful in a given town.  I’ve developed a system to try to figure that out.  If you are ever considering a franchised restaurant, zip me an e-mail, and I will try to help if I can!

Happy Easter! -B

I know for a fact that there are a TON of you out there asking yourself this question right now…Should I buy a franchise?  So many folks are losing their jobs and getting laid off, it generally causes most all of us to consider “going it on our own!” 

Being your own boss is great, but to be honest, you will probably find yourself doing double the work for half the pay if you are not CAREFUL…and that is not an exaggeration at all.  I TELL YOU THIS, NOT TO SCARE YOU, BUT BECAUSE YOU MUST CHOOSE A GREAT FRANCHISE SYSTEM IF YOU WANT TO BE SUCCESSFUL…AND THIS IS HARD, BECAUSE THERE ARE LITERALLY THOUSANDS OF BAD FRANCHISES YOU CAN INVEST INTO.

Keep in mind that with a franchise, you are in business for yourself, BUT the Franchisor can and will control how you do business.  For a successful and proven franchise system…this is great!  You get the benefit of their proven money making system! 

For a new franchise company that is still working out the bugs, this can be a nightmare!  They will force you to spend money and do things that they THINK will make you successful.  But often times those things will not work and they are learning their business on YOUR DIME. 

Franchising can be an amazing tool to financial freedom, BUT BE CAUTIONS, because there are very few truly good franchise systems out there!

To learn more about franchising, visit http://www.bfranchise.com This is my secret little place to riff and rant about franchising in general. ]]> http://www.thealmostmillionaire.com/should-i-buy-a-franchise/feed/ 38 http://www.thealmostmillionaire.com/franchising-for-cash-flow/ http://www.thealmostmillionaire.com/franchising-for-cash-flow/#comments Thu, 26 Mar 2009 02:09:14 +0000 Almost Millionaire http://www.thealmostmillionaire.com/?p=160

 Over the past 5 years I’ve had the opportunity to buy, operate, and sell five franchised restaurants.  The restaurant businesses, and specifically franchised restaurants, have provided significant additional cash flow for my family (on top of my earnings as a financial advisor 2002-2006, and VP @ Private Equity firm 2007-present).

I think the key is to realize that 9 out of 10 new business ventures fail in the first 12-18 months.  Conversely, a franchised business (franchised from an established, proven company) generally has a 90% chance of surviving that first year, and a 75% chance of surviving and/or thriving for up to 5 years.

The second key point is to understand the difference between franchises that require the owner to operate them day in and day out, and franchises that are designed to be operated by a manager and not requiring 8 hours of “on site” time from the owner.  I’ve confused these two in the past and it has cost me dearly. 

If you desire additional cash flow, you need to find a franchise concept that is designed to allow the owner to maintain their current career, but to “support and assist” a manager at their franchised business.  This is important, because if you purchase a franchise that is designed to have the owner live there, you have simply bought yourself an expensive job.  It will own you, you will not own it!

The key point of understanding a franchise as an investment is to employ the concept of return on equity.  Let’s say you purchase a hair care franchise for $100,000.  With good credit you generally will need to come up with $20,000 of your own cash (you, family, friends, etc.)…and a bank will usually give you the other $80,000 spread out over a 5 year repayment term.  If you hire a great manager your store may be profitable that first year.  To illustrate, let’s assume your store did $200,000 in haircut sales that first year.  You paid your manager, your employees, your rent, your supplies, utilities, franchise fees (royalties), taxes, interest on your loan, etc.  Then your accountant tells you that you have $20,000 left over at the end of the year…your profit!  You may look at this and say, “Wow, I made a 20% return, because this hair care place cost a total of $100,000…Great!”  But from the standpoint of Return on Equity, you have actually made a 100% return on your invested dollars!  The actual equity that you have into your business is only the $20,000 that you had to come up with to secure your $80,000 bank loan.  $20,000 invested, $20,000 profit, 100% annual return.  (If things go well…and there is a lot that can go wrong!  This is not for the faint of heart, no matter how much you like a franchise.)

Buying a franchise is a HUGE decision.  I have bought, operated, still operate, or have sold 7 franchised businesses here in Michigan.  I’ve also done EXTENSIVE research on over 100 different franchise systems.  In addition to these items, since 2004 I’m operated a highly successful Franchise Management and Consulting business.  I’ve signed good franchise agreements, and I’ve been suckered into bad franchise agreements.  What I’m getting at is that basically I’ve see it all and I believe that I can add SIGNIFICANT VALUE to ANYONE who is considering investing their hard earned dough into ANY franchise system.  I blog and/or rant about franchise issues every now and then at BFranchise.com

I’ve done my research.  There are literally tens of thousands of people EVERY DAY who are searching the web for reliable, 3rd party information about the franchise industry.  The only stuff that I’ve found is from franchise sales people…hardly non-biased!  My E-book is going to be a MUST READ before you sign any type of franchise agreement.  There are just so many important questions to ask and facts to verify before you take the plunge, and I have found NOTHING online to help folks.  My information is going to guide them through this process. 

I’ll keep you posted on how things are coming along.  I’m expected this to be about a six month project…I really want to do it well, yet I have no idea how exactly to write and format an E-book.  I’m assuming I’ll just start with an exciting Word document and go from there. 

Let me know if any of you all have went down the E-book path, and how things are going.  I ALWAYS appreciate the support, comments, and feedback…and am always happy to return the favor.  So if you need anything, drop me an e-mail.