YES it sounds like you have cash flow issues with my new franchise.
First of all welcome to this web site. It also sounds like you are trying to close the barn door
as the horses are running out.
You bought this existing franchise. Did you have YOUR Lawyer?? and Your Accountant??
What did the legal closing papers say about inventory??
Can you or did you speak to the Subway Franchise At the Top. (can not come up with the right
words BUT the Corporation "Subway".
They will want to know what is happening locally.
Good luck, LUCKIEST
Yes I did use my own lawyer and accountant. How efficient my accountant was I'm not sure. Yes I am trying to close that barn door as I am rather fond of the piece of property that the bank has secured my loan with. :)
The local development agent for subway is supposed to support new franchisees when they start out but ours is pretty hands off unless a serious problem arises. He owns the majority of Subways in town and is nearing retirement and dosen't need or want my problems.
Cash flow issues with my new franchise.
The local development agent for subway is supposed to support new
franchisees when they start out but ours is pretty hands off unless a
serious problem arises.
YOU HAVE A SERIOUS PROBLEM. Can you go above him up the corporate latter.
YOU NEED TO MAKE WAVES, "PLAY POKER" You To Threaten even if you don't do as you threaten.
Tell Subway you are going to the newspapers, plan to take out big bad ads telling the world that
Subway is not supporting their new franchise. In poker, that is called BLUFFING.
I love a good (clean fight) Always root for the under dog.
Obviously, there was an unanticipated cost associated with restocking your food, but with that out of the way . . .
As you probably know, your monthly costs of $22K are about average for a typical Subway franchise. The revenues for an average store, however, are about $30K a month -- so your store is seriously underperforming at only $18K in monthly sales. Something is going on there that has sales about 40 percent below where they should be.
It could be something related to your store location and business climate -- and that could be why the previous owner sold it in the first place. (Roughly half of the existing Subway stores that are sold to a new owner/operator eventually fail/close.)
On the other hand, you mentioned that you are essentially an absentee owner, so the problem could be your manager and things that he/she is or isn't doing to maintain a clean restaurant, provide fresh and healthy food, ensure fast and friendly service, control costs, and prevent losses.
Subway is a decent franchise, so I'd tend to think the root problem lies with how the store is being managed. Have you set specific revenue and cost targets? Is the manager well-trained and capable of achieving those targets? Is the manager fully committed to the job, and are you paying and rewarding him/her accordingly? If any of these is "no," that's where you fix can begin.
If an owner's level of active involvement of comparable to a hobby (as you suggested yours might be), then an exceptional manager is needed on site -- or things will get very expensive for the person paying the bills.
Hope this helps. Best wishes.
Thank you for your thoughtful reply. The store has had two previous owners in six years. The last one was an absent owner and the store was dirty and the employees were presenting themselves similar to the gang culture. They are gone. I do have a manager that I like very much. He has cleaned the story and hired some decent kids and many of the problems we had early on are gone. We have had many lovely comments from customers and even ex- employees at the vast improvement. When I got the keys Sept. 29, we were robbed at gun point 4 times in two months. The existing manager came to work with hickeys on her neck, they were stealing. Now all of that is taken care of. I have a new ownership sign on the building and a new surveillance system which has dissuaded the roberies and theft. I had to replace many things as they were very run down or broken.
I think location is part of the problem. I have hired an advertising co to start with coupons on the back of Albertson's receipts. My seller neglected to tell me until after I had given him $5,000 that there would be a mandatory remodel required one year from now. I think I paid too much for the restaurant given what I know now. (150,000+2500 in inventory +2750.00 half of the transfer fee) The payment is steep amoritized over 7 years. My manager was inexperienced as was/am I. We knew we needed better and more efficient employees so he tended to schedule too many so that he could improve the history of terrible customer service. We both wanted to present a better picture to the customers so we probably over did it. In addition we probably bought too much food early on.The previous owner did not carry all the cheeses for example. to cut costs and again we wanted to present our restauant as a fully stocked and well functioning. The problem as you say is it is a low volume store and therefore does not support what we are trying to acheive.
You have done a lot of careful analysis, identified many problems, and made radical improvements -- probably more than you wanted or expected to. It seems like this a "turnaround" effort now, which can have many challenges, but also many rewards. In the type of environment you describe, a profitable business can not only contribute to your quality of life, but may also have a long-term positive influence on your employees and the entire neighborhood. It isn't easy to get things going in that direction, but it can be done -- and it's definitely worth trying.
The key is keeping an eye on your numbers and on all the other indicators you have been watching anyway. Set targets, and when a goal is reached or an improvement occurs, share the news and celebrate. People want to be part of winner, so let them know the score. On the other hand, if a particular objective just isn't being met in spite of your best efforts, know when enough is enough and cut your losses, if necessary. Honestly, you sound like the kind of person who can make this work, and I'm certainly hoping you can!
Thank you for the encouragement. I do really appreciate it.
I am sorry to hear of your troubles. I think you identified a big problem-you paid too much for the store in the first place. Just a few days ago I purchased a Subway with sales similar to yours for $90,000 + $5,000 transfer fee = $95,000. The store also needs remodeled to the Tuscany decor, and my regional Subway representative said to budget $40,000 for that. Altogether, I have a loan for the purchase price amortized over ten years and the remodel costs will be my own contribution. At current sales, my estimated owner's discretionary cash flow is around $1850. The loan payment is a bit over $1,100, leaving me some buffer even if sales never increase. Estimating your cost of the loan, I can see how you aren't able to break even. You said you had your accountant look over the books. I suggest finding a new accountant. I am an accountant myself, and I can tell you that it isn't difficult getting a break even estimate in a relatively simple business like a single Subway franchise.
Ok, what's done is done. However, even with your high loan payment, I am still having difficulty figuring out why your expense are $22,000/month. Unless your lease is very high, you shouldn't be much over $19,000. Have you closely examined the sales reports and looked at labor? Subway says one person should be able to make 10 sandwiches/hour, although 6 is more realistic. Look at the sandwich volume, and assess if you can cut staff hours. Does you manager report to you a count of the bread and supplies, to indicate if the staff is stealing and/or giving away food? Did you look into getting a waiver to the Subway 98 hour requirement so you can reduce costs by closing earlier?
Another issue you will soon be facing is the remodel. You didn't mention how extensive it is. If you aren't currently in the Tuscany decor, count on at least $30,000 for that. The remodel is required by Subway and the due date is printed on the combo reports, which is another thing you should have gotten from the previous owner. You can't continue losing $4k/month. I would consider drastic measures if my store persisted in such a condition.
I hope I provided you with some things to think about. Good luck, and please update us on your progress.
I hope these suggestions have provided some insight.
Are you getting actual P&L's back from your accountant or just using the Subway WISR report? What is your current Food Cost and Labor Cost? Are you (not someone else but YOU!) doing the bread count every day? How 'bout the Daily Inventory?
There are lots of ways to get a handle on your problems.
I am considering to buy a subway franchise and trying to know what all i have to do.
I have a quick question for you ? do you know how to read subway sales combo report.
I have a store who is making weekly about 5K, that comes to monthly about 21K roughly and this is store with in walmart with 8% rent on sales. Do you think it is a good buy ?
I have 22 years with Subway, as an aowner, DA and broker, and can diagnose many problems and suggest solutions. Check out www.mrfranchiseman.com for full Subway details for buyers and sellers.
Creating Cash flows are a major problem with new franchisees and buyers; lots of help available at the same site.
You will find banks turning you down for loans too - cash flow must be airtight
mrfranchiseman invites you to pick up your free report on "10 biggest mistakes franchise buyers make" at www.mrfranchiseman.com
I'm so sorry for your problem with this new business purchase. I don't mean to sound cold in my reply. But part of this reply is a warning to others.
For you, - the obvious. If you keep on doing what you're doing, you will keep losing money. So an infusion of more money is not the answer. It's just a stall. You MUST- MUST find ways to lower your overhead and increase sales. It's your only hope of survival.
As a warning to others: If you aren't strongly experienced in business, don't purchase a business on your own, without an advisor. People hesitate to to pay a fee or commission to a business intermediary. But in this case (as in many others), a buyer's agent could have helped you prevent these problems. He would have helped you analyze the books more thoroughly and included in the purchase contract the amount of inventory that would be included in the sale. He may have discouraged the purchase altogether.
There are two reasons why most businesses fail within the first 5 years. One is lack of business experience, and the other is lack of sufficient funds to carry the owner to the break even point. A break-even analysis is a bit complicated for someone who's never prepared one. But it can be the difference between buying a business for which one has inadequate funds.
I'm so sorry that you are having this problem.
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I am three months into owning an existing subway franchise and I am concerned that my expenses are so much more than I expected. In other words I think my income is roughly 18000.00 per month and my expenses are 22000.00 per month. I work full time and have another business in trucking and basically revenues from the stable have been supporting the subway and cash is getting short. I had the assistance of an accountant to analyze the numbers for me before I started and he seemed to think I would be alright. It was difficult to analyze because the sellers accountants compiled all three of his subways together and I don't think he disclosed all of his tax obligations or true costs. In addition he stripped the store of most all of the inventory and I had no idea how much I would have to buy so I have racked up 12,000 in food costs and am on COD already with the food vendor. I have good credit. I have recently refinanced my house to free up some of my personal obligations but I don't like the idea of having to put all of my personal resources in to the business. I bought it with the hope that it would contribute to my bottom line not suck everything dry but at this point it feels like an expensive hobby. I want to get a handle on this early on before it consumes my family. Any advice on how to help this pedictament?