Home – New Forums New here? Share your story Planning to getting in to Subway Franchise

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  • #987504
    microchip78
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    Hi Guys,

    I am joining this community as we (me and my friend) planning to buy Subway (established franchise). It will be our first adventure in setting up our own business.

    So far in my life I have worked as Quality Control Chemist (in Food and Pharma industry). Apart from my main job as QC Chemist, I have worked part time and casual basis in Coles super market for almost 7 years in grocery, filling and check out operator. My friend, who will be partner in business is a technician in a plastic Industry. And he has also worked in Coles super market as checkout operate and grocery manager.

    We are currently looking for a good deal for established Subway franchise.

    I am joining this community to get a better idea about how to evaluate Subway business, what kind of things we should look for before closing the deal and get some idea to set up a company & finance and other important things.

    Hope this community will help us to set up our first adventure.

    Thanking you all in advance.

    #1163078
    alliedib
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    Hi microchip,

    Great to hear you are considering the leap – certainly a franchise can be a good way of getting into an established brand.

    I would suggest speaking to an accountant – preferably one that has some idea of the food/beverage sector. These businesses are generally low margin high turnover but because they are a franchise everything will be on the books (not a cash business like some other foodies can be).

    Whilst having a franchise can be a great benefit, there are usually a number of rules and contributions set by the franchisor that you need to consider (especially with marketing etc). Also, would you work in the business or employ a manager?

    Regards,

    Mark

    #1163079
    microchip78
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    First of all thanks Mark for quick reply.

    alliedib, post: 188551 wrote:
    I would suggest speaking to an accountant – preferably one that has some idea of the food/beverage sector. These businesses are generally low margin high turnover but because they are a franchise everything will be on the books (not a cash business like some other foodies can be).

    It is good to know that there are accountant who works specifically food/beverage. Frankly speaking I am new in this area, I have dealt with personal account but not business one … Any good recommendation you or any one here has ??

    I have P & L Statements for year 2013 and Combo Report for last 3 years.

    Can we trust on what is written in P & L Statement or Combo Report provided to us? Business broker says that Combo Report is generated by Subway office so I can trust on it. I just want to is there any way you can tweak it ?

    alliedib, post: 188551 wrote:
    Whilst having a franchise can be a great benefit, there are usually a number of rules and contributions set by the franchisor that you need to consider (especially with marketing etc). Also, would you work in the business or employ a manager?

    We have studied the rules and regulations set by Subway in general and also aware of franchisee fees, marketing fees and royalties we have to pay to the franchisee.

    As per the P & L Statement, it seems this subway is doing what we are expecting but I think it is a good idea to get some account to study this statements.

    Currently this subway is operating fully under management. But we would like to work in a business. We dont have much experience in running subway. We will get trained but we would like to continue a manager who is working there right now and we will work in business as a sandwich artists and also learn a management of it while working there. Once we will gain the confidence we will take over the management of Subway.

    I would like to know if anyone have any good reference of business accountant who is dealing in franchise specially in Subway or similar …

    #1163080
    Past-Member
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    You haven’t said what area/s you are looking in (or state).
    All the best.

    #1163081
    Tony Manto
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    Hi microchip, I agree you should talk to an accountant, but I would think that buying a Subway franchise would be relatively safe. Any figures they give you should be able to be verified by Subway themselves. I would be asking yourself what can I do better? What are they not doing? How can I improve this business?

    Create a growth plan…

    #1163082
    microchip78
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    KarenC, post: 188561 wrote:
    You haven’t said what area/s you are looking in (or state).
    Please see private message.
    All the best.

    Hi KarenC,

    I am located in Melbourne and looking for a Subway in East, South East, South or Bayside area of Melbourne.

    Not inner suburb of Melbourne.

    #1163083
    microchip78
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    Thanks Tony for suggestions.

    Tony Manto, post: 188575 wrote:
    Hi microchip, I agree you should talk to an accountant, but I would think that buying a Subway franchise would be relatively safe. Any figures they give you should be able to be verified by Subway themselves. I would be asking yourself what can I do better? What are they not doing? How can I improve this business?

    Create a growth plan…

    I have last two years of financial report from the current owner. Both years, sale is almost same but there is a big difference in calculated profit.

    And two major items where difference is, cost of purchase and wages …

    Last year ( Year 2013 )

    – Sale : 570K
    – Cost of Purchases : 126K
    – Wages : 125K

    – Profit : 103K

    Year before ( Year 2012 )

    – Sale : 592K
    – Cost of Purchases : 176K
    – Wages : 154K

    – Profit : 52K

    Though sale is almost sale in fact reduced in year 2013 there is an increase of almost 51K in profit … Do you see this suspiciously ??

    And cost of purchase is directly proportional to Sale. There is only 22K reduction in Sale where Cost of Purchases reduced by almost 50K.

    And same with Wages as well ??

    Can someone suggest me do I see this suspiciously or you think it is normal.

    By the way, business is operated fully managed in year 2013 and not sure about year 2012.

    Any suggestions ??

    Also want to know what kind of information I can ask from the Business Broker or previous business owner regarding business ?

    If previous owner is in business for 1 year only, how can we get the statement for year before or last 3 years which is required for loan purpose and also check the business activity ??

    #1163084
    Tony Manto
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    I agree there are some alarm bells there… First on is why after 1 year the owner is selling? I really need to see the total figures to give you the answer. Have cost of goods gone up? where has the extra profit come from. It one thing to look at the bottom line but if you look at all the facts, the answers should be there.

    Questions I would ask is why!!!!!

    #1163085
    smurf1
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    Hi microchip,

    I agree with Tony, need more information on this one!

    Any information on the Lease Agreement for the premises (if any).
    It is always recommended to have a commercial lawyer sift through the Lease Agreement to scope any unsuspecting clauses.

    I know this is subway, but you don’t want to be the guy that needs too sell 5000 cups of coffee just to break even at the end of the month :(

    Mark

    #1163086
    microchip78
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    smurf1, post: 188583 wrote:
    Any information on the Lease Agreement for the premises (if any).
    It is always recommended to have a commercial lawyer sift through the Lease Agreement to scope any unsuspecting clauses.

    Hi Mark, Business broker sent me the Lease agreement but I dont know what should I look in to it? I thought it is just a legal document for me to know this is a lease agreement. What kind of information I can find in that ?

    #1163087
    microchip78
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    Tony Manto, post: 188582 wrote:
    First on is why after 1 year the owner is selling?

    I am certainly asking that question again. I asked that question before but you know that there are many answers of that question? But I didnt have figures at that time. I will be certainly raising that again.

    Tony Manto, post: 188582 wrote:
    I really need to see the total figures to give you the answer.

    What do you mean by all the figures …

    Tony Manto, post: 188582 wrote:
    Have cost of goods gone up? where has the extra profit come from. It one thing to look at the bottom line but if you look at all the facts, the answers should be there.
    Questions I would ask is why!!!!!

    As per my understanding as time pass by cost of everything increase because of inflation of you don’t consider any other factor. But in this scenario, cost of food (Cost of purchases) reduced by almost 50K from Year 2012 to Year 2013.

    Once could argue that, cost of purchases has reduce because sell has reduced but sell reduced by only 22K where purchases has reduced by 50K. That is my concern?

    #1163088
    Tony Manto
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    Contact Talie Ryan she will give you the help you need.

    #1163089
    microchip78
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    Tony Manto, post: 188587 wrote:
    Contact Talie Ryan she will give you the help you need.

    Thanks Tony,

    I will contact her first thing tomorrow morning.

    Regards,

    Chirag

    #1163090
    smurf1
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    Not to reinvent the wheel:

    http://www.propertybeyond.com.au/publications/153-beware-market-rent-review-traps

    A Lawyer told us a story about one of her new clients, had signed a lease agreement for a front shop at a shopping centre. Unfortunately they signed it without looking though all the clauses, rent review / exit particularly. But basically the clauses were to the advantage of the Landlord and did not consider their shop was at the abandoned side of the shopping centre so less foot traffic. So when the rental review came it was increased significantly due to apparent increase in visitors to the complex. It was pretty absurd as their end of the shopping centre was still a ghost town.

    *cue tumble weed*.

    So basically before you sign it, make sure you go get a lawyer to read through.
    It might cost you a few hundred dollars, but it could save you thousands of bucks and pain and suffering.

    I hope that helps.

    Mark.

    #1163091
    StevenMelbourne
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    You definitely need to break down those figures more and see exactly what they are.

    In year 1 the cost of purchases may be high as the previous owner may have included other costs in their (e.g. $10k for a toasting oven, refurbishments etc…). If it just purely input materials then there is something wrong – as prices tend to go up year on year

    Wages can be reduced by the owner working more themselves, and not paying themselves a salary, so it appears outside the books. Potentially in year 1 the owner had a salary and in year 2 the owner didn’t. Again need to look into the details.

    My good friend bought a Subway a few years ago and did ok, location is critical, also should ask why the owner is selling.

    Cheers,
    Steven

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