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Doughnut dollars hard to come by

Timmies franchise ownership like 'winning the lottery': expert

By: Joel Schlesinger

Posted: 06/4/2011 1:00 AM | Comments: 0 (including replies)

PHIL.HOSSACK@FREEPRESS.MB.CA Enlarge Image

Young entrepreneur eyes earning a living off double-doubles and Timbits, but expert says road to franchise ownership isn't paved with icing sugar and coloured sprinkles.

Zoe is pursuing a dream many Canadians probably have indulged in at one time or another. She wants to own a Tim Hortons franchise.

"I like the company, and I like the fact that it's also very lucrative," says the 28-year-old business consultant.

"I like that they have the camp they run and donate to and that they hire a lot of new immigrants."

It also doesn't hurt that she loves Tim Hortons' products.

"Let's just say I wouldn't want to own something that I wouldn't necessarily shop at."

Zoe says she has a long-term plan -- between five to 10 years -- to save the money needed to purchase a franchise, which she says costs about $480,000.

And she says she is confident she can raise the required $200,000 in "unencumbered cash" to be in the running. Self-employed, earning $50,000 to $60,000 annually, Zoe is about halfway to her goal.

She has only about $21,000 in savings, including RRSPs, but she has considerable equity in real estate. Zoe has about $120,000 in equity in her home and another $77,000 in a rental property.

Yet Zoe says she feels torn between becoming a Timbits mogul and another financial goal.

"Right now, I'm just trying to decide whether I should upgrade my home," she says. "Should I try to save up for the Tim Hortons? Or maybe that's a pipe dream, and I should just focus on buying a better house."

Graeme Green is an accountant manager in retail, franchise and consumer services at RBC, and he says Zoe's goal is a common one.

"Probably at least twice a month, people come to me wanting a Tim Hortons franchise." While he has helped a few open a franchise, he says most people he meets who have this dream are, well, just dreaming.

Green says he appreciates Zoe's zeal for the franchise, given Tim Hortons' profitability and good standing in the community. After all, it's that reputation that makes it a desirable franchise. But that's what also makes it so hard to actually get a franchise.

"There is a really big list of people wanting to own a Tim Hortons, especially in a major urban centre," he says.

As a result, Zoe would have to put in a super human amount of work and research to move to the front of the line ahead other candidates. Green says a franchise costs between $430,000 and $650,000, not including the $50,000 in working capital required for start-up costs. And potential buyers need to put up a 30-per-cent equity stake of the franchise cost just to be in the running.

That's the easy part, he says.

Zoe also needs to familiarize herself with the company and that involves more than sampling product regularly. One test Green often uses when working with clients to determine how much research they have done is asking them whether they know Tim Hortons' corporate name.

Hint: It's not Tim Hortons.

TDL Group oversees the brand. That was news to Zoe. It's a tidbit -- or "Timbit" -- of information that can be found along with other franchising details on the Tim Hortons website.

Green says TDL is looking for dedication because ownership involves hardship. Owners put in long days, and the first few years can be tough financially -- just like any other small retail business.

"Is she prepared to work long hours seven days a week, 24 hours a day?" he says. "If staff don't show up, she is responsible to work the shift."

Of course, no better way exists to prove your dedication than getting your hands deep in doughnut dough and coffee stains on your apron.

"It might sound silly, but Zoe should think about working at a Tim Hortons to get the experience to really understand the business," he says.

"This is an opportunity to learn what goes on beyond serving a double-double."

But becoming part of the Tim Hortons team won't just teach her the ins and outs of the coffee and doughnut business. It's a chance for her to decide if she even would like working there day-in and day-out, which is important because franchise ownership is a long-term deal. If she eventually does get a franchise, she likely will have to sign a 10-year agreement, which may seem more like a life sentence if she can't stand the job.

Most importantly, employment gets her a foot in the franchise door. She not only becomes familiar with TDL Group, but the company also gets to know her.

And Green says knowing the right people is essential.

"You have to build a long-term relationship with TDL and an existing owner who one day might be able to make a call for you."

TDL Group generally looks to its existing franchisees first about opening new stores and then looks at a list of qualified applicants. Even then, competition is fierce.

"Unless you work for a franchisee in the Winnipeg market in a management role, the chances of getting a Winnipeg store would be unlikely," he says. "You would have a better chance with a rural location."

Fortunately for Zoe, she has time on her side. She is young with a long-term plan that allows her to do the legwork if she believes franchise ownership is right for her. If she does pursue her goal and is awarded a franchise, Green says she can likely expect financial backing from a chartered bank since most of Canada's major financial institutions have national franchising agreements in place to provide low-cost loans.

"The rate of interest that we would charge is the absolute lowest possible rate that we could charge anyone," he says. "That's just because of the agreement that we have with TDL."

Still, a lot of coffee remains to be served between now and that juncture, he says. And even with the money, the hard work and the connections, Zoe may not be successful.

"I don't want to be a dream killer, but getting a Tim Hortons franchise is a bit like winning the lottery," he says.

That doesn't mean she isn't a good candidate to start a similar business, he says.

"She definitely has the right mindset. She has savings and has basically run her own business for a few years."

And it's those qualities Green says he looks for in successful applicants for business loans.

"There are quite a few different types of franchises that could provide a good lifestyle for her," he says. "And we'd be definitely willing to help her."

giganticsmile@gmail.com

ZOE'S

FINANCES

INCOME

Annual: $50,000 to $60,000 from self-employment (monthly net cash flow varies from $1,000 to $6,000)

Expenses

Monthly: $2,864

Debts

Home mortgage: $116,855 at 3.92-per-cent fixed interest rate, with $269 bi-weekly payments

Rental property mortgage: $112,602 at 2.5-per-cent variable, with $693 monthly payments

Rental property line of credit: $3,200 at three-per-cent, interest payment only

Assets

Home: $133,145 equity, based on $250,000 value

Rental property: $77,398 equity, based on $190,000 value (rent provides about $500 in monthly cash flow)

RRSP: $8,032

Savings account: $3,720

TFSA: $2,310

Non-registered investments: $8,440

Financial goals

for Tim Hortons

Start-up capital needed: $50,000

Equity stake: 30 per cent equity stake in franchise cost of between $430,000 ($129,000) and $650,000 ($195,000)

Republished from the Winnipeg Free Press print edition June 4, 2011 B12

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