Rent-To-Own Frame Shop In A box?

[Jim Miller MCPF GCF]

How much cash does it take to start a proper frame shop from scratch? $20,000? $40,000? $60,000? More?

In conversations with framers who may be interested in creating their own businesses, there seem to be two primary deterrents: (A) coming up with the large chunk of cash needed, and (B) uncertainty about how to do it. There may be plenty of framers who possess the basic technical skills and marketing skills, but lack the cash or collateral, or the personal resolve to make it happen on their own.

In order to make a new start-up affordable and provide a template for success, it would be possible for an investor to provide all of the tools, equipment, fixtures, and specialized training available in a package deal for an initial investment of a few thousand dollars, plus a monthly "rent" of some amount for a few years, with transfer of full ownership after a specified term.

Maybe this idea could materialize something like a rent-to-own package of furniture for a house or apartment. The package could be tailored to suit the buyer's business plan and consist of new or good used equipment. If the buyer decides to let it go after some time, the entire package would be returned, perhaps with or without a partial refund of the initial payment. But aside from providing the hardware and software, the investor might also have to provide specific technical and/or business training.

Framing franchises were established for similar purposes, but take a long-term role in operating the business and earn a long-term percentage. But in this new concept, the provider's involvement would be minimal after actual start-up, and the payments would have a planned end.

What are your thoughts on the concept? What do you think it should cost to establish a one-person home-based shop? How about a two-person storefront shop?

 

[Wally Fay CPF]

What if the renter, having not too much at stake, damages the reputation (hence the value) of the business? Not through malice, but cluelessness.

"but lack the cash or collateral, or the personal resolve to make it happen on their own." I can understand the first two, but lacking personal resolve means they need to get a job with the Government.

If you want to hold the note on a sale, that would be an option if traditional financing isn't available, but you should have access to the books to make sure the buyer adheres to the terms.

Just seems to me that making sure you CYA in a non-traditional buyout might cost more in legal fees than it is worth.

 

[Doug Vieau]

You would need to be careful to structure any agreements so you don't become an accidental franchisor.

Courts have found that in spite of intent, buyers, providers and even distributors can be subject to complex Franchise law.

Doug

 

[Jim Miller MCPF GCF]

What if the renter, having not too much at stake, damages the reputation (hence the value) of the business? Not through malice, but cluelessness.

His business, his loss. The investor's interest involves only the provided framing equipment, not the business itself.

"but lack the cash or collateral, or the personal resolve to make it happen on their own." I can understand the first two, but lacking personal resolve means they need to get a job with the Government.

Maybe I should have said personal resources such as self-confidence and business knowledge.

If you want to hold the note on a sale, that would be an option if traditional financing isn't available, but you should have access to the books to make sure the buyer adheres to the terms.

Holding the note on a sale usually is suicidal, but the investor would not be playing banker. He would be the owner of rented equipment until a certain amount of rent has been paid. Rent-to-own, get it?

Just seems to me that making sure you CYA in a non-traditional buyout might cost more in legal fees than it is worth.

Non-traditional buyout? Wally, are you assuming an existing business would be involved? No. The renter would establish and own his/her business from the start-up. Maybe you missed that term "start-up" above.

 

[Jim Miller MCPF GCF]

You would need to be careful to structure any agreements so you don't become an accidental franchisor.
Courts have found that in spite of intent, buyers, providers and even distributors can be subject to complex Franchise law.
Doug

Of course the structure would be formulated by an attorney. But to my knowledge, a franchise involves continued involvement and future fees based on performance of the business, in which the franchisor has an ongoing interest.

The rent-to-own transaction would not involve any of that franchisee/franchisor relationship. The investor's only future interest would be to receive the agreed rental fee, and possibly to retake possession if the renter decides to pack it in before renting to the point of ownership.

 

[Russ Wood]

Interesting Idea Jim.

I can give you my personal expense for starting at home about 7 years ago Understand I had done some framing many years ago, so I had a set of vices, and a press that was on its own leg. And an old cutter (Logan).

First Year:
I initially targeted business so I would not have to have them visit my shop. First year expense was a one week refresher class on framing - cost around $500.00. Already had a laptop and Access.

Then took $1,000 out of savings, bought miscellaneous supplies and a used C&H Cutter & bench. Cut glass by hand. 1st year paid back savings and started saving for improving.

From here on, everything was out of cash flow (except for remodel).

Second Year:
Joined PPFA, Started going to conventions - A few more misc. supplies $500.00 Investment $1,500 for training & PPFA; This continues every year. My press quit. Decided I didn't need at current time, and did not replace.

Third year:
Realized I needed customers to come to my home shop. Took out $25,000 for remodeling basement. Payback plan $5,000 a year. Also commercial customers needed faster turn around so bought double miter saw. So total expenses, excluding remodeling but training and some miscellaneous for total around $3,500.

Fourth year:
PPFA convention only $1,500, plus misc expenses $500. for total of $2,000

Fifth year:
Retail expanding, so broke down and bought a used wall cutter for around $700.00. So total around $2,700.

Last two years:
$500 for miscellaneous expenses plus PPFA / WCAF $1,500 for a total of $2,000.

Looking back, if I were doing it over, and had the money, I would have done the remodel earlier, the saw, and the wall cutter earlier. My situation is slightly different than most, as much of my business is still commerical.

 

[Paul Cascio]

Russ: "Third year:
Realized I needed customers to come to my home shop. Took out $25,000 for remodeling basement. Payback plan $5,000 a year. Also commercial customers needed faster turn around so bought double miter saw. So total expenses, excluding remodeling but training and some miscellaneous for total around $3,500."


Russ, looks to me like your're living on the edge -- you gambled $25K to operate as a retail business on a street that is so clearly zoned residential that all it would take is one neighbor with a beef to bring it all down. The good news when that happens is that you'll have a heck of a nice man cave for watching Broncos games.

Jim, as a former business broker, I can tell you that holding paper (financing) for the buyer of a business can be a very good idea, and is often necessary to produce a sale. However, there are certain guidelines that should be followed. It's not totally without risk, of course, but it also offers some additional financial benefits to the seller.

As for your idea, I applaud your creativity, but IMO it has too many potentially fatal flaws.

 

[Doug Vieau]

Over a 25 year period in the Photo business I signed several Leases with a dollar buy out. I was also a franchisee for 10 years.

......a franchise involves continued involvement and future fees based on performance of the business, in which the franchisor has an ongoing interest.

Inside that 300 page franchise agreement you will find that fees and royalties are still owed even if the franchisee is losing money.

I believe Rent to own and dollar buy out are the same thing. There are lots of individuals who work as leasing agents and the issues are pretty straight forward.

It makes sense for a leasing agent to be knowledgeable about the equipment they lease so they know what to do when things go south.

The dicey part would be giving out business advice or exclusivity along with the lease.

I would suggest calling it a lease and not a Frame shop in a box.

Leasing operators have made a lot of money off me over the years.

Doug

 

[Russ Wood]

Russ: "Third year:
Realized I needed customers to come to my home shop. Took out $25,000 for remodeling basement. Payback plan $5,000 a year. Also commercial customers needed faster turn around so bought double miter saw. So total expenses, excluding remodeling but training and some miscellaneous for total around $3,500."


Russ, looks to me like your're living on the edge -- you gambled $25K to operate as a retail business on a street that is so clearly zoned residential that all it would take is one neighbor with a beef to bring it all down. The good news when that happens is that you'll have a heck of a nice man cave for watching Broncos games.

....

Paul, Just saw your post. I realize your concern, but because of my particular situation, this has been a profitable $25,000 investment, plus the additional for training and misc of $3,500.

First, much of my business is still commercial, and quite a bit is still out of state. [Currently working on prospect for 10 original Currier and Ives engravings, which I am proposing addition of French style decorative mats, from customer on the West Coast]. For many of my retail customers, I offer the option to meet them at their place of business or home, and for business customers, I almost always meet them at their place of business. So, for much of my business, there would not be a problem with zoning, because customer contact activity is off-site.

Yes, I have some customers stopping by, but only by appointment. Additionally, I believe that commercial accounts like to make sure I have the capacity / space for the high end work I do. So this ability to visit has been important. But like an artist that works out of their home, and has customers stop by, the shop visit element is not that significant, but is important when it happens. (but other options are available).

My remodel created an excellent environment for those customers that have appointments and do stop by, but It also provides the opportunity for a much better work space and environment. Separate cutting room, separate design room, separate work area with large tables, and a great area for storing length moulding. Yes, even if I no longer had any customers stopping by, [except for "friends and family"] it would still have been a profitable investment.

And when we sell, 20 years from now, the space has been designed so, after removing all framing evidence, it will still significantly add to the resale value of the house.

 

[Paul Cascio]

Russ, I know you're a good operator and I'm glad it worked out for you, but I believe you took a big risk, for the reasons stated in my previous post. As for the Broncos, they got a great offensive coach in Kubiak, but I think Manning no longer has the arm strength and losing your LT is going to hurt.