Fast Food Franchises

In my opinion, the hardest hit industries in these economic times are real estate agents, furniture and accessory stores, clothing stores and fast food restaurants. The first thing consumers cut out when they are on a tight budget is that expensive Starbucks. The kids, who are a big part of the fast food consumers, have found that they also do not have money because their parents have cut their allowances or stopped them all together. When there is money for fast food, or the family decides to eat out, they now pick the places with the cheapest prices. Lower priced establishments get the business and the higher priced pizza places do not.

My personal observation shows that sales are off 20% just since August in the fast food places that I have inspected. The problem of decreasing sales doesn't end with just the volume being lower. The three largest expense items for all restaurants are food, labor and rent. As the volume goes down the food and labor costs can be cut back, but the rent is fixed and cannot be reduced. This creates the following situation. As the volume drops, the percentage of gross sales that goes for rent increases and the difference increases the loss. One sandwich place in a major San Fernando mall is paying $13,500 a month rent. When the sales were $50,000 it was 22% of the gross but when the sales dropped to $35,000 the rent became 40% of the sales. A business cannot survive paying 25% rent much less 40%.

An observation made to me by a younger buyer who visited me to get help analyzing a sandwich shop was that, the asking prices have not dropped with the decrease in sales and profit. Also he noted that the advertised profit figures had not dropped. The 2007 numbers are universally what are being conveyed. A buyer looking for a steal today will not find it on the surface of what is for sale. They must look deeper and investigate the sales and profit of each business for the most current months, while ignoring what happened in 2007.

In order to find these steals, it requires the assistance of a knowledgeable experienced business broker who will honestly work to find out the true information about each deal and sniff out the ones that the sellers are motivated to sell. The motivation of the landlords is also a major consideration today. If they lower the rent, and the fast food business expenses drop, then the profit increases dollar for dollar. I have found that if you know how to approach a landlord from his point of view, you can make a better deal. I got the rent for one client reduced from $8,000 per month to $4,000 per month and they told him that they would not evict him for non-payment of rent because they didn't want the empty space.

There are many hidden income or savings that can be found in businesses in this economic market.

Willard Michlin is a Due Diligence and Business Evaluation Advisor, a California Business Broker and, a California Real Estate Broker. He has published many articles and is a highly recognized Public Speaker in the Southern California business community. He is available for speaking engagements. You can always write to Willard at willard@businessbuyingservices.com and he will always answer your questions. He can also be contacted at his Ventura County, California office by calling 800-864-0420 begin_of_the_skype_highlighting              800-864-0420      end_of_the_skype_highlighting.