I am the owner of a construction company. We do pretty much everything from roofing to additions to framing to siding etc. I have been recently contacted by a Kitchen and Bath remodeling franchise who is looking for a franchisee in my area.
Couple a Q’s:
Is this a good idea generally?
What are the questions you would ask?
Does anyone have any experiance with this type of thing, either as a customer or as an owner?
It is a fairly substantial investment, any ideas for where to go for the cash?
At this point I am not sure that I even know all the things that I dont know, so any input at all is appreciated.
Thanks!
Naive but refreshing !
Replies
I would have several long conversations with other franchisees. Find out how much money they make, net after francisee fees and debt service. If the franchisor won't give you the names and phone numbers of existing franchisees, take a pass.
The Federal Trade Comisssion regulates franchises and has some useful literature you might want to look at. A franchisor is required to provide certain information to a prospective franchisee.
Some issues:
Do you get an exclusive geographic market? How big? Look at the franchisor's marketing stuff-is this the sort of work you want? Can you reject a customer? Are your rates set by the franchisor? Are you stuck with a menu of charges? What sort of costs are associated with the deal, other than the initial fee?
Of course, before you sign anything, have your lawyer review it.
Edited 7/25/2007 12:53 pm ET by smslaw
If they are asking for a large investment you have the right to ask them to open their books and fully disclose their financial situation. If the do this (doubtful) then you need to hire an accountant to make sure everything is in order.
At the extreme are outfits that use the Sears model -- sell the job for twice what it's worth, then pocket 60% of the money and bid it out to whoever makes the low bid. Customer frequently gets screwed, contractor doesn't do much better. Dissociate yourself from anything like that.
The first question you should ask is "Why should I?" They should be able to answer that without resorting to glitz and smoke and mirrors.
And if there's any sort of "Limited time only!" pressure, walk away. To me that's a dead giveaway for a scam.
Money! That's why.
Have your companys' accountant go over the idea with you.
SamT
"It is a fairly substantial investment"
...and THEY contacted you!
uh huh!
make them prove every word they say! As soon as it smells, run!
Welcome to the
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where ...
Excellence is its own reward!
It is a reputable Co. (DreamMaker) They check out. I am not real worried about a scam per se. There is no pressure, very low key, very slow paced sales process. They will fly me and my partner down for a meet and greet at HQ if we continue with the process, we can take our pick of current and former franchisees to talk to,
I think my q has more to do with my unfamiliarity with Franchises in general. And if anyone had exp. with owning a franchise, or dealing with this type of franchise as a customer. Also, is a franchise buy in negotiable?
Naive but refreshing !
Actually, the first thing you have to do is ask yourself honestly if this is what you (and your company) want to do. You are doing a wide variety of things now, is it time to specialize? What does your business plan say? Time to update it...
Slaw's advice can't be beat.
I've got a friend who paid about 70 large for a tax return franchise.
He now says the franchisors are without integrity.
Talk to the people who own a franchise and even more important, the people who have dropped out. If there is anybody they don't want you to talk to, talk to them!
Kowboy
Mr. Build came around here in the '80s trying to sell franchises. I was approached, and the presentation was quite impressive. The guy who started Mr. Build was one of the principles that started the Century 21 real estate franchise.
He was going to use the same model for the building and remodeling industry, and fully expected it to revolutionize our industry the same way it did with real estate (And it DID work with real estate, in a big way!)
I didn't have enough to fork over for the franchise fee, so it was moot whether I believed in the concept or not. But my lack of resources saved me from investing in an idea the just didn't make it. It wasn't just the franchise fee, you had to pay a percentage of every job you sold, based on gross, not on net. So they made money even if you lost money!
I'm not sure why it didn't take hold, but I do know that after about ten years I saw no Mr. Builds around here. I suspect franchise holders found the fees based on gross just too oppressive. I don't even know if they exist any more.
Buyer Beware!!!!!!!!
John Svenson, builder, remodeler, NE Ohio
That is something I had not considered, -fees based on gross, not net - I will definitley look into that. Thanks
Naive but refreshing !
I think that's fairly standard. One question is whether it's just for their logo line of business or for all your business. (Of course, another important question is what the % is.)
So convenient a thing it is to be a reasonable Creature, since it enables one to find or make a Reason for everything one has a mind to do. --Benjamin Franklin
From what I have seen from Dream Maker, they do high end jobs for big money. You need to know your area, is there enough high end work out there to support the structure?
Are you willing to advertise ($) agressively?
The other benefit is that it will provide you with a solid system to run your business. Some small contractors have a good system, and some have no system at all. Do you need to pay for a system?
You may find that you will also have access to product lines that you didn't previously have, Since you are in a buying group, you may also find a better discount.
Franchising is not for everybody. If you like running your own business & making key decisions about how your business is run, you'll not likely be happy being a franchise. A franchisee has to follow strict procedures dictated by the franchisor so the "system" is uniform across the franchises. You will usually need to have a minimum equity investment. The franchisor will be able to give you details on this. Franchisors often have lenders they work with for the rest if you don't have your own banking connection.
Ask them for their Uniform Franchise Offering Circular ("UFOC"). All franchisors are required by the FTC to have this. It'll give you a pretty good roadmap of what to expect and will likely give you lots of questions to ask. It'll also give you a list of existing franchisees with contact information. Talk to as many as you can. This can be the biggest/best source of useful information for you. If you already have a going business, ask what being a franchisee will offer you. Does it enable you to offer a product that is in high demand that you couldn't offer otherwise, or just another brand of cabinets that the customer couldn't care less about? Although most franchisors collect advertising fees, most don't have enough clout to do much local advertising. Compare Meinike or one of the big burger chains with the franchise you are considering. Have you ever seen/heard ads for their product?
If you do decide to pursue this, you may be able to buy a franchise from an existing owner who wants out. (There are often a lot of those.) That may be 1/2 the cost of a "new" franchise and may be just the same, as far as it concerns you, if the term is long enough. Also be aware that most franchise agreements have noncompete provisions. If you join up and decide later to drop out, you may be precluded from competing -- they may try to keep you from doing kitchen & bath remodels in your area for several years. Although these can be hard to enforce, they are expensive to contest as well.
Big decision. Proceed with caution.
Mike Hennessy
Pittsburgh, PA
Excellent information. Thanks!
Naive but refreshing !
No problemo. Let us know what you decide.
Mike HennessyPittsburgh, PA
Thanks, I will. We are having a conference call on Monday to go over some more of my questions. We will see what the answers are.......
Naive but refreshing !
Woody,
The first thing that strikes me is that they contacted you which sounds like a sales pitch, not a genuine business opportunity. Furthermore, you are a General Contractor, not a kitchen and bath specialist... so why did they pick you?
I'll be honest... it smells funny to me.
http://www.petedraganic.com/
Yeah, That crossed my mind too. OTOH I checked out the company and they seem to be legit as far as I can tell from the outside.
It will be interesting to see what comes of it.
Thanks.Naive but refreshing !
If you wanted to go into the kitchen and bath remodeling business, why would you need to buy a franchise to do so. Just do it. You already have a construction business so just diversify in that direction.
If you had no plans to go into the kitchen and bath business prior to the solicitation, is that your only reason (the solicitation).
I have received mailings from Dreamaker myself and I already was doing kitchen and bath remodeling. They never contacted me personally, just a mailing. It looked as though they were just using the yellow pages for contractor leads.
It does make you feel important whan someone singles you out for an exclusive business opportunity because of your past business performance but how many others in your town got the same letter.
You probably started your current business by yourself, if you really want to start a kitchen bath business, you can do that too.
Chris Calhoun
Blackstone Builders