Thinking of buying into a fast food franchise - advice needed

Spitfire_imported

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Joined
Jun 21, 2012
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77
Hi, so I've come across a fast food franchise for sale. The current owner wishes to downscale that is how this one came onto the market. It's an already established store. I have no experience in this industry or any franchise for that matter, so it will be my first rodeo.

I've had a look at the financial statement. It is profitable but it will take a few years to break even. This is excluding the fact that the store will require an upgrade, which will set me back even further.

I'd appreciate any advise relating to this opportunity or even the fast food franchise industry in general. And if anyone knows how long does it typically take to break even when starting up a fast food franchise?
 

MightyQuin

Not amused...
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Oct 6, 2010
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25,686
Hi, so I've come across a fast food franchise for sale. The current owner wishes to downscale that is how this one came onto the market. It's an already established store. I have no experience in this industry or any franchise for that matter, so it will be my first rodeo.

I've had a look at the financial statement. It is profitable but it will take a few years to break even. This is excluding the fact that the store will require an upgrade, which will set me back even further.

I'd appreciate any advise relating to this opportunity or even the fast food franchise industry in general. And if anyone knows how long does it typically take to break even when starting up a fast food franchise?
Which franchise?
 

Geoff.D

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Aug 4, 2005
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24,703
Don't just look at the financials, and the break-even numbers. Check out The HR issues, legal and insurance matters for starters. Vet the suppliers of the product. Do a pretty deep due diligence on the franchisor as well, hidden clauses in that contract. Get legal advice to tear apart the contracts, all of them.
 

Thor

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Jun 5, 2014
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Don't just look at the financials, and the break-even numbers. Check out The HR issues, legal and insurance matters for starters. Vet the suppliers of the product. Do a pretty deep due diligence on the franchisor as well, hidden clauses in that contract. Get legal advice to tear apart the contracts, all of them.
This.

People dont downscale, writing is on the wall and he wants out.
 

Gaz{M}

Executive Member
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Feb 9, 2005
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6,943
If it's not one of the main ones: KFC, Steers etc., then don't do it.

If it's some off brand Portuguese chicken place, or Asian takewaway or some other fish or hotdog place. Nooo.
 

cr@zydude

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Jul 20, 2008
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9,902
Check if the franchise licence can even be sold to you. Some agreements only allow for sale back to the corporate owner and some only to owners of other franchised stores.
 

WaxLyrical

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Oct 20, 2011
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Few years to break even means that for a few years you'll be making the franchisee and the landlord rich, after which they don't care about you. Profit or loss.
 

RandomGeek

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I think you need to provide the Mybroadband community some free samples so we can provide objective advice
 

Pineapple Smurf

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if you are asking these questions on a public forum then you are not ready to start in the food franchise industry. Step away
 

juBa

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Nov 24, 2011
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702
He’s asking because he wants to know more, which is the right thing to do. Even if he doesn’t buy this one, his curiosity has already awakened to be his own boss and step away from the 9-5 or whatever he does. (But - being your own boss especially for your first franchise/ business, means it’s gonna be 8-8 for a looooooong time, if you want to see growth and success and a sh*t load of headaches)

Someone above mentioned, what franchise is it? That’s very important... as the bigger ones help you out a lot to get yourself integrated into being a franchisee and they provide a lot of training. So from that aspect, no need to worry much.

Above posters mentioned some good things to double check and make sure of, another big thing is your lease agreement and how much he usually spends on rent, water and electricity. Those things can cripple you during quiet months (Also important to note what do they do during load shedding? Do they have a generator? Is that included in the lease agreement, is there a fee? Do you have to supply your own fuel? Etc very important to consider in SA, especially for food retailers.

Double check the financials and put common sense to it, people “jippo” those things very easily, if you’re serious, and take things further then the franchise in question will send you a DCF, discounted cash flow, where they will verify his turnovers and recommend a selling price for the store based on the figures. Keep an eye on the expenses, in an ideal world (depending on the franchise in question) COS should be 40% of your GP - but usually it’s between 40-44%. So use this and work backwards with the figures. Then use common sense to check his other expenses. Another big thing, do they do deliveries? Do they own their own bikes? Or lease them? Who does the bikes maintenance? Having your own bikes is good for business but you’ll become a full time fleet operator if there isn’t good systems and trained people handling the deliveries and maintenance. Is the store on Uber East and Mr D platform? If not, this can increase turnover a lot depending on area but the fees are pretty steep usually around 20% per order.


These are just basic guidelines though, there’s a lot to consider but well done for trying to make the jump and asking for help. It’s the first step to achieving your goals. Also someone mentioned that people won’t sell a good business to relocate or retire... lol, after years of breaking your back and making your business work and generate a profit (and they can generate good money) you will def look forward to selling everything and getting your money out and retiring. HR issues, government policies, standards and procedures, franchise requirements and all that, especially as you grow, becomes a serious head ache, and I’ve seen people with cash cow businesses selling because they’ve become “gatvol” of it all and just been in the game for way to long.

Happy to look at the financials if you want. Just drop me a PM
 

bixt

Active Member
Joined
May 6, 2019
Messages
60
A properly working franchise that is well managed is a cash cow that would hardly even require the owner to come in (I know plenty where they just make a monthly visit).

There no such thing as downscaling if it were a money maker. Thats like saying I have too much cash earning interest, lets downscale the bank account and keep some under the mattress.

Some of these franchises need millions to refurb, which is forced onto you by HO. Also you are forced to use their suppliers. The current owner probably feels the expense of upgrading is not worth what the business makes and therefore is trying to rather make a buck from an uninformed buyer than close down.

See if you can identify serious mismanagement on the part of the owner. Many businesses are good in terms of revenue but the owners are splurging on cars instead of paying suppliers, staff are stealing etc. These make good candidates for takeovers as long as the business debt is not carried forward. You start on a clean financial slate and manage well.

Finally, you need to have a few chats with people running similar businesses to gauge what normal revenues are per shop size based on similar location. If you dont know any such people, approach a bank for takeover finance. They will glance at the financials and immediately be able to say if revenue is grossly overstated from their experience with similar businesses.
 

Gaz{M}

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Feb 9, 2005
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6,943
Also, if you can, talk to the employees working there. They will tell you if things a bad.
 

Bigjay84

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Joined
May 10, 2018
Messages
314
Think very carefully about it especially if you have had no experience in fast food , unless you are buying a KFC it is subject to the times of the month that are paydays .
If it is a payday then you will be busy if there is no money around you will be lucky to breakeven .

Selling off my fast food business before the corporately mandated revamp is an old trick .You wil be closed with no income for the length of the revamp and have no control of the costs .
 

Spitfire_imported

Active Member
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Jun 21, 2012
Messages
77
Wow! Thanks for all the really good advice. @juBa sort of nailed my reasoning for looking into this opportunity. But also, I do not want to be fully dependent on my 9-5 job for income. Therefore, I'm looking into investing into something that is sustainable and where I can earn a secondary income. Two years ago, I was retrenched and it's not easy having bills to pay without a source of income. I do realise that running your own business will require time and dedication and I am willing to put in that extra effort.

The franchise in question is a Steers outlet. I've been told that Steers do offer training and support so I'm not too worried about that. I do believe that the owners want to sell to avoid doing the upgrade, because the estimated upgrade cost is nearly 40% of the cost of starting a new Steers franchise. I don't see any obvious mismanagement on their side, the biggest expenses are rent, royalty fees and salaries. It is this upgrade and the thought of future upgrades that puts me off.
 

Herr der Verboten

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Feb 14, 2012
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12,500
Hi, so I've come across a fast food franchise for sale. The current owner wishes to downscale that is how this one came onto the market. It's an already established store. I have no experience in this industry or any franchise for that matter, so it will be my first rodeo.

I've had a look at the financial statement. It is profitable but it will take a few years to break even. This is excluding the fact that the store will require an upgrade, which will set me back even further.

I'd appreciate any advise relating to this opportunity or even the fast food franchise industry in general. And if anyone knows how long does it typically take to break even when starting up a fast food franchise?
BACON :whistling:
 

CAPS LOCK

Executive Member
Joined
Jun 29, 2009
Messages
5,797
Wow! Thanks for all the really good advice. @juBa sort of nailed my reasoning for looking into this opportunity. But also, I do not want to be fully dependent on my 9-5 job for income. Therefore, I'm looking into investing into something that is sustainable and where I can earn a secondary income. Two years ago, I was retrenched and it's not easy having bills to pay without a source of income. I do realise that running your own business will require time and dedication and I am willing to put in that extra effort.

The franchise in question is a Steers outlet. I've been told that Steers do offer training and support so I'm not too worried about that. I do believe that the owners want to sell to avoid doing the upgrade, because the estimated upgrade cost is nearly 40% of the cost of starting a new Steers franchise. I don't see any obvious mismanagement on their side, the biggest expenses are rent, royalty fees and salaries. It is this upgrade and the thought of future upgrades that puts me off.
With our current socio-economic climate, owning a bottle store makes better investment sense. In a pinch, people tend to steer clear of fast foods. Conversely, alcohol is appealing to both happy and depressed people. Win-win.

/I jest. Good luck with whatever you decide.
 
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