Why You Don't Want to Be A Franchisee

**rain371** · Jul 20th, 2011, 02:38 PM

Hey everybody,
So when I introduced myself here a while ago I told everyone that I would be becoming a franchisee for a company. Several of you said becoming a franchisee isn't fastlane which I agree with to an extent. So after several months of working with the founder & President of the company it came time to sign the contracts for opening the locations and pay the start up fees. I read through the contracts and a lot of red flags popped up 1) A introductory franchisee cost of 50% profit for the first year (a ****ing joke). I was promised at least 85% in my pocket. 2) Allegedly in the contract they would take 50% and spend it on advertising, accounting, etc... obv. not that expensive. 3) After being promised voting rights and being able to buy 1/3 of the company the contract said they would dictate when and if that would happen. 4) Also in not so friendly terms that if I didn't want to abide by their terms and operating procedure I could hit the road.
The President of this company has been a close friend of mine for years and I am very insulted that they would lie to me about the franchising cost. A positive of this is I figured out the ends and outs of their small business and the many flaws it has. I am tempted to enter the same field of business because it has a lot of potential and most likely franchise in a similar way. (Not 50% more like 90-10 or less) I know that my friend who has a MBA and I could create a much better business model and absolutely succeed where the former company has and is failing. What do you guys think?
Thanks for listening to me fume a little.
Trevor

**Darkside** · Jul 20th, 2011, 02:41 PM

I think you should go for it! Be the franchisor, not the franchisee.

**MJDeMarco** · Jul 20th, 2011, 03:50 PM

The concept is so elementary I'm shocked people haven't figured it out. Why in the world would anyone sign-on for something like you described?

As for competing with the company, I hope you are prepared to lose the friendship. Also, make sure you didn't sign any non-competes.

**rain371** · Jul 20th, 2011, 05:46 PM

Originally Posted by MJDeMarco

The concept is so elementary I'm shocked people haven't figured it out. Why in the world would anyone sign-on for something like you described?

As for competing with the company, I hope you are prepared to lose the friendship. Also, make sure you didn't sign any non-competes.

There are 2 other people that are franchising and from what I have heard they aren't getting the great "friend" deal that I was being offered. I would like to warn them but I don't know if it will do any good.

Several other people have told me that I should be prepared to lose the friendship and my response is that how good of a friend is this guy if he is trying to rich off of me in his scam. He is a smart guy and knows that the typical franchisee fees are much much lower then what he is trying to sell. Also, thankfully I did not sign any non-competes. Right now I am brainstorming with a colleague on how we would get this up and running, the things that we would do differently compared to the former company, time frame, and exit strategy.
We are just starting the process so if anyone has any tips or ideas let me know!

**Darkside** · Jul 20th, 2011, 06:38 PM

Originally Posted by rain371

There are 2 other people that are franchising and from what I have heard they aren't getting the great "friend" deal that I was being offered. I would like to warn them but I don't know if it will do any good.

Several other people have told me that I should be prepared to lose the friendship and my response is that how good of a friend is this guy if he is trying to rich off of me in his scam. He is a smart guy and knows that the typical franchisee fees are much much lower then what he is trying to sell. Also, thankfully I did not sign any non-competes. Right now I am brainstorming with a colleague on how we would get this up and running, the things that we would do differently compared to the former company, time frame, and exit strategy.
We are just starting the process so if anyone has any tips or ideas let me know!

Exactly! If he's trying to scam you then he's not much of a friend. At the end of the day, he's thinking about himself first and foremost; you should do the same for yourself.

**cashflow3000** · Jul 25th, 2011, 01:28 PM

Hey Rain -

I'm a bit confused. You went from considering purchasing a franchise business to becoming a franchiser of the same kind of business? Do you already have the necessary knowledge and experience to do this? Why were you considering becoming a franchisee in the first place?

If you have the systems, product, skill, knowledge, and team in place to become a franchisor, go for it!

Have fun, and good luck!

JWH

**Jeremy** · Jul 25th, 2011, 01:59 PM

I have known some people to make big money (tens of millions+) as franchisees, though they did it different than most Slowlaners:

1. They got into franchising very early (like the 1960s or 1970s).
2. They got agreements where they were granted large, exclusive territories (e.g. All of Orange Country in the 1970s--wow!).
3. Their business plan included purchasing the land and building, having the business lease the property from a separate entity that owned the land and building (but controlled by the same investor group), and then sell back some of the stores to the franchisors after the building and land was paid off, and then just collect rent.
4. They went into the business with the idea of opening dozens of stores.

This is far different from your typical middle manager corporate drone who at age 40 gets sick of doing TPS reports, heads down to a "biz opp" seminar, and liquidates his 401(k) to open a single Quiznos store...