I had a first-time franchisee reach out to me and tell me that he had purchased a Pickleball franchise. Pickleball, like most industries can be a great business if the numbers work.
The initial investment according to Item 7 of the FDD was around $550K to $1.2MM. He told me it was going to cost him around $2.5 MM.
His net worth was $2.5MM. I would never recommend my candidates invest anywhere near that percentage (100%) of their Net Worth. At that point this is a gamble where you are all-in. It also leaves you no room for ramp-up expenses or hiccups, let alone groceries.
The first move the franchisor made after the wire transfer was tell him to go out and rent a large space. The concept Real Estate requirements were 25,000–35,000 sqare feet. In his area, the annual lease that he was getting quoted was $750,000. I explained to him that you would need to do an approximate Annual Unit Volume of $7.5MM to make the Unit Level Economics work. I also explained that he would now be competing with every country club that has added pickleball to their amenity package by easily repurposing tennis courts. Then there are the public courts. When he applied, landlord after landlord declined him based on finances, as he would have to personally guarantee the lease term, and his Net Worth would not cover it.
He asked me what he could do. I recommended (in this order):
- Go back to the franchisor and ask for a rescission including a refund of franchise fees. They should have never approved him on those net worth and initial investment numbers. The franchisor should have been as responsible as the landlords were being.
- Look for partners. With more people involved, he could make this happen if the rest of the pro forma makes sense, but it needs to be with the right people. Then he also must deal with partners. If he is OK with that, then that is another option.
- Walk away from the franchise agreement. Tell the franchisor he cannot afford to open this franchise based on the actual, current numbers, not the Item 7 numbers from last year. Ask then to terminate the agreement and walk away from the franchise fee.
None of these options are easy.
The hardest part of my job is seeing good people back themselves into a corner because they made a life-changing decision before fully understanding what it would take
My role is to slow the process down, strip away the marketing noise, and help candidates see the real numbers, real risks, and find a real path to success before they sign anything.
Buying a franchise can absolutely change your life for the better:but only if it is the right fit financially, operationally, and personally.
If you are thinking about franchising, do yourself a favor and have the conversation before you make a commitment. Having a call with me to guide you costs you nothing. The cost of not calling could be measured in millions.