I was speaking this week with a business buyer looking for an auto service shop in either the San Fernando Valley or Ventura County. He’s a qualified, experienced service manager who’d love to have his own shop and has about $100K cash to invest. He described wanting to build a “substantial” multi-bay operation, not a small one-person shop.
Our discussion led to the subject of franchises and whether the national brand is worth the expense or not. No simple answer. It depends greatly on the financial, emotional and geographic position of the potential franchisee. Many well-funded investors and service technicians have done very well purchasing familiar brand locations like Midas, Jiffy Lube, AAMCO, Meineke, Valvoline and others.
There are many pluses of a franchise over starting an independent shop. You’re buying into a proven concept, which increases your chance of success. The franchise costs are known and identifiable (to you and lenders). You receive valuable initial training and support, along with property management advisory and other soft-cost services that can be very helpful. The long-term risks are eased with a nationally-known brand. Customer loyalty is already established (hopefully). You also have the advantage of an established system of franchisees who’ve gone down this road and can offer assistance. Plus, the franchisor brings buying power and economies of scale to negotiate lower prices for products and services.
But there are numerous downsides needing careful consideration. Starting with capital. Initial startup costs for these shops can go well north of $200K. And that’s not including rent or land purchase costs. You then have ongoing royalty and fees that take substantial bites from your bottom line for years to come. There can be a certain loss of control and independence when adhering to the many requirements of a franchise agreement. Many of the best retail locations have already been taken by well-established franchisees, leaving less-desirable spots as your only options.
7 THINGS TO CONSIDER
1) Big Name Does Not Guarantee Big Bucks - There are many franchise owners who can attest they are not rich, not even close. Quite a few service brand owners are grinding out modest livings. Still, long-term profitability (and survival) is more likely with a franchise.
2) Know Your Market Inside Out - Most technicians and service pros are super-familiar with their local competitors. But often, buying a new shop means going outside the area where you’re most familiar. You’ve gotta be extremely clear where your competition, and your customers, are coming from.
3) Whatever You Think It Will Cost, Add 10% More - Many franchisees I speak with (automotive and elsewhere) say it’s practically inevitable that the process of opening a business will be more expensive and time consuming than you expect.
4) Good Employees are Everything - It’s tough finding young guys who want to work on cars anymore. Just about any owner will tell you, finding first rate technicians and good customer-friendly employees, is everything. Some job-seekers will perceive greater desirability with a national brand. But word-of-mouth is critically important. Workers will follow excellence and opportunity.
5) Thoroughly Investigate Your Franchisor - You should talk to at least three other franchisees before pulling the trigger. They’ve been down the road already. They’ll provide incredible insights whether you might be better off as an independent. Depending on corporate sensitivities and franchise agreements, you may need to use considerable discretion when speaking with the franchisees.
6) Your Personal Skills Are A Huge Factor - Owners who don’t want to get buried in the daily operations are probably better off with a franchise, presuming they can afford it. The same goes for passive investors wanting a GM-run shop. The less shop experience you have, the stronger the argument for buying a franchise.
7) Carefully Consider The Real Risks of Ownership - You may be unhappy where you are and want something new. But as an employee, you can leave. If you buy a business badly - a bad situation, location, business model, franchise fee structure or employee base - you may have a tough time getting your money or sanity back.
Yes, the idea of working for yourself and pocketing profits as an owner sounds good to many. But in the super-competitive, overly-saturated automotive universe, buyers need to carefully consider if the expense and interest in owning a franchise is right for them.
#photo#About The Author: Brian Loring has been a broker since 2005, closing more than $150 Million in business and commercial transactions. He concentrates on serving clients in the San Fernando, Santa Clarita and Antelope Valleys (Los Angeles County). He focuses on the automotive sector, providing unparalleled service to owners and buyers of auto repair, auto body, smog shops, tire, brake and lube shops, and branded and independent gas stations.