Becoming a Franchisee

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justsomeguy2018
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Becoming a Franchisee

Post by justsomeguy2018 » Sat Feb 09, 2019 4:03 pm

Hello Bogleheads,

I've been thinking about retirement income streams, or semi-passive income streams. Almost like a diversification strategy for income in case of hard times.

Has anyone ever owned and operated any franchises, or know if they are good investments? I feel like in the past if I ever knew of any franchise owners (e.g. McDonald's or Sonic or convenience store), they were always pretty well off. Of course, maybe they were well off to start with. I would not want the franchise to become my full-time job, more like a side job for passive income streams.

Any opinions on this? I guess a franchise could include non-restaurant franchises as well.

fabdog
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Re: Becoming a Franchisee

Post by fabdog » Sat Feb 09, 2019 4:12 pm

I have never been a franchise owner.

one good piece of advice I have seen is if you are thinking of buying one, go to work at one of their locations for 2 weeks and see what it's really like.

It's not clear to me that buying a franchise expecting to generate a nice side income without running it is realistic since you'd need to pay someone to run it well for you and not clear how much you'd clear after that

I am sure you can find folks who have done quite well, and folks who have lost their shirts

Mike

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EddieGee
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Re: Becoming a Franchisee

Post by EddieGee » Sat Feb 09, 2019 4:15 pm

A franchise is a BUSINESS (as in an enterprise which must be run by a boss), NOT a passive investment that throws off income with no effort on the owner's part (like a T-bill or a CD).

Franchisors like McDonalds or Sonic provide you with a prepackaged business model so you don't have to come up with your own menu, means of cooking, etc.; and of course they provide a well known brand name. In other words, they provide know-how and marketing. Still, if you become a franchisee, you have to run your restaurant or store or whatever yourself. Perhaps you can hire a manager but it's still up to you to find the right person, train them, and be sure they are doing a good job and not ripping you off. When someone is running a business for you, you still can't just walk away and hope they are acting in your best interest.

So don't think you can just buy a franchise, sit back on the sofa, and watch the dollars roll in. It doesn't work that way. Ask anyone who owns a business, whether franchise or not.

Shallowpockets
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Re: Becoming a Franchisee

Post by Shallowpockets » Sat Feb 09, 2019 4:28 pm

I don't think to many franchisees make that much money. Only if they have multiple franchises. But, I'll bet they work like dogs. After all it is your business and you are the one to make it work. So think 24/7 of thinking about it.
The buy in alone is tremendous and the assets you need are on a scale to be enough for retirement for many people. Then again, you could buy in on a smoothie franchise or a gym franchise. Those are the sorts of things you go belly up on sooner (hopefully) rather than later.
A casual income source from a franchise is a pipe dream.

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justsomeguy2018
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Re: Becoming a Franchisee

Post by justsomeguy2018 » Sat Feb 09, 2019 4:30 pm

To add: I would run the franchise in the sense that I could handle marketing, supply chain, analytics, etc., but as far as having a physical presence at the franchise during the week, I don't think that would work for me because I wouldn't want to quit my day job (at first, at least) for the franchise.

mrsbetsy
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Re: Becoming a Franchisee

Post by mrsbetsy » Sat Feb 09, 2019 4:35 pm

We have a franchise. It's a 10 year agreement. There's no way the margins are good enough to run passively. After 5 years, we now have staff, but it still requires managing it.

That said, my husband is the happiest he has ever been in the 30 years we've been married. He loves running it and loves the unlimited support he receives.

But, it will never be passive income.

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abuss368
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Re: Becoming a Franchisee

Post by abuss368 » Sat Feb 09, 2019 4:43 pm

I did accounting, tax, and consulting for franchisees for many years. Anything but easy. Extremely high stress, risks, and it is not the model it was years ago.

I would rather invest and own real estate or index funds.
Last edited by abuss368 on Sat Feb 09, 2019 4:53 pm, edited 1 time in total.
John C. Bogle: "Simplicity is the master key to financial success."

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abuss368
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Re: Becoming a Franchisee

Post by abuss368 » Sat Feb 09, 2019 4:46 pm

With McDonald's you are buying (investing) in the cash flows and lending against the cash flows. You do not own the real state.

McDonald's (and many people do not know this) is not a burger and fries company. McDonald's is a real estate company.

There are a lot of franchises where one is buying a job. Same income as having a job. Higher risk than a job as the franchisee can be sued on a variety of fronts. Risk adjusted income does often not make sense.
John C. Bogle: "Simplicity is the master key to financial success."

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Sandtrap
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Re: Becoming a Franchisee

Post by Sandtrap » Sat Feb 09, 2019 4:48 pm

justsomeguy2018 wrote:
Sat Feb 09, 2019 4:03 pm
Hello Bogleheads,

I've been thinking about retirement income streams, or semi-passive income streams. Almost like a diversification strategy for income in case of hard times.

Has anyone ever owned and operated any franchises, or know if they are good investments? I feel like in the past if I ever knew of any franchise owners (e.g. McDonald's or Sonic or convenience store), they were always pretty well off. Of course, maybe they were well off to start with. I would not want the franchise to become my full-time job, more like a side job for passive income streams.

Any opinions on this? I guess a franchise could include non-restaurant franchises as well.
I have built many types of franchises and known many owners and owner/operators.
A franchise is a business and as such demands more than a full time commitment of time and resources to make it succeed.

The diversification of income stream strategy is a good one whether there are "hard times" or not.
If a "business" is to your liking, then; R/E income property, or something related to your skillsets and/or current employment.
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Mike Scott
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Re: Becoming a Franchisee

Post by Mike Scott » Sat Feb 09, 2019 5:06 pm

The people I know in the fast food and convenience store franchise system work like dogs for fairly modest pay checks. One who has a couple dozen locations makes a lot of money but still works nearly 24/7. It's not passive, but I would think owning some rental property or selling real estate or something would be more of a part time job model. My FI / retirement goal is to have enough truly passive income that I can spend my time as I please even if it turns out to look a lot like work some days. I like having choices.

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StevieG72
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Re: Becoming a Franchisee

Post by StevieG72 » Sat Feb 09, 2019 8:47 pm

Franchise owner here....

Avoid if you are looking for passive income.

Many franchises are money pits. Look at www.unhappyfranchisee.com for some examples.

It requires full time attention and is basically like buying a job.
Fools think their own way is right, but the wise listen to others.

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justsomeguy2018
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Re: Becoming a Franchisee

Post by justsomeguy2018 » Sat Feb 09, 2019 8:59 pm

Thanks for the replies.

This was the kind of input/feedback I was looking for.

staythecourse
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Re: Becoming a Franchisee

Post by staythecourse » Sat Feb 09, 2019 9:04 pm

EddieGee wrote:
Sat Feb 09, 2019 4:15 pm
A franchise is a BUSINESS (as in an enterprise which must be run by a boss), NOT a passive investment that throws off income with no effort on the owner's part (like a T-bill or a CD).
Agreed. Of ALL the ideas of parttime income in retirement franchise ownership would be DEAD LAST. Way too much work. If you want part time work just drive for uber. Gets you out of your house to socialize, you decide when to work and not, make some extra money, quit whenever you want, no upfront cost, etc...

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

zlltt
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Re: Becoming a Franchisee

Post by zlltt » Sun Feb 10, 2019 12:21 pm

Can I get a loan from bank or credit union as a Franchisee?

Is it usually small business owner do, found a small LLC or S corp. Take a loan from bank and run the business.

So at most if the business go south, you don't need lose your house. Or my house have to be mortgaged to bank?

people without house still could get financed from LendingTree.

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