Opening a franchise can be an exhilarating endeavor, but there are so many things that can go wrong.
You should also know that you can’t just open any franchise you want as some companies are very selective in who they choose to work with.
Some have stark requirements for applicants when it comes to their net worth, experience, and other business dealings. If you don’t live up to those requirements in the first place, you won’t even be able to open the franchise you’re hoping for.
Opening a franchise also isn’t that simple as you’ll first have to find the right one for you. You’ll need to look at FDDs (franchise disclosure documents), failure rates, and more before you make up your mind. In this mini-series, I take a look at different companies that I get asked about frequently.
In this part 3 of opening a franchise (read part 4), we’re taking a closer look at The UPS Store, gas stations, and Papa Murphy’s.
The UPS Store
The UPS store is a popular franchise to consider opening and one that we get asked about a lot. It’s surely a household name, but that doesn’t necessarily mean that it’s a good investment decision.
With mostly daytime hours, this business concept does everything from shipping to business services. Mailbox rentals are offered for both B2C and B2B.
As the The UPS Store’s FDD states, it requires an initial investment ranging from $212k to $497k in order to get into this business with the franchise fee sitting at $29,950. While the number is 50% lower for veterans, the remainder of the investment will still need to be secured and invested.
With the core business as pack-and-ship, you’re probably familiar with the concept as is. It’s not personally a concept I love for a business because your customer base is focused on intermittent needs rather than on a consistent basis. Unlike thinking you want to grab a Papa Murphy’s sandwich, you don’t just crave going to the UPS store.
It’s also common for the owner to work at the location to start with. The good thing about this business is that the company is great at supporting individual owners.
A part of me questions whether the need for UPSs will remain high given consumers’ increasing demand for online shopping, and largely through known brands like Amazon. With royalty fees being a mere 5% and marketing ranging from 1-3.5%, UPS is not greedy on that front. The bigger question is whether you believe in the brand.
Gas Stations
I often get asked about opening a gas station franchise, and the reality is there are several to consider. Shell, 7-Eleven, and Chevron are ones to consider.
They range in the offerings they have, but they’re generally all locations that require considerable upfront capital to get started. Many cost $2M-$5M to get started as there’s land, construction, tanks, and convenience store that all need ot be set up.
A popular option is just to purchase an existing location instead.
Their models range significantly, so whatever franchise gas station you’re looking to open, you’ll want to get into the nitty gritty of each.
For instance, 7-Eleven requires a $150k net worth, which is low for a franchise. On the other hand, oil companies like Shell and Chevron require franchisees have liquid capital of at least $500k but often exceeding $1M. In addition, you’ll need a net worth that often excess $1.5M to get started.
For this type of business, you’re typically looking at initial franchise fees of $25k-30k, and then you have ongoing fees that will all depend on the specific business. Shop sales area typically specified as a percentage while gas sales may be a few cents per gallon.
Papa Murphy’s
Papa Murphy’s is an interesting franchise concept to open in a lot of ways as it differs from Domino’s. With its take ‘n’ bake concept, it doesn’t have customers spending time with an dine-in experience, nor does it have the operations of dealing with steaming hot ovens.
With its storefront kitchen, you get the lower costs and the benefits of easier operations, which is a thing I very much love.
To open a Papa Murphy’s franchise, you will pay a $25,000 franchise fee, although the overall cost to open a location is much higher ranging from $367k to $670k. In addition, you need a $350k net worth to get started with liquid capital of at least $125k.
While all the above makes it one of the cheaper franchises to start, the question partly comes down to whether you believe in the concept or not. I’ve personally only rarely thought that a take ‘n’ bake pizza was what I craved, and I largely eat out for convenience.
When the line gets very blurry between what a grocery store offers and what a franchise offers, that’s when I become skeptical of the concept. The Papa Murphy’s royalties sit at only 5% and 2% going to advertising. While 7% is a very reasonable overall number for a franchising company to take, it doesn’t make up for it if you don’t like the concept.
While it offers a great, fast option for busy families, it’s a no from me because of the product.
