Chewing over ideas for a franchise
You generally want to see a sales-to-investment ratio of at least 2 to 1 and optimally 3 to 1, says Rowe. So if you invest $200,000 you should realize at least $400,000 in annual sales by the end of your first year. You also want a net income or pretax net profit of at least 15 to 20 percent, he adds.
Such information can be purchased from a company like Frandata, says Rowe. And a company's financial performance is generally outlined in a Uniform Franchise Offering Circular.
It provides information like past litigation, whether it offers territory protection and names of existing franchisees, even those that have failed, says Harold Kestenbaum, who is counsel to Farrell Fritz in Uniondale. He says it's important to contact some of these franchisees and ask questions like, "If you had to buy it all over again would you?"
That's exactly what Laura and Walter Jankowski of Bayport did before they became the Suffolk County franchise developers for the Tropical Smoothie Café, which opened in June in East Northport. Laura called about 50 franchisees before settling on the brand.
Like many franchisees, the Jankowskis financed the costs - $300,000 - with a second mortgage on one of their homes and a home-equity line on another home.
Another traditional funding source is the Small Business Administration, says Roslyn Goldmacher, president of the Bethpage-based Long Island Development Corp., which lends money under the SBA 504 program for building purchases.
That's how Mulki Aman, owner of the Subway in Bay Shore, and Neil Singh, area developer for the Subway franchise in Nassau County, financed their facilities.
Singh, who owns a Subway in Westbury and worked with the LIDC, says it can cost up to $200,000 to open a store on Long Island, but he thinks the investment is worth it.
"The brand is a No. 1 brand in the sandwich category," Singh says. "If you're going to invest in a franchise, you certainly want to invest in a No. 1 brand."
So, the next time you're buying a sandwich or a taco, think about how your lunch can become your next meal ticket.
Ten fastest-growing franchise systems
Covering franchise operations in business at least four years
Rank and brand Franchisers Number of franchises, '04
1. Child I.D. Program of America Bakerman Digital, Inc. 115
2. One Hour Air Conditioning & Heating One Hour Air Conditioning Franchising Llc 111
3. Cloud 9 Shuttle Cloud 9 Shuttle Inc. 83
4. Border Magic Border Magic Llc 75
5. Slim and Tone 30 Minute Workout Slim and Tone Llc 115
6. Certified Restoration DryCleaning Certified Restoration DryCleaning Network Llc 101
7. Paul Mitchell Partner School Paul Mitchell Advanced Education Llc 31
8. QuikDrop QuikDrop International 58
9. Positive Changes Hypnosis Lifestyle Improvement Centers Llc 38
10. Zerorez Zerorez Franchising Systems Inc. 23