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What about franchises?

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  • Dreamgiver Dreamgiver 
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    Status: Physician
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    Joined: 03/09/2017
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    It has been about 15 years since I completed my post bac studies to apply to med school. At the time I made friends with several people in the class. One of them was a really nice and smart asian guy. It was obvious his parents wanted him to get into med school but he did not care too much. He did not get in. Long story story short, I ran into him a few days ago. His parents bought him a Dunkin Donut franchise and he has been doing well, bought 2 more himself after that. He was nice and relaxed, tanned, in shape, we talked about his great vacations and all. Reason I bring this up is that I have not seen people talk about franchises around here. I ask about the bigger ones such as MCD, BK, Dunkin Donut, Starbucks, Dominos, Papa Johns, and such. I understand the process to go through to open one is extensive and difficult. It seems though that for the majority of people having the capital to invest upfront is the biggest hurdle. Not so much around this forum though. Anybody went through the process or owns/runs a franchise?

    #229114 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1876
    Joined: 01/08/2016

    there was a thread about this, although pretty short.

    after my recent string of shifts, the idea of being a barista has appeal, and I might re-consider that Dutch Bros franchise….

    #229163 Reply
    ACN ACN 
    Moderator
    Status: Physician
    Posts: 668
    Joined: 01/08/2016

    I know two families who own Mcdonalds. One family owns about 15. They started off with 1, then opened 3 more in a few small towns in the midwest. They state it took about 7 years to break even for the first restaurant. They now have 15 or so and seem to be doing pretty well. You have to be very aggressive in obtaining new stores from corporates expansion plan.

    The other family started with 1 back in the 70s. They now have 75-100?? Or some obnoxious number. Needless to say, they are very wealthy. But they have a family friend who started with 1 in the 70s at the same time. They have 2 stores in their hometown.

    You have to be very business Savvy nd aggressive to continue to grow your empire.

    I had an attending who opened up some Jimmy John’s during residency. Two stores. Said they broke even while paying down the loans. The biggest problem for them was that they wanted to open stores in prime locations, but corporate said those locations will not be franchised but corporate owned. So you get stuck in smaller towns until you build connections and get more lucrative spots.

    If you're ever having a bad day, just remember in 1976 Ronald Wayne sold his 10% stake in Apple for $2,300.

    #229175 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1467
    Joined: 03/27/2017

    Most franchises are designed to be sold, not bought.  (Not entirely unlike whole life insurance policies.)

    There was a really good book on franchises that I read about 11 years ago by an attorney who had been on both sides of plenty of franchise agreements.  Sadly, a quick search on Amazon reveals far more touts and shills but doesn’t give me the book I read before.

    The gist of it was that most franchises are lopsided agreements that are quite unfavorable to the would-be franchisee.  McDonalds and AM/PM were a few of the good guys (years ago), but even there you needed extensive capital and a track record of success with other franchise operations in order to be considered as a franchisee.  Likewise, hotel development can be a good deal, but it helps if you are well connected (and very hard working!) in the Indian-American community.

    Short version: while there are a few good franchise opportunities out there, it isn’t a passive, get-rich-quick opportunity.  If anything, the vast majority of franchises are great for the people offering them and terrible for the people signing up for them.

    #229180 Reply
    Avatar Tim 
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    Status: Accountant
    Posts: 3337
    Joined: 09/18/2018

    Most of the “lucrative “ franchise opportunities are reserved for owner/operators.

    From 10-15 years ago, volumes drive profits (losses).
    Location drives volumes. One large ice cream franchise company ended up refunding not only the fee but the losses incurred for 3 years. Not one franchise owner was still in business. Yes, they were resold. I am sure the contract has improved, not sure about the revenues.

    Not sure why a physician would want to learn to flip burgers, make sandwiches, serve pizza or scoop ice cream.

    That said, with three franchises one can make money. After that, deals begin being offered. Some takeovers can be bargains.

    #229227 Reply
    Avatar CREGuy 
    Participant
    Status: Other Professional, Spouse
    Posts: 68
    Joined: 01/16/2018

    I think the main issue is that franchises are just a model for a business venture, and those business ventures require full time dedication to be successful, just like most other business ventures.  The only difference between starting up a McDonalds and Doctor Smith’s Burgers is that you are paying for an established business model and brand.  The operations of the business are just as intensive, although the startup phase may be less daunting as the process is already established and laid out for you.

    There are a handful of franchises that are designed to allow for absentee or at least semi-absentee owners out of the gate, but for the most part, you’re going to have to be working IN the business for a while until you can get multiple locations opened where the cost of hiring upper level management to oversee your operations becomes cost effective.  If you’re looking at smaller franchise models, it’s possible to get there really quickly (think sandwich shop/hair salon/coffee type of concepts where you could roll out 4-5 locations in 12 months).  Something like McDonalds? Too much capital required for most folks and too heavy on operations to quickly go from zero to five locations quickly.

    So basically, unless you either hit one of the smaller concepts and roll out enough locations to get your economies of scale in place quickly, or unless you find a managing partner who runs the business while you provide the capital (which will reduce your returns), franchises aren’t typically going to be things that fall into the “part-time venture” category for most docs.

    #229246 Reply
    IntensiveCareBear IntensiveCareBear 
    Spectator
    Status: Physician
    Posts: 243
    Joined: 12/22/2018

    …It seems though that for the majority of people having the capital to invest upfront is the biggest hurdle…

    Click to expand…

    Yep… and those people are exactly the ones you need to run it (smart ppl with huge interest… but no capital to do it themselves).

    Passive income is a myth.

    Rental apartments, franchise restaurant, medical clinic, gas station, laundromat, storage units, etc is all a great idea or terrible idea, dependent on the price you pay and the folks you hire to run it (and the folks they hire). It can work great if you find lights-out people (or do it yourself), or it can crash and burn. If you find intelligent hard workers who have always wanted to run a restaurant or be a landlord, you will probably do well. Even if you do find those lights-out people and pay them well to manage it well, they will probably leave for bigger things eventually, though. Leaders do the right things; managers do things right. You are looking for managers (although they obviously need a bit of both)… true leaders won’t typically stick around. They will look to eventually be their own boss. Besides, the corporate is the leader in franchises.

    As was mentioned, the only sure way to make money on IPOs or franchises or real estate etc is to be the seller. There are no easy answers. Franchising is just paying for the branding and marketing and distribution chain. That is very valuable… but will likely be appropriately priced or slightly overpriced. GL

    …you are damn right that going into medicine is not the way to pile up money. You are always trading your time and energy for money, so you can only make a finite amount of it. You do well, but you can’t be elite with income derived from medical work (or any employed or self employed work). It’s impossible based on finite hours and years of being able to work. To be elite in terms of money, you have to basically get it from the work of many others (read RDPD… get to the B and I quadrants). Like you, I have buddies who do infinitely better than me also (in financial terms) due to owning hotels or party stores or condo buildings or whatever… some work in med and just came from rich families, some just work in biz. There will always be people with bigger house, earlier retirement, bigger reproductive organs, faster car, hotter girlfriend, etc. It’s an apples to oranges comparison to apply their logic to our situation, but I learn from them for sure.

    "Hmm, that sounds risky." - motto of the middle class

    #229315 Reply

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