January 2015 Archives

Where to begin? That's the problem for so many people when they think about starting a business, or buying a franchise.

The crazy thing is that it almost doesn't matter where you begin, as long as you do!

And I don't mean "as long as you do" as a way of saying it's a mistake not to start a business, or buy a franchise. I mean "as long as you do" as a way of saying it's better to find out if business or franchise ownership is for you than to continue wondering about the possibilities until it's too late.

BEGIN HERE

Should you or should you not start a business or buy a franchise? Why not begin there? It's as good a place as any, and thinking it through won't cost you any money!

People seem to assume that they can start a business or buy a franchise. It's easy enough to do either, but that doesn't mean you should. Even if you have the money, and even if you have a great education, it doesn't mean you're cut out for business ownership.

WHAT ARE THE QUALIFIERS?

Some of the wealthiest people have failed at owning a franchise; and some of the smartest people have done some of the dumbest things while owning a franchise. So money and education are not necessarily qualifiers.

What is?

Skills!

That's another good place to begin. Do you have the skills to start a business or to operate a franchise? Let me tell you: Most people do not!

CAN'T TEACH THIS

Of course, (most) skills can be learned, and (some) franchisors teach franchisees the skills they need, but there's one skill in particular that can't be taught. I'll tell you about that in a future article.

If you want more great tips on how to be a savvy franchise buyer, then click here.

I wrote this article late in 2011. Given the recent lawsuit between Wendy's and DavCo, it is worth revisiting. This is a perennial issue, the contractually required upgrade.

"Remodels and upgrades are always a bone of contention between a franchisor and franchisee. Older units in a system rebel against a forced upgrade, sometimes correctly guessing that a fancier unit will not be profitable enough to pay for the upgrade and maintain a healthy return on investment.

So, it very surprising to see the new management of Burger King to encouraging this rebellion amongst its franchisees.

Burger King still owns and operates 1295 units, world-wide, mostly in the US and Canada. Before BKC was acquired by 3G, one of the due diligence concerns known to everyone in the restaurant sector was that Burger King units, both company and franchisee operated stores, were in need of remodel and store physical plant renewal, estimated then at $3B.

If all BKC company stores were remodeled at BKC's just updated cost of $200-300K per store it would require $3.2 billion, the "CAPEX" tab that needs to be funded. (This remodeling deficit itself was a partial legacy of the prior private equity owners, Bain Capital/Texas Pacific Group/GSCG PE group, which took Burger King public in 2006.)

3G has swept out the prior Burger King executive management clique, set up a loan program for franchisees, changed ad agencies and marketing thrust, and rolled out new products. Company EBITDA dollars are improved.

It would be reasonable to think that this improvement would find its way back to the corporate stores.

Especially with the NFA, the Burger King Franchisee Association, watching every move carefully. After all, if BKC doesn't think that all of its units ought to be upgraded, NFA will argue the same point on behalf of some of its members.

And we learned more about 3G's intentions for Burger King. On Thursday, November 10 2011, Burger King held its Q3 2011 earnings call and filed its 10Q with the SEC.

Company and debt tolerance conditions are apparently "favorable" enough for its PE owner that it is now working a $393M dividend payable back to 3G Capital, by December! Despite BKC needing $3 Billion to remodel, 3G wants return of capital first.

The wording from the fall 2011 10Q is below:

On October 19, 2011, the Board of Managers of BKCH approved a distribution to Parent and, subject to such distribution, the Board of Directors of Parent approved a return of capital distribution to the shareholders of Parent, including 3G, in the amount of $393.4 million, representing the net proceeds from the sale of the Discount Notes, payable by December 16, 2011, provided that the Board of Parent does not act to revoke its decision to declare the return of capital distribution prior to the payment date.

3G is taking the cash out, and not putting it towards remodelling or upgrading its corporate stores in North America. Time will tell if this strategy encourages compliance or dissent amongst the North American franchisees who are going to have to remodel."

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Is a Subway Franchise a Good Investment?

It's one of the most popular questions for every experienced franchise author/speaker. Perhaps because it's the largest franchise in the world (in terms of units, not retail sales), people want to know if a Subway franchise is a good investment.

And because many of my readers and seminar attendees know that I wrote Start Small, Finish Big with Subway's co-founder, and I sold a major franchise business to him, they think I have special insights about Subway. Really, I don't.

"Is Subway a good franchise investment? . . . Can you help me get one?"

While those are important questions to ask about Subway, they are important questions to ask about any franchise that you think you might want to buy.

In answering the questions, here's what I tell people.

Subway must be a good franchise investment for some people because many of the franchisees have been with the company since almost its inception, and (now answering the second question) it seems impossible to "get one" in the USA.

Of course, neither answer is really what you want to know, but you're not asking the right person!

If you really want to know if Subway is a good investment, franchisees are the people to ask. They can also tell you how to "get one"!

You can easily find Subway franchisees either by looking into the company's disclosure document (where you'll find their contact information), or simply stopping at a Subway and talking to a franchisee.

Franchisees are usually willing to discuss their experiences with prospective franchisees, and if they have insights as to how to "get one" they'll tell you. However, it seems to me that few Subway franchisees own just one unit -- they own multiple units (it would be a good idea to ask them why) and so they may not be too eager to help someone buy a unit unless it's far from where they'd like to own another one.

For those of you (and there are many) who would like to skip the start-up phase of business and buy an established franchise, that may be easier to do with Subway, except that the existing franchisees get first dibs on available units. And that's because a franchisor would rather sell a unit to an experienced franchisee than to one who knows nothing about the business.

Meanwhile, you're asking the right questions, and keep in mind that there are at least 2,500 franchise concepts in North America alone looking for new franchisees . . . don't limit your questioning to Subway. Ask the same questions of other viable concepts such as those included in my most recent eBook: 12 Amazing Franchise Opportunities for 2015.