# How can you start a small business when they want 275,000 for a lot?



## emperor (Jul 24, 2011)

I have an issue and was wondering if someone can come up with a solution.

I was thinking of starting a small business, it's a franchise of sorts. The franchise should bring me in 80-90 K a year and the start up is not very much. Around 20k for appliances.

My problem is they need a certain type of building. None of the buildings in town meet the requirements and all the land is selling for 275K an acre.

As you can imagine spending 275 on land then 250 to build the store when it only makes 80k is pretty pointless.

Is there some trick to this? How can you start a small business when land is so expensive?


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## mind_business (Sep 24, 2011)

Is the 80-90K the expected future earnings, or only in expected earnings in the first few years. Does the franchise model allow for revenue growth beyond that amount in future years?


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## Sampson (Apr 3, 2009)

You are describing 2 businesses here. Land development, and some sort of franchise. Most land developers don't run the business that sits on the property after development, and most franchisee's don't develop the land.

Trying to make money doing both will probably be very difficult. Can you lease the land?


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## andrewf (Mar 1, 2010)

Sounds like Subway.

$90k EBIT profit on $500k investment is not an unreasonable if you ask me. 18% EBIT yield is pretty respectable.


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## chaudi (Sep 10, 2009)

Forget those franchises. Hire someone to design your own subway. It's just a sandwich shop after all. Franchises are only good if they give you something unique. I'm sure you can order some vat of premade bread dough, then you need one of those timer ovens.


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## Causalien (Apr 4, 2009)

Yep, 500k and 90k EBIT is pretty much what I had calculated for franchises. My "would be" business partner and I decided not to go for it as it sounds just like a minimum wage earning job once we factored time into it. We are both doing well on our own so adding this is not worth it. However, other people in other situations might like this arrangement. 

Is this a bubble? I don't know, I am not in the business of acquiring franchises until recently. So maybe someone else can comment? When I went in, I was more or less expecting 300k ~400k with 90k EBIT, not the 500k+ minmum that business owners are demanding from me.


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## OhGreatGuru (May 24, 2009)

You have just come up against the reason why most small businesses are renters, not owners.

Finding a developer who will give you a good long-term lease that doesn't eat all your profits can be difficult, depending on the kind of real estate market you are in. 
The pro is that you don't have to put up (or borrow) capital for the land. 
Cons are that:
-The lease won't be in perpetuity;
- If business is a long-term success the landowner can try to increase rents when renewals come up; or may demand a % of profits;
- If business is not a success, you need an escape clause from the lease;
- Improvements on the property (ie. the building) will revert to landowner at end of lease (you may be able to negotiate an agreement otherwise for a certain term, but ultimately they have to revert to owner or be removed). 
- If you can't pledge the land as security it may be harder to borrow money for the building.


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## Cal (Jun 17, 2009)

^ Probably the same reason that the company goes the franchise route, vs manging everything from a corporate standpoint.


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## emperor (Jul 24, 2011)

I don't want to own, I just want to lease a building but there is none. I've looked. 

I will check into leasing land. I don't know anything about it but it sounds like it might work. If there are any other options let me know.


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## kcowan (Jul 1, 2010)

Get the franchisor to arrange for the buidling. You should only have to cover the fitup. Look at what the other franchisees have had to pay to get going. This is part of your due diligence.


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## brad (May 22, 2009)

In today's economy, the best way to start a small business is to start a big one, and wait.


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## andrewf (Mar 1, 2010)

When we're talking about $90k EBIT/year, this is after your wages, right?


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## Mall Guy (Sep 14, 2011)

Brad +1


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## sprocket1200 (Aug 21, 2009)

They can ask whatever they want for a lot. Doesn't mean they will get it. Wrk your numbers and offer what works for you. They will be happy to get half thAt...


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## Wes Ryan (Sep 25, 2012)

I'd imagine that 90k probably is before a "manager" salary is paid but I could be wrong. I've dealt with other franchises who often have similar incomes but thats without paying a manager who is usually the person who owns the franchise. 
The purchase and construction of a building is often a separate entity from the franchise as it requires alot of capital and a different skill set. As pointed out this is why businesses lease. 
If there is no available spots for lease I would defianetly consider waiting on the franchise. Food stores are location sensitive and you need the right place. IF you have the capital to buy the land and the skills to develop it you will most likely not be developing it for only a small food retail anywas. there may be a much better potential commercial mix for the land. At the end of the day its all amount return and maximising the profit from a commercial building.
Without knowing your specific location or background, from a purely franchise based mindset I would not consider buying and developing. Wait and allocate the capital elsewhere in the meantime.


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## iherald (Apr 18, 2009)

emperor said:


> I don't want to own, I just want to lease a building but there is none. I've looked.
> 
> I will check into leasing land. I don't know anything about it but it sounds like it might work. If there are any other options let me know.


Why not work the other way, build the property and let someone else lease it from you. Then they work for minimum wage and you get to rent the building.


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## blin10 (Jun 27, 2011)

90k is 7500$/month, i'm sure your lease will be at least half of that, so you need to think if it's worth it


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