"A partner and I invested in a franchise last year. The franchise offers a variety of healthy foods, but focuses primarily on soups and salads.
We were offered a number of territories, but chose a large downtown area in an upscale Midwestern city.
The problem has been finding the right location for the first restaurant. We have found a potential site, but the rent is extremely high and the landlord won't budge. We have 'run the numbers,' and the bottom line is that we will have to sell about 250 soups and salads every day just to cover the rent. My partner and I are not comfortable we will be able to achieve that sales volume anytime soon, especially in the current down economy.
The franchise really likes this location and is pushing us to start building our territory, since we've had it for a year now. But we do not want to 'throw good money after bad,' building a location that won't ever be profitable. How can we handle this situation in a 'win win' way?"
Generally, the time to figure out whether a franchise is going to work is BEFORE you buy the franchise, not after. One of the key issues you want to raise with any franchise, before you buy, is their "average breakeven": How long does it take the typical franchisee to generate enough operating revenue to cover his monthly operating expenses and start paying back the initial investment? If the franchise won't disclose this information, you should call lots of their franchisees and ask them point-blank how long it took them to "break even".
Another key issue is "geographic distribution." The perfect franchise is one that has franchisees in all 50 states and in every conceivable demographic area: high income, low income, urban (high population density), rural (low population density), and so forth. A franchise that is very successful in rural America may experience difficulty when it opens outlets in large cities where real estate, labor and, well, everything else is a whole lot more expensive. Item 20 of the franchise's Franchise Disclosure Statement (FDD) will provide this information.
Since you have already bought the franchise and selected your territory, it is too late to do this type of homework. Here are some ways you might -- might -- be able to move forward with this franchise.
--Show Them the Numbers. It won't be enough to call the franchise and say that you and your partner are getting "cold feet." The franchise won't like that, and may be tempted to terminate your franchise agreement (the default section of the agreement usually allows them to do that).
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 11th, 2014 | John Ransom
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 9th, 2014 | John Ransom