Anyone here own a franchise?

[Paul T]

I've been tossing around the idea of buying a local Meineke and just trying to get thoughts good or bad on franchising in general. Anyone here in an auto service or other franchise? I work in a completely unrelated field right now, but my lifelong desire to be self employed is hitting me full bore right now. I just feel like now is the time to take a risk while I still can (no kids and single but have a very supportive gf). Any thoughts or suggestions are greatly appreciated. I just know the collective wisdom of this board can help me out!

[Doug Zielke]

A lawyer friend of mine specializes in franchises. Some of the horror stories he told me suggests he earns his money.

[turbo6bar]

Do your homework, and go for it. I have no experience with a franchise, but I am self-employed. There is a lot of hard work involved when you're self-employed. Plan to work more hours than you expect. It is worth it, for the right individuals. You must be self-motivated. I do agree now is the best time for you to take on new risks.

Be aware the failure rate for new small businesses is very high. Like I said, you really need to do your homework to properly assess the risks and rewards.

Jürgen

[DonDavis]

Don't go into too much (IF ANY) debt to do it.
That's the biggest reason businesses fail. Debt will take EVERYTHING you own when trying to start a business.

Check out www.daveramsey.com for financial advice and guidance. Trust me.

Good luck. You can do it!!

[turbo6bar]

I feel Dave Ramsey is good for those people who lack a lot of discipline. I do agree with a lot of what Dave says. I feel debt is OK, as long as the risk and expense is exceeded by gains and income.

If Paul has enough cash to start a franchise, then I would advise him to consider real estate investing. You can leverage your cash into properties. You just have to consider your strengths and assets and choose the best route, whatever that may be. I swing hammers on one day and handle bookkeeping the next day. Works for me, but may not be for you.

Set goals, define success, study, plan, and implement. Try to find a small business group or a quality commercial real estate professional. Perhaps you can buy a good turnkey business. Open your mind and brainstorm.

Jürgen

[DonDavis]

Excellant words Jurgen. A sound, long-term plan is worth its weight in gold. Sticking to it is the hard part. 80% behavior, right?

And by being a Dave listener, you know how he lost his "millions".

And I kind of look for your posts and you car adventures. Sounds like its doing well. Take care.

[Paul T]

Great responses, thanks guys. I work in the investment management field now, and know my way around a balance sheet, so I feel comfortable with the financial aspects and appropriate debt levels.

I've considered real estate, but I am fairly young and don't have a large chunck of cash to start with. Most rental units around here are priced such that rent levels would not even cover debt. And "distressed" properties are still going for a fortune. Thus, my search has focused mostly on smaller, service oriented franchises that you can get into relatively cheaply. I fully realize I will likely not earn what I do now, but the end goal would be to attain multiple units.

I don't know, I have so much energy and drive, a killer work ethic and a unstoppable drive to self employed, but I always come back to the same nagging question of what to do? I've focused my energy so far on buying an existing business because at least there is an existing cash flow! For the self employed here, how many have purchased/inhereted their business versus starting from scratch??

[turbo6bar]

Paul, with the stock market doing so-so, until recently, everyone wants to be a real estate investor. It's not a great time to get in the field. Some say the RE market will crash. I think a correction is due. RE investing is an animal highly dependent on location, location, location (yes, I'm full of bad cliches). I can find good properties that will cash flow really well (25-40% cash on cash return), but you'll never see those properties out West or in the Northeast.

You seem to have the motivation and energy, which is a big plus. My suggestion is to immerse yourself. Analyze the deals and prospects so you have the knowledge to know a good deal when you see one. You might also luck into that one business where the seller can provide owner-financing. You provide the sweat equity, and the owner gets a nice monthly cash flow and tax advantages to boot. You just have to analyze the balance of cash, debt, and time, and adjust your offer to suit.

I was fortunate to have parents that made a lot of mistakes in investing. I wouldn't be where I am today without them, but I think a lot of kids would admit that, if they were totally honest. Had I not the money and advice of my parents, I would simply change my strategy. Instead of focusing on long-term and intermediate growth, I would be focused purely on cash flow. I would be trading future equity for cash today, but I would still accomplish my goals in a similiar fashion (i.e. work ethic, business practices, etc.).

I still feel buying an existing business is your best route, assuming there are such prospects. Minimize your exposure, perhaps at the expense of your time. Gain experience, and then when business 1 is in the black, you go for the real money maker. Otherwise, if you try to make it in your first deal, you just might go bust. Just my opinion. I would rather take a few small steps, than risk it all at once (quick dime vs. slow dollar). Oh, and don't forget a large cash reserve. I need 6 months to be confident. You may want even more.

Don, my SC is getting better every day, and as I learn her quirks, it just makes it more enjoyable. I've managed minor tweeks and modifications to match my style. My current struggles are HP and weight related. I need more of one and less of the other, if you didn't already guess. My self-imposed yearly budget for the SC is already blown to heck. If I ran shop this way, I'd be out of business fast. The SC is my toy, and I'm going to have enough fun to make up for the guys who don't have 911s.

Jürgen

[cegerer]

I'd go talk to as many actual Mieneke owners as possible - and not just the ones the Franchisor suggests. One thing almost all franchisees experience is royalty and advertising fees that seem reasonable going into the deal slowly begin to seem extravagant once you have some confidence and success in the business!! i.e. - "I could do this myself, what am I giving them 15% a month for?"

[nostatic]

one word: PLASTICS

[Ronbo]

Back in the early '60s to late '80s my family had a Midas Muffler franchise. At the time it was great, and we made a very comfortable living out of it. But times have changed. Cars are made better; parts last longer. Exhaust systems used to made of mild steel are now increasingly made of stainless and last many years. Midas has sinced branched out to other areas of auto maintenance in an effort regain lost business. Add in increased competition and more and more government "watchdog" agencies and consumer advocates looking for a kill, and you'll find the automotive repair business is not what it used to be. The person who bought our Midas franchise lasted about 3-4 years before he closed up. As cegerer suggested, talk to Mieneke franchise owners.

[Zeke]

I hope you like people. 'Cause that's what it's all about. Hiring, firing, complaints, vendors, ad reps, stupid no nothings in accounts receiveable, your accountant, the IRS, etc. Oh, did I mention customers? Complaints, picky ones, dead beats and an occasional one that appreciates a job well done on time for the stated price (which you have to do on all of them). Being self employed does have it's advantages. After dealing with all of the above, at any time you can tell anyone to go pound sand. Freedom has it's price.

[Bill Douglas]

I do very well with real estate, and lose my money in battery technology, but overall real estate is great. Plus I put very little work into it and make about 4 times as much money as my Systems Administrator job pays each year. And the great thing about it is it just grows and grows in value without doing anything.

[turbo6bar]

Originally posted by Bill Douglas
I do very well with real estate, and lose my money in battery technology, but overall real estate is great. Plus I put very little work into it and make about 4 times as much money as my Systems Administrator job pays each year. And the great thing about it is it just grows and grows in value without doing anything.

Real estate has made a lot of people rich. It just takes patience and a little hard work.

[Paul T]

Ron, I very much agree with your thoughts on the industry, and that has been one of my main concerns. Sales do seem to be in a general decline with auto service business of this type. I've always loved real estate, my father has done well with rental apartments that he bought in the 70's. But here in the northeast, I would be nervous buying at these prices. It's a catch 22, rates couldn't be better, but in my market at least, prices are astronomical. I agree a correction is probably in order.

I will talk to some franchisees to get some perpective, I'm sure it will be interesting.

[LeeH]

I looked at Merlin's Mufflers and Brakes years ago. It all sounded pretty good at the time. I got as far as flying up to their headquarters and meeting with several franchisees.

It was those meeting that sent me running. The owners I talked to were working open to close six days a week. Income was $35-50K. If I'm willing to work 100 hours per week I can make more than that at a lot of jobs without risking my life savings.

In the end I met with a business broker who eventually found a very underpriced business. Being in business for yourself is a wonderful, but scary proposition.

[Bill Douglas]

Talking real estate again. The great thing about it is you don't have to be too serious about your normal day job. Every three years or so I take a year off, do three months in Europe or Africa, or some place, come back home and renovate a house for the next three or six months (how ever long it takes to get another job) and I've added another $100,000 to the value of the house

[CarreraS2]

I have some experience knowing people that have had franchises (restaurants and those mailbox places mostly).

At least based on my experience, it is something you have to be very careful with. Most everyone that I know that did it eventually quit, because the franchise rules were strict (gotta spend amounts on the facility all the time, etc.), the hours became way too long, and, most importantly, the net dollars in their pockets at the end of the day was far less than they anticipated.

The problem, in a nutshell, is that franchisors have their systems set up so that the franchisor gets rich on the back of the franchisee.

I'm not saying that there aren't good franchises out there, and franchisees that probably make a good amount of money. But it does seem like the odds are generally against you.

(I have met a successful quick lube franchisee - but he got in early, had great locations, put a lot of money at risk and has built his business up to 10+ different locations. He told me that without multiple locations, there is no money in it).

[MarkP]

Paul,
Your entrepreneurial quest sounds exactly like me 5-20 years ago. I’m happy to say that during the last 5 years it has finally started to come true in a nice way.

In hindsight I would say that a major key to success is that I started a business in the same industries that I had spent my career (real estate, marketing, technology). I understood the intricate ‘how’ and ‘why’ of the market so I could see the opportunity and understand the value proposition.

If you think you want to own a muffler shop, at a minimum go work in one for 6 months first. You may love it, you may hate it, either way it’s better to find out now and you will learn a lot about how the business runs.

I also recommend that you stop tonight on your way home and buy and read this book: The E Myth Revisted, Why most small businesses don’t work and what to do about it, by Michael Gerber. It lays out the realities of small business.

I agree with other comments about franchises – some are very good, but many make their money by selling franchises and the underlying business models only provide a modest income for the owner. Do lot’s of homework and then ask yourself if you can start a similar, but independent (non franchised) business on your own.

Happy to help more if you need it.

[350HP930]

MarkP's advice is the best I have seen yet. While I have not engaged in any major entrepreneurial projects as of yet, part of this is due to the lessons I have learned from watching my parents run successful independent businesses.

To make a long story short, the commercial warehouses my partents own still provide them with a very nice income but all the service businesses they used to own (well drilling, auto parts, machine shop and auto service) have been sold since they are very high maintenance businesses and they both are now retired.

I have seen a lot of businesses come and go while working for my step-dad's commercial properties unit and the one thing I have always noticed about the businesses that succeeded versus the ones that failed were that owners knew everything about the business they were in.

If you have never run an auto service center or been in any part of the business before take that as a sign that you have much to learn before you dare invest your time an money into such an endeavor.