schlimm Retail and restaurant trade are tough. Most fail within a few years.
Retail and restaurant trade are tough. Most fail within a few years.
True.
Restaurants require owner participation at a min of 70-80 hours a week for the first three years if not more depending on the staff you hire. After a few months of those hours and zero pay........came to the conclusion I was better off in IT with my stock market earnings on the side. Even though I felt I could have slogged it out and made it work, it was really ticking me off that the mall and franchisor were profiting more from my work than I would be. The greedy lease was the nail in the coffin for me.
Silver lining is with the restaurant / CEO experience on my resume my next IT job paid 25-30% more than the one I quit to start the business. So it wasn't all bad.
BOB WITHORNCMStPnP, Percentage rent killed our store at 12 Oaks Mall in Novi, mi. The mall owners notified us they would not be renewing the lease because we weren't paying any. We had just finished paying off the Franchisor, it was a factory store, and had sales increasing, figured we could start to recover the investment and got kicked out. In the Saginaw, Mi store we fortunately had a great lawyer. Mall wanted 5 years w/ personal guarantee etc., they got 5 years but only 1 was guaranteed. The rent was paid on time, they never promoted as the said they would. We lasted 16 months and we were at center court. After closing on a sunday we loaded up the rental truck and pulled out. They sued on monday, they lost and we were out $60G investment. Cheap considering we could have been stuck for 5 years. Moved it to Frankenmuth, Mi and did fantastic for a few years then ok until we quit end of 2013. Mall owners in Frankenmuth were very reasonable and realistic, after the first 3 years traffic and sales started to fall. They were willing to adjust the rent enough that we were able to stay open 12 years. They simply would sit down and go over our sasles and we would come to a price with no guarantee just pay on time, we did. BIG difference working with local family owners instead of distant corp. owners.
See in your case my first suspicion would be the mall company acting in conjunction with the Franchisor because they got you to pay their construction costs and fees and sales were increasing. Sounds like they wanted a buy back of the location....that would be my suspicion.
What shocked me initially in my case was the Franchisor immediately took the position of the mall company, that I was being unreasonable and that the franchise location was just badly managed vs in some financial stress. So I suspected that my franchisor was in cohoots with the mall company to an extent even though they stated they were not. They both kept vital facts from me during the sale as well which again pointed to coordination between the two parties.
They wanted me to sign 10 years with personal guarantee, $10,000 a month for just under 2000 sq feet (comparable to New York City Manhattan rent.....for a Dallas suburb). For those readers that are unaware a personal guarantee is that you pledge your personal assets like your house, retirement, etc so they can get around the "limited liability" of your business structure (C Corp in my case). It's whole intent is to force you to Chapter 7 Personal Bankruptcy along with 11 for the Corp so it sticks with you half your life and you cannot bounce back to screw them with another Bankruptcy......thats the reasoning behind it. It's the old Mob adage, "you screw me and I'll screw you".
So I would be resonsible for the lease and finding a new tenant if my business failed within the 10 year term until the 10 year term completed AND would be responsible to pay if the new tenant did not pay. I told them GTFO on that clause and everytime it appeared I would cross it out in the negotiation. They have a mall lease sales team and I'm sorry I am not mananging their mall lease space for them in addition to their taking a cut on my gross sales. Too greedy.
Agree with you that family run malls probably easier to deal with. Franchisors love the big mall firms though because they want as few deals nationwide as possible and want choice locations in each large city. I have a better idea though for my next business attempt..........no commercial leases.
What is the local match? This can be as little as 5% or as much as 50%. My county has just made a 5% match for the Airport for essential air services.
I'm sure everyone knows the first rule in how to make a small fortune in the restaurant business....
C&NW, CA&E, MILW, CGW and IC fan
RMEPart of the art of commercial leasing is negotiation, and most commercial lessors are not willing to give a fair deal unless you practically force them into it. That is part of the reason I went into buying investment property for office space long ago; the only problem is that unless you're a partner in malls or centers you have to develop a whole building or even PUD in order to get many of the kinds of space you need. (Note that this is the approach the Waffle House has used for many years; they buy space away from 'key corners' and rely on their brand and signage for traffic... but they own every location they build.)
I agree.
Well what happened in my case which was pretty fortunate and also at the same time fairly funny. The guy that sold the business to me, his lease ran out and he got the Mall to stupidly sign a letter that he was free and clear. But what happened was they let me in without signing a perm lease only with a letter of intent. The letter of intent was so poorly written and the lease that they wanted me to sign at the point of the letter of intent was so illegible my lawyer said I didn't have to pay them any rent for the time I ran the business or occupied their space. However it was his advice I make a good faith payment for each month based on what I felt was fair so that they didn't attempt a counter suit to collect (which my lawyer said would eventually fail but he did not want to see me having to pay court costs).
What happened is the original owner disappeared after I paid him for the business (as in no forwarding address). So the mall could not go back to him and collect, they couldn't really demand that I pay because I never signed a lease. So I had them in a fairly good negotiating position on what my future lease would be. What happened is like you stated above, they started playing games with the lease terms basically rearranging terms of the lease to make it look like they were cutting me a break when they weren't (trying to run out the clock or produce legal fees for me). After 6 months of that I told them, I had enough, I am pulling out and liquidating the restaurant. Then the mall lease guy calls me and capitulates to my terms entirely and says: "He will ask the Mall parent company to issue the lease on the terms I asked for but he couldn't guarantee they would listen". I told him I wasn't going to buy in on a "maybe" and I told them I was tired of waiting and paying legal fees to analyze each offer they made. Franchisor then attempted to step in and told me I was being unreasonable. I countered with, you can have the restaurant for $1 if you can sell it in a month under the lease terms the Mall is offering. They were just floored, what a great deal for them they said. A month came and went and after 4-5 perspective buyers that all said NO. I told the Franchisor. OK, so I don't want to ever hear again how I am being unreasonable because you yourselves could not sell the place at a fire sale price given the malls lease terms. So that tells you something right?
So I liquidated and shut the place down. Left the Franchisor on good terms but I am pretty sure the Mall that tried to screw me on the lease......doesn't like me. One sign of that dislike was they changed the locks on the doors to the restaurant and posted a guard so I could not liquidate. Attorney called them up and told them they had no legal basis for that without a signed lease and I was entitled to liquidate. So the mall is still PO'd I am sure. And there is still a vacant storefront where my restaurant used to be. If they had dealt with me honestly, maybe I would still be there.
CMStPnPI'll say this though I am not turned off by owning and running a business and will do it again before or after retirement but the second time will make some minor changes (no commercial leases, no franchisors.......just me with a concept and perhaps some like minded employees).
It sounds to me as though you know 110% of what is necessary to write an effective franchise OS in your target market, including what is appropriate for private franchisees to 'value-add' to the concept without interfering with the core brand values and perception.
You also have the practical experience and 'tips and tricks' to teach people that are the real value of the early part of a franchise relationship.
One point: if you have set the business up correctly the cost and risk of 'expanding to a second location' is probably far less than just opening up two separate restaurants -- and the additional volume and shared overhead, etc. may well make two very successful where middle expenses and the like make only one operation look barely over break-even.
Part of the art of commercial leasing is negotiation, and most commercial lessors are not willing to give a fair deal unless you practically force them into it. That is part of the reason I went into buying investment property for office space long ago; the only problem is that unless you're a partner in malls or centers you have to develop a whole building or even PUD in order to get many of the kinds of space you need. (Note that this is the approach the Waffle House has used for many years; they buy space away from 'key corners' and rely on their brand and signage for traffic... but they own every location they build.)
Depending on your volume, even a 10 cent increase on items can dramatically improve your net.
schlimm With many (not all) franchises, you are paying a lot and in return, only get brand name recognition, which may be of only limited value.
With many (not all) franchises, you are paying a lot and in return, only get brand name recognition, which may be of only limited value.
True they do provide some field support though with their POS systems and advising me how to run the place. The so called Franchise Consultant that was in charge of advising me, allegedly him and his family owned and operated 11 McDonalds locations. I have to tell you though his suggestions were mostly worthless and idiotic and as soon as he suggested they went into the mental trash can in my head. I mentioned to the Franchisor as I signed the termination agreement they need to hire Franchise Consultants that actually have run a location and have a track record of success with the company they are working for.
One of his ideas to bring in revenue faster........sell Cookies for $1 a piece. You don't have to be a genius to figure out in your head they have to be really great cookies and fairly large size at that price OR you need to make them yourself for that idea to work at that price. Smarter to raise the price of drinks and fries....which I did, nobody really noticed and no drop in sales.
BOB WITHORNCMStPnP is dead on with retail/commercial. You really don't have anyplace to go for most tax increases and as a small business, you do pay a much higher percentage of your total income than a large one does. In a captive retail location there is some room to adjust for some of the 'new' taxes with a higher sell price. You can raise the price of a 'T' shirt from $18.95 to $19.95 and not have a huge falloff, (we did that and survived for a while). But, in a small wholesale industrial supply business there is no where to go, (unless you are the only guy in town and there is no internet service). How many of you buy stuff from an online company like Amazon or Uline? Excellent customer service, quick ship, typically in-stock and often higher price. If your a small business your paying more tax than the large public corps. as they have far more opportunities to offset. In our first 20 years,(industrial), we grew from $0 to about $5 mil. per year and were netting about 3 1/2%. In the mid 1990's the gov't. became our biggest 'shareholder' and the net dropped to just about 2%, same sales, same margin, so "someone" had there hand in the cookie jar. Our prices went up, sales went down. Start the 2000's and we get the internet in full bloom. There is no longer a way to raise a price and the Gov't isn't interested in your dilemma, especially when Michigan elects Gov. 'Barbie', sorry Gov. Granholm. Result, after 40+ years, four retail stores, (very small ones), a lift truck sales and service company, (a small one), and a small (large to us, 21 employees) industrial supply company, they win, I QUIT. They can have 100% of the tax that the non-existent company produces. El Trumpo and Hitlerie can pretend they can find all kinds of 'NEW' money and you can stick your head... in a cloud... and believe anything you wish, but it still comes down to they will raise taxes and prices will go up because the money WILL come from the small private companies. Sorry, back to my padded room.
Here is what shocked me the most about the Commercial Lease and Franchisee behavior that just convinced me to exit out ASAP. Spoke with Mall Management on me instituting home delivery and on the spot mall delivery (for mall workers) that ordered over the Internet. Here is what I ran into:
1. Mall says HELL NO to reserved space by my back door for Catering or Delivery Van loading. Instead I would have to walk the hot food a fairly substantial distance over an open parking lot. Further overflowing garbage dumpster in parking lot is not their issue it's more a tenant not using the compactor and city issue which is providing the dumpster. Not their problem some restaurants are holding garbage in their establishments overnight (gross). Needless to say I spent some considerable freetime working the compactor on the dumpster and getting my garbage in it, which I wasn't compensated for. Problem was compactor would overload and nobody knew how to reset it except a very few people I made a Mall maintenence employee show me how. Other mall lessees.....too lazy, would rather heap trash and garbage around a not functioning compactor (that only needed to be reset).
2. Franchisee says SO WHAT that their vendor's Internet capabilities suck and again restates that they do not generally support delivery or catering but would rather have clients come into the restaurant to eat. Equally clueless on advising what containers are best for catering or keeping food warm. Catering, Delivery and Internet Ordering are my problem they state.
3. Despite their lack of any help, both want a cut in on the gross revenue above $480k with an increasing percentage above that amount (ie: they are getting rewarded for my hard work). I calculate I'm at $400k annually without any Catering business and without Internet ordering capability or Mall Delivery. Can probably use both to increase over time to $600-650k annually, which would take me to marginally profitable with the ablity to manage absentee. To be really profitable and pay what everyone wants I need either a second location or a gross of $750k. Not smart to expand to second location unless the first is very successful because your only increasing the headache.
I'll say this though I am not turned off by owning and running a business and will do it again before or after retirement but the second time will make some minor changes (no commercial leases, no franchisors.......just me with a concept and perhaps some like minded employees).
The point about whether a corporation pays taxes is similar to the point about whether an employer pays half of an employee’s social security tax.
People pay corporate taxes in one of three ways: as shareholders who get a lower return on their investment, as workers who receive lower wages, or as consumers who pay higher prices.
Some economists believe that capital and labor bear the whole burden; others believe some of the burden is passed through to the corporation’s customers. Who pays corporate taxes is controversial.
Corporations manage their tax liabilities for the same reason individuals do. To pay the lowest possible tax and, therefore, minimize the tax burden on shareholders, workers and/or customers.
How much a corporation's tax department costs varies widely. A large international corporation may have hundreds of tax specialists in their tax department and numerous outside consultants.
Corporate taxation is a complex subject made even more so because of the international reach of many large corporations. One thing is clear. Corporations don’t pay taxes.
Rio Grande Valley, CFI,CFII
Euclid schlimm Euclid schlimm CMStPnP JPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax. Some people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?" Corporations resist tax increases because even though they can pass taxes through to the end consumer, it is not without penalty to the corporation. Every time a corporation passes a new tax through, it raises the price to the end consumer. Every time a consumer is confronted with a price increase, they either reduce their consumption or seek a lower cost alternative. It makes no difference to the consumer whether the price increase is solely at the discretion of the corporation or the result of passing through a tax increase. My question was obviously a rhetorical one. Okay. I thought the point of your rhetorical question was to refute the claim by some people that "businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user." My point was that business still feels the burden of the tax increase and that is why they spend money to fight it.
schlimm Euclid schlimm CMStPnP JPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax. Some people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?" Corporations resist tax increases because even though they can pass taxes through to the end consumer, it is not without penalty to the corporation. Every time a corporation passes a new tax through, it raises the price to the end consumer. Every time a consumer is confronted with a price increase, they either reduce their consumption or seek a lower cost alternative. It makes no difference to the consumer whether the price increase is solely at the discretion of the corporation or the result of passing through a tax increase. My question was obviously a rhetorical one.
Euclid schlimm CMStPnP JPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax. Some people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?" Corporations resist tax increases because even though they can pass taxes through to the end consumer, it is not without penalty to the corporation. Every time a corporation passes a new tax through, it raises the price to the end consumer. Every time a consumer is confronted with a price increase, they either reduce their consumption or seek a lower cost alternative. It makes no difference to the consumer whether the price increase is solely at the discretion of the corporation or the result of passing through a tax increase.
schlimm CMStPnP JPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax. Some people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?"
CMStPnP JPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax.
Some people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?"
Corporations resist tax increases because even though they can pass taxes through to the end consumer, it is not without penalty to the corporation. Every time a corporation passes a new tax through, it raises the price to the end consumer. Every time a consumer is confronted with a price increase, they either reduce their consumption or seek a lower cost alternative.
It makes no difference to the consumer whether the price increase is solely at the discretion of the corporation or the result of passing through a tax increase.
My question was obviously a rhetorical one.
Okay. I thought the point of your rhetorical question was to refute the claim by some people that "businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user." My point was that business still feels the burden of the tax increase and that is why they spend money to fight it.
Um, that's the same thing.
schlimmSome people claim businesses are not the ultimate payor of those taxes, as they believe they are passed on to the end user (customer) in what you charge them. That is certainly true of sales tax, and maybe for property taxes, etc. but I think it's debatable for income taxes. I always ask people who claim this, "OK, then why do corporations spend millions to reduce their income taxes and pay millions more for lobbyists to create loopholes is the tax code?" A
I would argue that yes sales tax is a pass through because I would buy the food ingredients tax exempt, so only the value add is being taxed via reduced profit for sales tax. Pretty much wholesale to restaurants of fresh produce is cheaper than COSTCO or Walmart so I would even argue the value add part is probably covered as well.
Property Taxes and Income taxes reduce profit though I would argue that Property Taxes have to be paid regardless of profit or loss so it is the more onerous of the two and any and I mean any business improvement that you do, will increase your property taxes by the increase in value of the improvement and this includes new seating booths, new point of sale terminals, etc. You have to refresh a restaurant internally with new equipment and furnishings every 7-10 years or your look becomes dated and your appliance breakdowns start to really cost serious money.
I can dodge part of my income taxes via bookeeping slights. I never did that and always kept to 100% CPA rules but the previous owner of my restaurant put both his cars on his P&L as business expenses (yes it is illegal), and he also took cash out of the register for him and his wife and wrote it off as food losses or comps.
If you ever buy a small business it is almost impossible to tell how much they really make in profit as quite a bit of small businessmen are cheating AND I don't want to come across as racist here but buying a small business in the United States is a method of skipping to the front of the line with becomming a U.S. Citizen. So hence you see a lot of small business people in the restaurant and retail category, that should not be there......first generation immigrants and in their home countries corruption was the rule of the day and some of them brought the bad habits with them. We as a country should screen that hole a little more with our reformed immigration plans.
So what you have when you buy a small business is claimed P&L that is probably partly BS and you have to go through it with a CPA along with watching the business for a couple of weeks to see how honest the guy is. When the seller is reluctant to share financial info with you (heard every excuse in the book)........you know they are attempting to scam you and it is a good screening mechanism but some scam artists even slip through that net.
Whoops, went off the rails on this discussion.
I would opine that corporations and individuals have similar issues.
If I have no assets, I have nothing to write off. If I have plenty of money, and thus plenty of assets, I can start writing them off and thus reduce my tax bill.
Thus a multi-billion dollar company has plenty of assets to depreciate, and other things to write off, and can afford the people needed to document them.
A small corporation likely has neither.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
The reason that corporations can pass the cost of a tax increase on to their consumers is that the tax increase is a universal mandate that falls evenly on all corporations. Therefore the competition between corporations does not hinder the price increase because all corporations must do it together.
For example, if the government decided to levy a new tax on just one widget maker, they could not pass the added cost to the consumers because the consumers of higher priced widgets would just shift to the other widget makers with the lower price.
But all of this does not mean that the corporations get a free ride. Corporations can certainly be driven out of business by a tax increase.
In a general, but consistent way, unless the end-user/customer is the only one left holding the bag, so-to-speak, a business can't sustain itself. It MUST pass on its costs, including expecations of profits, to the customer.
CMStPnPJPS1 Second, businesses, for the most part, don't pay taxes. I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax.
JPS1Second, businesses, for the most part, don't pay taxes.
I had to pay property taxes on personal property within a leased commerical mall space and it came to approx $5000.00 a year for one Fast Casual Submarine Sandwich Shop. Additionally, payroll taxes, unemployment tax and sales tax.
Commerical Leases are NOT anything LIKE residential leases. Which is a fact most readers here might not understand. With a Commercial retail space lease your responsible for a lot more of the upkeep and maintenance of the building than you are with a residential lease and it is listed as seperate line items on your commerical lease. Residential lease you only pay one lump sum in most cases and thats it. Commerical Lease there were in my case at least 7-8 line items I had to pay in addition to the leased space.
With my lease I was paying for heat and AC, some mall improvements, mall marketing, security protection, percentage of profits above a specific level, fines if I broke their hours and days open requirements, garbage disposal and pickup, etc, etc.
diningcar Politics!!! Any numbers thrown around in campaigns are meaningless. It never happens the way it is proposed, and probably should not be. After all Congress must instigate legislation for any such proposals to become action.
Politics!!!
Any numbers thrown around in campaigns are meaningless. It never happens the way it is proposed, and probably should not be. After all Congress must instigate legislation for any such proposals to become action.
It is that time when every four years we are awash in Political Bovine Excrement....Every politician is 'shoveling' for all their worth, and counting on the public having the retention and attention time of gnat.
It seems we are reduced to making our picks as to whom we like as an office holder candidate, not by a process of natural slection; but by chance, similar to an errant bar room dart throw...
Here is the information from Clinton's webpage, although I believe it was a link.
Bruce Kelly Gotcha. I see that buried $500B figure. Does deserve a bit more explanation by the intredid Trains news reporter(s).
Gotcha. I see that buried $500B figure. Does deserve a bit more explanation by the intredid Trains news reporter(s).
Yes, also if you Google Trump said he would double whatever Hillary offered, so if Trumps proposal is 1 Trillion then Hillary's has to be $500 billion. If Hillary's proposal is $275 billion then Trumps is closer to $500 billion..........that was the game the Trump campaign was playing with the press at the time.
But Trump has stuck with $1 Trillion even though the media is reporting he promised $500 billion......so the confusion on my part and I can see how Trains would make a mistake.
I can't follow the numbers here on what is private / public or how certain $25 Billion seed money from taxpayers will result in $225 Billion in private money or how Trump will replicate on a larger scale.........all undefined. So perhaps that is why they are sticking with $275 Billion as it is concrete??? Beats me.
Our community is FREE to join. To participate you must either login or register for an account.