Franchise Worth The Risk..?

K

kearnsey11

Guest
Hi All,
I am 25 yrs old and am currently working in the corporate world. I have been looking into franchising for some time now and believe I have found the franchise that would best suit my talents (University educated in both IT and Entrepreneurship).
The franchise is an Internet Marketing (Consultancy) franchise.
I do however have a big concern in terms of financing the purchase of the franchise and I'm hoping some of you experienced people might be able to help me out. So, here's a snapshot of my financial situation today:
Savings - 0
Investments - 0
Bank loans - €9,500
Credit Card - €1,700
The cost of the franchise is approx €50k. I have no capital available for a down-payment.I have yet to approach any financial institutions about financing me.
If I were to go ahead with this I would attempt to repay the loan within the duration of the franchise agreement (5yrs). This means that I would need to meet average monthly repayments of approx €1,500 per month.
Am I crazy thinking I can make this work? At a rough estimate my average monthly expenses would be €4,300 including making the loan repayment and paying myself a salary of €2,000pm (any less and I might as well stay in work, because I almost make this as it is).
I was told by the franchisor that on average a franchisee can expect to make 2/3 sales per month, if that were the case, going by the average net profit they mentioned I could expect to take in between 7 and 12k per month depending.
Any advice, tips, etc? Your comments would be appreciated.
 
In my opinion you would be crazy to get into a speculative business proposition (even one backed by a franchise operation) with those debts and no finance/assets behind you. Clear your debts first and maybe save some money before thinking of going into business.
 
In a word.....yes. If you are willing to take a risk like this with no funds. Why not try and do it yourself from a cold start. start up costs would be probably minimal. forget franchise. see if you can get clients on board and are cut out for this industry.
Also if you are setting up a business and straight off you are going to be paying yourself a salary ok 2k a month no matter how little it sounds i think you probably have the wrong attitude to own your own business. you wont just set up and cover all your costs and pay yourself a good wage. (its not like in the books ...entrepreneurship that is...alot of businesses fail and they are there to encourage you to set up) making an investment like this in your first business with no idea of how you are going to make a profit (other than the 3 or four sales that the franchisor told you!!! (not a great starting point!) you would get ..you are crazy. just my opinion. on the other hand you may be the next bill gates.......?
 
Never take the advise or word of the master franchisor, his product is the franchise that's what he is selling and like any "good" salesman he will dress it up as best a sale as possible. If you're considering setting up yourself meet other sole traders/single operators and expect to make little or nothing for 6-12months. 2kpm is a lot of money to generate, for that kind of wage you'll have to make a large multiple of it e.g. pub/shop would probably need 20kpm to give a 10% return (2kpm).
Don't go into business blindly its a lot tougher than the salesman will tell you, for those 2/3 sales you may have to make 200/300 cold calls and expect to meet 20/30 people.
If you're really convinced on the service, research research and expect 100 hour weeks from the start.
Met other franchisees and not the ones the MF recommends.
Talk to other franchisees of other outlets: O'Brien's/Cartridge world etc.
Just stop and think for example what you would buy for 50k, what business would cost that much and give you a return of 2kpm thats 24kper year, for that kind of return you would be expecting to pay at least in the 100k+ range and possibly higher.
If you know people working for themselve sit down and chat, don't go blindly into the light.
 
Where are you going to get the 50k from?

A bank probably won't give it to you unless you have a house or something to secure it against.

Why not start small, and do it in your spare time. If it takes off, then you can give up the day job.
 
I have been thinking about doing something myself to get out of the "multi national job" and thought a franchise might be the best option. I'm glad this post has started because all I read everywhere is great things about franchising and how safe it is and to be honest I find it hard to swallow.

What I've been thinking about is a B2B service but something that concerns me is the restrictions imposed by the franchise system to respond to competitors in terms of services and cost.

Are there any franchisees on this forum that could give real life experiences?

There was a post recently about another franchise, snack food i think and it did not make good reading
 
There is a franchise show on soon in the RDS I think.
 
Thank for all your comments, all appreciated.I have decided to delay making any decision until Feb of next year. This will give me time to try and get my finances in a healthier situation.I intend to use this time to thourghly research the franchise, speak to as many franchisee's as I can find myself and possibly to work with one of these franchisee's voluntarily for a few days to get a feel for it.
 
And maybe find out the company name they trade under and get their accounts on the cro and see are they actually making any money
 
Check out Also try to get hold of a UFOC which will really give you the low-down on the franchise. A lot of this info is available searching through the site above. Franchises are not what they're cracked up to be. Less than 37/1600 have over 100 units and been in business for over 7 years. Tread very carefully.
 
kearnsey11 said:
Hi All,
At a rough estimate my average monthly expenses would be €4,300 including making the loan repayment and paying myself a salary of €2,000pm (any less and I might as well stay in work, because I almost make this as it is).
I was told by the franchisor that on average a franchisee can expect to make 2/3 sales per month, if that were the case, going by the average net profit they mentioned I could expect to take in between 7 and 12k per month depending.
Click to expand...

You are planning on paying yourself 2K plus the loan repayment of 1.5K per month. So you are calculating opertating expenses of 800 per month (4300 - 3500). Unless this is a business you can do from home with no staff except yourself, you havent left alot of money for actually running the business (rent, light, heat, stationary, phone etc...). If this is a business you can run from home then what are you paying the franchiser for (assuming that the 50K start-up costs are to pay the owner of the franchise).

Franchise owner has told you to expect between 7-12K per month, this seems like an awful lot of money for a 50K investment. If a business was taking that much how come the franchise cost is so low.

You need to ask your self alot of questiosn before you plunge into this. Dont take the word of the person selling you something, do the research for yourself. Look at their accounts to see how much their brand name is worth I presume they have some sort of proof that their name is worth the money. Some franchises offer you nothing more than their name and a start-up pack which isnt much use for 50K unless the brand name really is strong.
 
My two cents worth:

1). From your snap shot your not particularily good with money, start putting at least 10% of your income into an account you can use to follow your dreams and invest.

2). Internet marketing is very fickle and to earn that kind of revenue you would want to be extremely savy. To me it sounds like the proposal is better for the franchisor. Ask them if they'd consider vendor financing your operation and see their response. Despite what people think this can be done, i speak from experience.

3). Talk to every other franchisee the franchisor has. Ask about their income streams, frequency, would they take out a franchise knowing what they know now.

4). Does the franchisor give you a system /product to sell AND a proven method by which to sell it? And if so why do they need you specific circle of competitence?

The franchise show is on in the RDS this FRi/Sat 17/18 Nov. This will have lots of valueable info about the world of franchising.

Hope that helps
 
I have been in the Internet marketing/consulting game for a long time. I do not think a franchise is a flier. I certainly cannot see how they can deliver 50k of value to you. I guess it is possible, but I don't see it.

2 or 3 sales a month? At 4k each? How exactly are you going to do the work after you've sold it?
 
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