Franchise? I'd like to invest some money!

[pete_jim]

I can give you a little bit of information about Franchises and how they work in general just to speed you up on it a little bit: -

 

Franchises work by offering their brand name and service to a individual business in exchange for either a one of set up cost, a cut of profits or sometimes both. Popular and famous examples of franchises are the Threshers Wine Group, McDonalds and KFC; each individual shop is owned by someone who has individually decided to start up their own business.

 

Advantages of franchises are that you don't have to pay much, if any money at all, on advertising costs. Normally the franchise will advertise the brand for you and you will simply be involved in running the day to day tasks of the business. Other advantages include not having to set up a brand from scratch - for example, McDonalds have a hugely popular brand name and to start up a fast food restuarant under their name will definatly result in a lot more custom than starting your own from scratch.

 

I'd research heavily into the company that is asking you to become a franchisee for them, and look around for topics on the internet from people who do the same thing. £10,000 is obviously a substantial amount of money and just like when you start any business, you need to ensure it's a stable and profitable investment.

 

Perhaps if you posted the companies name then we could look around for any information related to them to help you come to a decision?

 

The money for the advertising comes from the monthly/quarterly whatever franchise 'take' from the business revenues. You make it sound like the advertising is for nothing.

[SimpyTimpy]

The money for the advertising comes from the monthly/quarterly whatever franchise 'take' from the business revenues. You make it sound like the advertising is for nothing.

 

Well it would depend on their policy. Of course the advertising by the franchiser will come from the profits from each store, but some will itemize such costs to the franchisee, and some wont.

 

On a simplistic level, if I'm giving out 20% of my total revenues or Net Profit, then marketing will be 'free', even if it has been paid for from the 20% cut.

[SimpyTimpy]

if this is true 30 grand gets you £1800 a week ,if its that good why do they need you? have had experiance of franchising and mine is low level ones like this dont work. they always inflate the returns.if you do this and its true tell me and ill give you 10000 for 400 a week so you earn 200 for nothing, in other words dont do it.

 

Yeah, I missed that. 'Up to £600 a week' normally means that the highest earner is getting that, where as the average is around £150-250/week.

[Darbees]

Doubt if it would be from net profit as franchisor would be risking not getting anything if it didn't work. There are probably more likely to be fees based on a percentage of turnover amongst other things and that expense could lead to the franchisee making no net profit at all. That is the problem and a reason why the potential franchisee needs to be very wary.

[pete_jim]

Well it would depend on their policy. Of course the advertising by the franchiser will come from the profits from each store, but some will itemize such costs to the franchisee, and some wont.

 

On a simplistic level, if I'm giving out 20% of my total revenues or Net Profit, then marketing will be 'free', even if it has been paid for from the 20% cut.

 

Sorry but there is no such thing as a free lunch!

[Darbees]

Sorry but there is no such thing as a free lunch!

I think we know what Simpy means. The point of a franchise is that all the franchisees benefit from the overall reputation of an organisation as a much bigger company than it actually is. The franchisee doesn't have to trouble himself with things such as setting up advertising campaigns etc and doesn't pay the cost directly, that is the responsibility of the franchisor who should promote the whole brand (or whatever it is) for everyone at once.

[Sony]

Thanks for your help guys. The company in question is Pringles!

[SimpyTimpy]

OK, done some reading up on it and found a few articles relating to setting up as a franchisee with Pringles using vending machines. I drew up a few figures that could help you come to a decision, and it's based mostly on what was said in this article: http://www.thefranchisemagazine.net/franchise/Popping-Tins-in-assoc-with-Pringles/Pringles-Vending-Machines-Franchise/13

 

Initial Investment = £39,950

Material Goods = 20 Vending Machines

Average Profit from each vending machine per week = £40

Average Profit from all 20 vending machines = £800

Would take an estimated 49 weeks to break even, not including any interest built up on the initial investment if loaned from a bank.

 

I understand this is very basic in how im looking at it, but it would take about a year before you started making a return on your investment, which in comparison to any start up business is quite impressive. However, you'd need to look at funding for the business should it take as little as 6 months, or as long as three years to break even, just so you know if it's a viable option.

 

It actually looks quite promising; Pringles is a very well respected and famous brand so marketing should be rather easy.

 

Gl with it all.

[Sony]

Many thanks timpy! Tis all quite exciting, seems too good to be true.

£10k buys 10 machines tho, says £17kbuys 20.

I wouldn't need to borrow the money so thats ok. What else do I need to know, any catches? Why would pringles be such a safe bet?

[SimpyTimpy]

Well, I'd advise you look into the small print of just about everything you sign, if you can, get a solicitor to look over the terms and conditions and any other paperwork they send you so you can get an idea of any possible catches in the contract.

 

The fact it's Pringles doesn't 100% guarantee that it'll be completely fine, but it does give you more confidence that it's a multi-national company and brand compared to some black market deals you see going around.