Since you are too lazy to actually click on my link about what a franchised business is and is not-I will cut and paste the post from the other thread.....

What are you buying when you purchase a franchised business?

In short you are buying a brand-The franchisor has a product or service that you believe to be a value to people. The brand has proven to you the concept has staying power and is worthy of your time and money. The franchisor has a system of operation that assists you in achieving the brand standards and to reproduce said product faithfully and consistently. (keep in mind this can be anything from muffler stores to car dealerships to subway shops-these are all franchised businesses). You have come to an agreement with the franchisor that you are capable and willing to faithfully recreate the brands components, the franchisor will provide you with the rights to use the brand and system to achieve the brand standards. Depending on your agreements you will own 1 or 100 or anything in-between (or perhaps even more) units of said brands business locations. In return for this brand you have agreed to pay franchisor "X%" of the top line of your revenues.


What do franchised business owners give up?

Most importantly, independence. You have decided to invest in an existing brand and as such you have a responsibility not only to the franchisor, but also to the other people who like you have invested in the brand. That responsibility includes making your best efforts to faithfully recreate the brands experience: All Cadillac dealers need to offer the CTS model for example-and the experience should be the same everywhere. Every Midas muffler shop, the same experience. Every FG the same as well. As such, the key components of your offering are not in your control-this is the brands purview. You will be told where and for what you are going to purchase your products for resale. The design components and look of your business is also the purview of the brand-

What are the benefits of owning a franchised business?

Lets not discuss the relative benefits of the different brands-that is enough for an entire thread-
As a whole you will benefit from the advantages of being part of a large organization from the perspective of purchasing and the discounts offered a system of the size your brand represents. This will mean everything from your primary product to any ancillary products like credit card services, security services, pest control and perhaps even financing for building your locations. You will have the benefit of the experience of the builders of the brand and your fellow operators to draw upon.

Also, you will have a ready made system to implement that will allow you to scale your business quickly and effectively.

If you are good at running said business-you get to KEEP ALL OF THE PROFITS


What are the risks of owning a franchised business?

Something out of your control in another market can damage the brand and as such your business (someone scams customers at the Midas' in Philly-everyone in the country is now a scammer if you own the local Midas shops).

Management of the brand could lose focus and no longer offer the same quality and the brand will falter(the Pontiac Aztek would be a good example of this).

If your not good at running said business-YOU CAN LOSE EVERYTHING YOU OWN (never had a job where that was at risk)


Are you just buying yourself a job when you buy a franchised business?

In simple terms: Its possible I suppose for that to be a perception, but not if your doing it right. Especially because of the added liability and risk that comes with making this type of investment.

I suspect that most in this forum would agree that Rick Hendrick (owner of Hendrick Motorsports, and owner of one of the largest car dealer groups in the world)doesn't have just 'a job' or that he is an employee of any of the brands his company has dealerships for.

Or former NBA player Junior Bridgeman who owns 120+ Wendy's-did he buy a job, or build a business? Is he an employee of Wendy's or the CEO of his own company?

So the question becomes-when is it a business and when is it just a job? (does the owner of Joes Diner, Joe have a job or a business?)

I understand what owning a franchise is but and your post is basically arguing my position that being a franchisee is being a manager and not a business owner. I'm not sure at all how you disagree with my position except in so much as it hurts your ego that doesn't change that it is true. Unless you have control of the venture you are not a owner just a manager.

In your previous post to Larry Legend you seemed to confuse making money from something = business which is also incorrect. If a franchise is of the profitable kind where you can subcontract the management role to someone else the investment stops being a job but it doesn't become a business any more than collecting $250,000 in dividend distributions would make the recipient a business owner.

As for how many small business owners make over $200k the answer is all of the ones who are not failing. Small business is not actually that small but we typically refer to micro-business as small business which is likely what your thinking about. For micro-businesses it is hard to say because stats in that area are all muddled by people who are actually just unemployed but choose to delude themselves that they are self-employed. I'd say most successful b2b micro-businesses with more than 10 employees the owner makes over $200k although a portion of that will be represented as an increase in the value of the business itself.

Grunching a bit.

But am I right when I conclude that 90% of restaurant franchises out there are low margin businesses where the owner can't really replace himself with someone else without substantially reducing his ROE?

I have this nagging suspicion that even a McDonalds franchise is not worth it unless you get a real premium location. I'm thinking the "attractiveness" of having a franchise is priced into the cost of getting in, and it isn't really "worth it" unless you get in early and nab up great locations at a lower franchise buyin cost.

Wow-continued baseless assertions and ridiculous statements

Outside of the Menu and the trade dress at FG what is it that we don't control? Site selection and development, pricing, staffing, insurance, vendor relationships are among things that are under our purview. Also-what is it that my partners and I are going to sell when we decide to exit this operation? A job or a business? As far as I can remember there is no value in a job-but a business caries value-hence our ability to sell this asset (are any jobs defined as assets?, no) Your assertion that this investment becomes a dividend is as ridiculous as the previous statement.

Please show me some sort of documentation that all small business owners make over 200k. What do you define as a small business vs a micro business?
LOL-go ahead and just continue to make stuff up-this is completely baseless.

Ill help you out here with some real documentation......

According to the Houston Chronicle the average is under 100k......

http://smallbusiness.chron.com/avera...ners-5189.html

According to Business News Daily is 68k (article is 16 months old or so-but should be current enough)

http://www.businessnewsdaily.com/531...-salaries.html

According to payscale.com its 70K and their top number is under your assertion that everyone is making 200k plus......

http://www.payscale.com/research/US/...perator/Salary

and just so we can make sure we understand what a small business is:

http://www.entrepreneur.com/sbe/glance/

this article is about 10 years old-but for the purpose of defining small business we can agree that these metrics have not changed significantly in the last 10 years.


Henry-please give me something to argue besides random undocumented assertions... you really have no idea what you are talking about

I think there is a disconnect here. I am not saying that most small business owners never have to work, or don't work, so perhaps I worded something wrong somewhere. I am saying that the goal of any successful business is to create a vehicle through which their business grows without them having to be slaving away 60 hours a week and the business being dependent on them, and if you are doing that continually after being in business for many years then you don't own a successful business you own a successful job. IMO.

Regardless of whatever you read on the internet, or studies/surveys you want to mention and not cite, this is the reality from my perspective and experience.

A lot of successful small business owners work a lot because that is what made them successful in the first place (and continues to!), among other things, but I would argue that they don't need to be in their office 51 hours a week constantly doing something year in and year out, unless they want to be or they are still in the beginning stages of owning their business or in the middle of a heavy growth stage.

So if the people you know who own a business with 50-200 employees NEEDS to be in their office at all hours and even working after hours, they either like to work, are a control freak or there is a major problem.

I own a small business and while it didn't happen overnight, my entire work day could range from answering a single email as my entire work day when I am "taking the day off", to working pretty much non-stop for 12 hours. The business allows me to make the choice of which day I want to have and will still run without me. If this is not the case for people you know running small businesses then something is wrong, or they are in beginning stages or a growth stage....or just a workaholic. They should constantly be putting themselves out of their own business and replacing roles they do, tasking them to others and helping these people (and everyone) perform their job better.

Edy D,

I am curious. Is this location (the particular space) the only location you are considering? If so, why and what makes it such a strong play?

Are you only considering a single particular franchise?

Can you divulge what the business is?

So other than what the business sells to make money and the environment in which it you do so? That is pretty big but lets see what else is in the franchise agreement.

1) Restaurant size dictated so if you wanted to explore a different format either larger or smaller that would not be allowed.

2) Territory is dictated. You can't just move to where you think it is most advantageous. You can't open any locations outside your territory.

3) You don't actually own a Five Guys -- his is a ten year agreement at which time you have a right of renewal. That is not the same as owning the business.

4) You or a manager in your place is required to operate the business according to Five Guy's criteria provided in the Manuals and these specifications relate to the purchase of all food, food products and beverage items, ingredients, supplies, materials, fixtures, furnishings, equipment (including electronic cash register, computer hardware and software), utensils and other kitchen items and products used or sold at the Restaurant.

5) They own and control all the intellectual property so while there is no specific mention of restrictions on local advertising you are effectively barred from advertising without their consent since own all the marks.

6) You can't expand into tangential businesses -- if you owned the business you could explore selling your sauces or burgers but if anyone is going to do that here it is going to be the franchisor.

Having a territory is not site selection

I didn't see anything about pricing so I'll take your word that you can set your own prices although if that is true that would be very much outside the norm -- every other franchise the prices are set for you. I'm actually really surprised that you have the freedom to price your products at will.

These are managerial

As long as you follow the Manual


You seem stuck on this job vs business dichotomy as if there is no other categories. If a franchise can make money with the managerial tasks subcontracted out then if anything it would be more like an annuity.

Let me give you an example in the same industry -- Works Burger was founded in 2001 as one location -- it expanded to more locations and more cities. Eventually they started selling franchises. By 2010 the owner had built the company into a little burger empire and he sold the whole thing to a bigger player. Can you not see how is completely different than your situation?

Or Weber's also a single location start that expanded to a second location, then a third, and a fourth, then one day I went to the grocery store and noticed Weber brand burgers in the frozen foods section.

It is not my definition but the actual definition and it varies depending on what you are talking about but typically small business is anywhere from $1MM to $25MM in revenue with 25 to 500 employees. The SBA in the States likes to make it much more complicated having a different definition for every industry https://www.sba.gov/sites/default/fi...ards_Table.pdf but just quickly browsing I see 500 employees a lot.

I'm not going to disagree that this is typically not what most people think of when they say small business but that is because most people never deal with small businesses -- they deal with micro-businesses and multinationals. A lot of small business is B2B and of the B2C when the general public deals with them they tend to greatly underestimate the size of the business.

Why are you using crappy articles when the US government actually defines what a small business is?

That doesn't make it a job. It might make it a ****ty life choice but that is a different discussion. The job vs business distinction is all about control over the enterprise.

It also doesn't mean the business is failing. As long as the business is profitable and growing it isn't failing. There are a lot of reasons to keep working crazy hours even when you have plenty of money to hire someone. If you take the money you are making to make the rest of your life easier working 50-60 hours is not a big deal especially if you have a lot of flexibility and a portion of your work is actually a form of socializing. I agree if someone is bent over a forge banging out widgets for 60 hours a week years into the business something is wrong but that isn't typical.

They don't need to work but they still do because it is part of their identity. If you give up control of the business you've given up the ability to take credit for any success the business has -- for driven people that is important.

It sounds like you read that terrible book The 4 Hour Work Week. I'm not going to deny that owners doing too much and wasting their time on things they could contract out to others is a major trap -- that said the opposite is even worse. An owner is much better off working 50 hours a week and taking advantage of services / contracting out the chores in their personal lives.

Someone I will call a family friend owns >10 McDonalds and one of his stores is trying to increase their minimum wage to a point right now where it sounds like the store would be un-profitable. If this happened in all of them it would be really bad.

It is definitely still a profitable business, but no one is immune.

The biggest part of this is that you do not see the forest for the trees....you are correct, I don't own the FG brand in any way, I pay for it. What we do own is an operating company that operates X number of locations for X brands-and running this company is a job-but it really in no way resembles a store managers job-and yes early in our growth as a company, I filled one of the store managers jobs in our system-but just like your example above, that's part of the process, right?

God you're hopeless. I now fully understand why a franchise was a much better option than starting a business for you.

Somehow, knowing that you are frustrated with this gives me small joy-as I feel the same way about your arguments-I'm not even sure you read the entire responses

A franchised business is a business-how is that hard? (yes it is different-but it still is a business)

arguing with you is like trying to grab smoke-instead of responding to my questions you continue to say the same thing in different ways

I'm not frustrated I just don't see the point in continuing a conversation with someone who is as dense as you. Everything you have posted about being a franchisee supports the position that you have absolutely no meaningful control over the direction of the business but you are just too stupid to understand even your own words so this is a futile task.

ahh I see yoda-since you are incapable of expressing yourself-I am an idiot

well played

Grunching after reading op and seeing some flame war:

1. What industry is this? And which company if you can say?
2. Why not just be the bankroll behind this and hire a competent management team? You don't know what you're doing and risking money not knowing what you're doing is stupid.

If your business can't function without you waking up and working all day, it will feel like a job no matter what kind of definitions anyone wants to assign to it which is my entire point.

I don't disagree or have said anything different then this. You just like to argue.

Regarding salary to pay people and reducing your personal profits, you can either afford to or not.

At some point freedom becomes much more valuable then another salary to pay, and you should expect to earn a return on that salary you pay out.

You aren't giving up control. You are hiring people to do tasks you used to. They work for you on top of the management and systems you (should have) set up. If you want to grow a business or start another one you will need to delegate jobs and responsibilities to others. A lot of successful people don't just sit back with one company, they own several and have their hands in other ventures.

I've never read that or any business books cover to cover, though I've bought a bunch with the intention to. My speech regarding putting yourself out of your own business in terms of position/roles is (I believe) a blip from a Richard Branson interview discussing business in Entrepreneur Magazine which I occasionally pick up when flying. Something I was already doing in my own business naturally, but intrigued me to see it conceptualized from someone such as him.

If you were talking about my time management, that's just the stage I am in right now with my business. I can choose to not work for days/weeks at a time, or I can work non-stop. It's a new found luxury but obviously not the long term plan. Pretty soon I'll be working non-stop on our next phase of growth for a bit. You don't go into business to be lazy, that was never my point, though the goal (mine) is to not have to work if you don't want to, and end up in a more passive role.

Jesus Christ. You buy into a franchise because they already have the product, process and systems in place to launch a successful, scaleable business and you buy into that business. Mixing and matching and customizing that process or adding varying products wouldn't work, but that doesn't detract from the fact that it operates as any other business does, its just its own specific (business) model.

If your point is they are a bad move then I might agree with you depending on which one we are talking about.

If you contention that owning locations of businesses that are a part of a larger franchise are not a business you are just wanting to argue (as usual).

~2-4 years poker winnings ($200k) seems like a hell of a lot to drop on this sort of thing. You could quite easily kiss all that money goodbye.

Have you though about getting a job at one of these places to see what it's like on the inside? You could just do a month there, it'd probably be really valuable for you.

Also idk if you've done this already but consider ~50% contingency ontop of what you estimate. Have you thought about perhaps starting off smaller as well? The amount of money involved seems like you're going straight in the deep end. What about a high quality catering van to service the same area?

Have you thought about other ways to spend money like buying your own home if you haven't already?

Look and see if these are all rented out yet, or are there lots of vacancies?

Also, don't go into business with someone you're not 100% comfortable with. It will fall apart at some point in some way.

While I do think most are terrible investments there are some that are actually quite good so I would not say universally that all franchises are bad -- just most.

As to my point about franchise ownership being more like management than business ownership / entrepreneurship you are agreeing with me while trying to disagree with me. The whole point of buying a franchise is to buy into someone else's system of doing things, to buy into their direction, to buy into their business strategy -- you are paying a fee for the right to abdicate all the core elements of being a business owner / entrepreneur. Calling a franchise owner a business owner is the equivalent of calling someone who assembles Ikea furniture a carpenter.

This is stupid, as are most of your pedantic arguments.

I read somewhere that Peyton Manning owns like 30 or so Papa John's locations throughout Colorado. Don't you think he has these under a specific business entity that includes structure and personnel to run the overall chain and oversees the operations beyond where franchise support goes, and beyond the in-store manager and kids making the pizza?

Of course he does.

It is structured just like any other business would be to operate these 30 stores as a business whether it is Papa John's, or if he had created his own pizza chain called "Peyton's Pies". The difference of course is he chose to buy into an existing business who has existing support, name brand, processes, and product. If you don't respect that as much because he did not build a new pizza business from the ground up then that is your issue.

The only way your theory works is if Papa Johns was paying Peyton Manning's company he set up to manage these locations. Obviously, that is not the case.

Henry, making some subtle points with this derail.

He likely has some kind of organization but that has no impact on this argument.

That is a big difference. Also if he just threw some money at Peyton's Pies and let someone else do everything he wouldn't be an entrepreneur then either -- he'd be an investor.

As much as poker analogies suck I'm going to use one here -- Bob loads a bunch of his own money onto a poker site. He then hires a poker pro to tell him what to do on every street of every hand. Bob presses the buttons but all the decisions are made by the poker pro -- Is Bob a poker player?

Yes, he would be a poker player while he was playing poker.

An investor is still in an investor even if his stock broker told him what to buy.

I guess by your criteria, if a home builder develops a neighborhood and doesn't actually physically build every one of the houses by hand, then he is not a home builder.

"hE diDnt bUildz anyyyyything! He pAid pEopLe to d0 iTT!

LOL - I think I'll go back to ignoring your posts.