Financing a subway store

Discussion in 'General Business Forum' started by Lewis5373, Oct 2, 2019.

  1. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    Hello all, newbie here!

    I am looking in to becoming a franchisee of Subway. I have requested the information pack, done some pre-research, and have worked for a franchisee as Sandwich Artist to Supervisor and to Manager in 6 months and am aware of how both the Subway store operations and franchising system within Subway (in the UK) works reasonably well.

    However I am concerned with finance. I have £16,000 in the bank now and will obtain a £32,000 inheritance in November 2020. Otherwise my record is pretty clean, both good and bad. Good in that I have no debts, a clean credit history, no family commitments, no mortgage and no other typial liabilities. However I also don't have much for security or any further starting funds at present.

    A new store, according to Subway, can cost between 86k and 223k and I understand that in this sort of case a bank may only lend to 70% which I may not be able to cover with my funds, although note I will consider other UK locations and would also consider purchasing an existing store but have no idea if that would be cheaper or more expensive and not something I have had a chance to look in to.

    Before I go any further, is it worth persuing this any further or is this all a waste of time because I do not have enough capital to go forward? How else can I obtain funds other than a loan or from family? Would an investment from a person be something to consider?

    Also if anyone has any experience with franchising a Subway store I would also like to hear from you. PM's welcome too.

    Thank you for any guidance.
     
    Posted: Oct 2, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #1
  2. Lucan Unlordly

    Lucan Unlordly UKBF Ace Free Member

    1,418 258
    I can't help with any of your questions but a guy I know found an empty shop and Subway negotiated the lease on it, securing an unbelievable deal that was much better than he could ever have hoped for. I believe him finding the premises first worked in his favour.

    Unfortunately the franchise didn't work out - wrong position on a parade of shops with 2 takeaways, a supermarket, off licence and a newsagents doing snacks.
     
    Posted: Oct 2, 2019 By: Lucan Unlordly Member since: Feb 24, 2009
    #2
  3. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    Well that gives hope for finding a cheaper propety price as long as the market research is adequate. Shame it didn't work out for him.
     
    Posted: Oct 2, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #3
  4. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,480 1,045
    I work with a number of franchisees to fund the cutout if stores. In many cases the franchise itself is funded by the bank.

    Start Up Loans can also help

    That said, it is ultimately a fairly expensive sandwich shop whose popularity is on the wane. £100k is a hell for f a lot to borrow without a very clear plan based on detailed research
     
    Posted: Oct 2, 2019 By: Mark T Jones Member since: Nov 4, 2015
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  5. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    For a franchise model it seems to be a bit easier on the start up costs, and my previous familiarity working at Subway as a manager gives me more confidence, however I have been doing some reading and others have mentioned that the market has slowed, that you need many stores to make a profit, among other similar concerns. But I can't quite afford the 1 million needed for a McDonalds yet!
     
    Posted: Oct 2, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #5
  6. Mr D

    Mr D UKBF Legend Free Member

    16,755 1,871
    Perhaps like any franchise you can make a decent profit with one store.
    If it's the right store. With the right customers.

    McDonalds are often seen as a popular franchise. They can close too - not every franchise works in all situations.


    Realistically for anyone starting up in business with loans and fees and wages to pay I would suggest multiple months worth of capital saved up for running costs. 6 to 12 months worth - can take time for a business to break even. If it ever does.
    Sadly some find out the business just does not have the custom it needs and never becomes profitable. Or they were too optimistic about the demand for vegan cat food...or cactus sweets.
     
    Posted: Oct 2, 2019 By: Mr D Member since: Feb 12, 2017
    #6
  7. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

    1,531 413
    When I looked in to Subway franchising it was one of the cheaper ones. I thought it was £30k-£50k.
    Franchise funding is possible out with banks, through a specialists funder, and you have a decent pot of capital for yourself, although I believe Subway don’t love it when you fund your purchase with too much debt.
     
    Posted: Oct 3, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #7
  8. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,480 1,045
    My franchise customers tend to work to an optimum 3-5 branches - and they work very hard indeed on running them

    The challenge with lump sum inheritances / settlements / redundancy is that they tend to burn a hole and create a need to buy. Take a big step back. Imagine that sum was the fruits of your labour - how happy would you be to throw it at an unknown venture
     
    Posted: Oct 3, 2019 By: Mark T Jones Member since: Nov 4, 2015
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  9. busowner987

    busowner987 UKBF Contributor Free Member

    77 5
    my 2 pence.. We have a subway on the local high street and it is dead. The local cafes are doing better trade.

    You only ever see the odd school kid in there and I dread to think how much they are losing going to work everyday..

    We have a new cafe on the high-street it appears to be owned by a lady who has another one of the same in a nice area. It always has people in there and they appear to be doing well.

    The prices are not cheap. £5 for a bacon sandwich etc
     
    Posted: Oct 3, 2019 By: busowner987 Member since: Aug 27, 2019
    #9
  10. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,637 2,151
    The bad news is that town centres are dead area's now or in the near future, so finding a position with enough footfall is getting far harder and more expensive as all retail outlets are looking for out of centre area's

    One positive area in fast food seems to be drive through fast food, with small units always busy, but large investment needed to build the property etc
     
    Posted: Oct 3, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #10
  11. Bronco78th

    Bronco78th UKBF Contributor Free Member

    68 3
    Ironically, I have the opposite problem, got the money, don't have the balls to do anything much with it, since I know ill probably never posses that dosh again....currently trying to setup a couple of a ventures and feel guilty just pulling a couple of grand from that pot.
     
    Posted: Oct 3, 2019 By: Bronco78th Member since: Sep 1, 2017
    #11
  12. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,480 1,045
    Probably makes more sense than dashing off to find somewhere to spend it.

    One exercise is quite simply to recognise that you are personally lending the money to a business (coincidentally it happens to be your business).

    How are you going to get it back?
    What are the returns?
    How confident are you of achieving those returns?

    Those are the questions we constantly ask - it's scary how often start-ups can't even guess at an answer
     
    Posted: Oct 3, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #12
  13. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    That's it, and I did a search on these forums for threads with "Subway" in the subject and have found a few from years ago, as early as 2009, mentioning a decline in the market that Subway serves and that even those in good locations can go quiet. I don't know the specifics but it was more than one person saying that.

    As for ongoing capital, I agree. Thankfully Subway has included a financial range of what the first three months of operating costs may be and this is included in the total cost estimate above, but of course that is likely not to be enough. How true the estimate is, I won't know until I ask franchisees.

    Suppose only market research can help with the right location!

    ]

    It is cheaper with a fee of only £8k. Compared to McDonalds, KFC and similar large brands which go in to the millions, Subway is cheap, however the downside is that they seem to be careless with where stores go, meaning a franchisee could have a competing one set up just a street away all for the sake of saying they've got more stores, and someone else pointed out that the Development Agent is a franchisee themselves too.

    I am looking in to the specialist funders. Unfortunately not much I can do with the debt however hopefully how I have a clean financial record with zero debt except a £50 unplanned overdraft several years ago will go towards me.

    True, but there is risk in everything right? Sure, Subway may not make me money, in fact I've heard how the market has declined over time, but if I do the right planning, research and use my existing Subway experience to plow forward then maybe it could work out, as long as I'm happy to potentially lose that money. We'll see, I need to check if funding is realistic with my existing capital before I progress my ideas.

    You're not the first to say that. Some seem quiet but others are doing well, but I've seen threads on this forum asking about Subway from as early as 2009 mentioning a decline in the market. However if I want to enter this industry with a well known brand then Subway is the way to go with their much cheaper fees. I understand the risks and fustrations with franchising but I also like some of the benefits.

    That's of course if I can find a location where a Subway doesn't exist, do my research and that there isn't much competition around. If I can get funding, I'll go and visit some franchisees and will ask how their business has been over the years before I go further.

    Not cheap but some enjoy the "guaranteed" quality and same ingredients.

    Although Subway may not have had much choice with costs increasing, I believe the removal of the £5 footlong sub and drink offer was a major blow to customer interests with what used to cost £5 now costing closer to £7 for a meal deal. I remember finding that out as a customer and feeling disappointed but ultimately didn't stop me from going back.

    True for town centres, but there will be other locations. Finding one that isn't widely covered by fast food outlets - if not another Subway franchisee already - and has a sustainable footfall is another matter. Strong research needed!

    Feel free to loan some to me, lol.

    Very true.
     
    Posted: Oct 3, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #13
  14. busowner987

    busowner987 UKBF Contributor Free Member

    77 5
    We have a THAI restaurant that is doing well locally, they had a nice investment and now have multiple branches.

    They spend money on fitting out though and they look lovely inside and the food is always good!

    They tend to spring up next door to Waitrose restaurants though. Why re-invent the wheel Lol. Let Waitrose do all the research! ;)
     
    Posted: Oct 3, 2019 By: busowner987 Member since: Aug 27, 2019
    #14
  15. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,480 1,045
    Historically Subway did well in student-heavy areas one local to me was banned territory as they were dealing drugs to students.. More recently they are appearing in service stations, I believe largely due to a relationship with EG - the biggest operator in Europe

    When doing research You need to pay close attention to the location/footfall/demographic of that particular store.

    Franchises can be great - in the fast food area the failure rate is far lower than independents (start ups) - however they aren't easy money, still less do they offer any guarantee of success. Personally I'd be comparing the cost with that of setting up on your own

    Finally - my business revolves entirely around funding fit-outs in the leisure sector. I'd be very happy to give you a frank and honest view of your chances and anticipated costs with some basic info. (Beware the industry crooks, who will tell you it's approved when it isn't & lie about rates)
     
    Posted: Oct 3, 2019 By: Mark T Jones Member since: Nov 4, 2015
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  16. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    Nice, I assume that is also a franchise?

    LOL that's great, maybe I should follow McDonalds? :p
     
    Posted: Oct 3, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #16
  17. busowner987

    busowner987 UKBF Contributor Free Member

    77 5
    No its not a franchise.. I looked into that.

    We enjoy eating there fairly often. Then again we don't mind paying good money for good quality. I remember sitting in there 1 evening admiring the bowls. Quick google showed them up on the john lewis website for around £90 each I kid you not.

    If I can see a business is spending on quality I really don't paying for the same.

    That being said we are on a fairly nice high street with very few riff-raff ;)
     
    Posted: Oct 3, 2019 By: busowner987 Member since: Aug 27, 2019
    #17
  18. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    Absolutely agree, just had an email back from the bank with advice and they too said that location is absolutely key and I agree. I remember this was also stressed in the Subway operations manual when I was a store manager years ago.

    Franchising seems to be a mixed bag. You get an existing brand, a system with support, suppliers... but you're also locked in, pay royalties and don't have much finer controls. However franchising is an easier set up - although no less hard work - but most importantly a bank or financial partner would trust a franchised model more, and money is my main issue right now.

    I would love to hear your views from your final point!
     
    Posted: Oct 3, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #18
  19. Lewis5373

    Lewis5373 UKBF Newcomer Free Member

    23 3
    Excellent stuff, great that the high street still works for you! Does me too in London but when I went back to see family in Poole, I couldn't believe how many stores have closed!
     
    Posted: Oct 3, 2019 By: Lewis5373 Member since: Oct 2, 2019
    #19
  20. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,480 1,045
    Yes; there is certainly some advantage for funding in a recognised franchise. That said, non-franchise set-ups are often less costly, so require less funding.
     
    Posted: Oct 3, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #20