Many paths lead to financial abundance and lifelong freedom. At Confident Money, we know it is more a matter of choosing the route that best fits your natural talents. Next to saving, investing, and earned wages, starting and running a small business is the most common way to millionaire status and beyond.
Of course, the easiest way to get a jump into a successful business is to buy a franchise. With this one purchase, you can obtain an established national brand with time-tested systems and processes. Statistics show that 50% of new business startups fail within 4 years, but franchise businesses only have a 4% failure rate within that time period.
Those of us unfamiliar with franchises envision ourselves making a great deal of money while we do little to none of the daily work involved in running our business. The daydream about the business, however, differs significantly from the physical and financial reality franchisees experience.
I recently had the pleasure of meeting David and Deanna John of Austin, Texas; An amazing couple who worked their way up to owning and operating over 30 separate Subway Franchises in Texas at one time. They recently sold their franchises, retired, and now enjoy traveling around the world.
I asked David what were the things a novice, perspective franchise owner should know before purchasing. The following 5 tips he gave me will impart to you some realities of being a franchise owner.
David John’s Five Pre-Purchase Franchise Business Tips:
To be successful, you must be involved in the day-to-day business of your franchise: A good store manager can do a lot for you, but is never a substitute for you as the business owner. The owner is responsible for providing financial oversight, monitoring customer service feedback and assuring the quality of the products served meet the brand’s standards. Additionally, it is the owner’s responsibility to make sure sales are meeting or exceeding the owner’s and corporate franchise’s expectations. Not only that but good relations with vendors and the corporate franchise office must be maintained. Finally, if the business is unexpectedly shorthanded, the owner must sometimes fill the critical employee slot for the day.
A prospective owner should first have been an employee at a franchise: According to David, this is the only real way you can fully understand how the business operates. Working inside a franchise provides the best path to understanding how the company’s product is sourced, created and sold to customers. You cannot provide proper oversight to any business you do not fully understand.
Don’t ask your employees to do anything you haven’t done: It is disingenuous to ask your employees to do a task you would bulk at when you worked as an employee. It is also critical they know that you understand how important their work is to the store’s overall success, and will build credibility with both the manager and your employees.
Talk to other franchise owners before you purchase a franchise: Only by talking to other owners will you learn about the true challenges and advantages of working within any particular franchise system. Also, it is the only way to determine what level of corporate support is provided.
Understand the financials before you make a franchise purchase: The “franchise disclosure document” contains the financials and must be provided to prospective buyers at least 14 days before an agreement is signed.
Here is a quick summary of the Subway financials according to subwayfranchise.com:
A franchise agreement is in effect for 20 years.
Expect to pay $15,000 for the initial franchise agreement.
The estimated initial investment for a Subway restaurant ranges from $229,050 - $522,300 depending on building size, market, and local real estate prices.
An additional $10K to $20K is required for various unexpected expenses.
The ongoing royalty fee is 8% of gross sales.
An ongoing advertising fee is charged by the franchise office of 4.5% of your gross sales.
You must have restaurant or business experience to be eligible to purchase a Subway Franchise.
The average Subway generates around $400K in annual revenue and generates a profit margin of around 22%. Franchisees earn around $72K per year.
As you can see, the life of a franchisee has both advantages and disadvantages. The success rate for a franchise is certainly higher, but the financial obligations to the corporate office is always ongoing. Different franchises, of course, have different start-up costs and expenses. Some franchises provide better support to the franchisees than others. The idea of sitting at home while your franchise makes lots of money is now, hopefully, dispelled.
My improved comprehension of the realities of franchise ownership leaves me in awe of David and Deanna John’s amazing accomplishment to have owned and run over 30 successful franchises at one time.
Larry Faulkner
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