Your Turn: “My Best Friend is Making a Huge Mistake”

In a feature I call “Your Turn,” in which you, the readers, get to answer the question, I’m presenting the following letter without commentary from me:

I have a little “situation” with my best friend, who is 27 and is thinking of investing a $100,000+ loan into a franchise specialty restaurant in the town where her boyfriend lives (we live in a smaller town nearby). Now, while I am totally supportive of her moving ahead in life and starting her own business, this one seems to have come out of nowhere. She never mentioned being at all interested in starting or owning her own business until a week and a half ago. I know her boyfriend of almost two years is interested in going in on it with her, along with another business partner, but my friend is really thinking about “running” it herself. She wants to move to live with her boyfriend sometime in the next year, you see, and that will mean leaving her current job, where she is very happy and has a great deal of freedom with her schedule and duties. I think she thinks running this franchise would give her similar freedom.

The hastiness of this decision aside, what really worries me is the money. She’s a very responsible girl, always paying her bills on time and such, but she has several thousand dollars in credit card debt, $70,000 in student loan debt, a hefty mortgage on a house she bought last year, and routinely lives outside her means. She’s not afraid of credit.

Now, I am not a business-minded person at all, but I think she doesn’t know what she’s getting into, and is setting herself up to lose a ton of money. I don’t want to be a discouraging friend, but I’m really worried about her. Any advice on how to approach this? Should I act like I think it’s a good idea? Should I just try to avoid talking about it? — Her Own Business


  1. If the numbers in this paragraph are true…

    “She’s a very responsible girl, always paying her bills on time and such, but she has several thousand dollars in credit card debt, $70,000 in student loan debt, a hefty mortgage on a house she bought last year, and routinely lives outside her means. She’s not afraid of credit.”

    …someone is going to have to co-sign for her to get a $100,000+ loan to invest in this franchise. If someone is routinely living above their means, they are not financially responsible, and she is unlikely to have the assets to be approved for that size of a loan given her debt (unless there is something you haven’t shared about her net worth). However, her partners/co-signers and the financial institution that she is applying for the loan should be asking the really tough questions of your friend.

    However, as her good friend, I don’t think it’s inappropriate for you to ask her questions about her plans since she apparently shares her finances with you (as evidenced by the details in the paragraph I quoted above). But I would just ask (not judge), but just by asking, it’ll help her think through the decision a bit more. Even if she does get financing and goes through with it, it doesn’t mean she won’t be successful. But, a significant percentage of restaurants do fail. It’s her risk [and her co-signer(s)] to take, and just because she hasn’t shared her desire to do this with you until recently, that doesn’t mean it’s not something that she’s been thinking about for a while.

    1. You are right. But she might put up the house as collateral. If she has enough equity in the house, she wouldn’t need a cosigner.

      1. But if she just bought the house last year, that seems unlikely.

      2. you are right, but that is a way to avoid a cosigner. Or if she has a high income.

  2. If she chooses to ask you about it, by all means, tell her what you think, as long as it’s supportive and constructive (maybe wait for the economy to turn around, start smaller first, etc.) There are plenty of reasons why she shouldn’t do this and plenty more ways to spin them.

    If she doesn’t ask your opinion on the matter, you should really try to keep your opinions to yourself. Most restaurants fail and hers probably will too, but she must have heard that before. If she is to succeed, she needs support.

    All of that being said, how about giving her a free session or two with a financial planner? Go try one out and recommend it with a couple of “free referrals”. Since it doesn’t sound like she’s been good with money in the past, maybe the adviser can talk to her about her options and help her proceed in the safest way possible if she is 100% committed to the idea.

  3. It sounds to me like she’s making a very bad decision, but as PFG-SCR said above, it sounds likely that with as much debt as she has she’s not going to be able to secure the loan, and hopefully the problem will take care of itself.

    That said, unless she asks you for your opinion on this situation, I would butt out. She’s a big girl, and she should be able to weigh the risks of this herself. If she asks you what you think of it, by all means, tell her that it seems really risky given the current economic climate, but leave it at that. Money and friends don’t mix.

  4. How does she have so much debt if she always pays her bills? I get student loans and a mortgage, but credit card debt is avoidable unless there was some emergency situation.

    1. LittleLuWho says:

      Paying your bills on time only requires paying a minimum, which means you’re still paying 20-30% interest on the remaining balance of your credit card debt or anywhere from 2-12% for student loans, so her remaining balance is continuing to grow. Credit card companies especially LOVE customers who only pay the minimum or not much above it because they’re guaranteeing a customer for life. Student loan minimums are calculated with the loan term in mind so that $70,000 will increase with the interest but eventually be paid off. Credit cards not so much.

      You are absolutely right though- it’s absurdly stupid to leave an outstanding balance on a credit card from month to month unless you’re in an emergency situation. The rate at which the balance increases when you pay the minimum should be enough to scare people from thinking that’s a smart way to do it.

  5. Yeesh. Just reading that gives me the willies. But, I hate taking on any kind of debt thanks to my 1st ex-husband stealing my identity and racking up tons of it during our marriage that I didn’t find out about until our divorce. Which I then got to (and still am) pay off.

    If you do want to say anything, be supportive, but at the same time, bring up the what-ifs in a supportive way.
    -What happens if the restaurant fails and you have a $100,000 loan to pay off AS WELL AS student loans and credit card debt?
    -Do you have a back-up plan?
    -Are ALL OF YOU co-signing on this loan, or just you? (it’s not clear from the letter if she’s the only one on this loan, or if the three business partners are signing together, which seems more likely) How are the payments going to be made? Are you going to become an LLC and pay out fo the LLC or is it going to be a personal loan as a collective rather than as a business?
    -Have you discussed any of this with a financial advisor or attorney? If so, what did they think?

    Having run my own business before, I can tell you that the best way to go about a loan for a company with partners is to create an LLC (with business license to validate it) and THEN get the loan for the company rather than have any one (or more) person(s) get a loan on behalf of the (as-yet non-functioning, still-a-dream) business. Should the business fail, the loan is attached to the business, not an individual and it makes the partners of the LLC responsible, not the individual (where the “partners” can disappear quickly since they are officially off the hook).
    If the company doesn’t work, then with an LLC, you can dissolve if once all debts are paid off and all assets liquidated.

  6. says:

    If she has $70,000 in student loan debt, at say 4% interest, on a 20 year amortization schedule; her monthly payment would be approximately $424.19. That’s not a hefty monthly payment, but it’s like paying on a car for 20 years. If her home cost $200k, at 4% interest, and a 30 year amortization schedule; her monthly payment would be approximately $954.83. Several thousand in credit card debt, I’ll use a nice round number of $10k, say 13% interest, on a 10 year payout, would equate to a monthly payment of $149.

    Just these estimated monthly payments is equal to $1,528.02. She probably has a relatively high DTI (debt to income) ratio of 1+. An ideal DTI ratio is right around .80, which means for every $1.00 you have in income, $.80 of it goes to debt. At that rate, you essentially have 20% of your income to save or invest with.

    In all honesty, a rough estimate of monthly income would need to be in the $3,500 – 4,500 range. So, if she makes right around $60k/year, she could feasibly be approved for the loan. When looking at DTI, it focuses more on the payments, and not so much on the term of the payments.

    It would be a very big gamble for her to quit a good paying job, to take a big chance juggling a restaurant idea. It wouldn’t be a bad idea if she was just a managering partner, and someone else took care of the day to day operations. That way, she could still work a job to support herself and only have to put in minimal hours at the restaurant. If she wants this to be her full time gig, she will need to have a large reserve of cash to do some principle reduction on debt, before she would ever be approved for the loan.

    I work in the banking industry with lenders daily, and if I was reviewing her credit, she would be denied with the details the LW offered.

    1. theattack says:

      You just blew my mind.

    2. Debt to income ratio of 80%? The common consensus is that your mortgage payments shouldn’t be more than 25-28% of your pay, and that total payments (including mortgage) shouldn’t be more than 35-36% of it. I agree with you that there should be no less than 20% allocated to savings and investing, but there are a lot more living expenses that she has (property taxes, food, utilities, etc.) that aren’t debt service payments.

      1. says:

        I grouped all expenses into that 80%. I didn’t break down insurance, cell phone, internet, cable, or any of those other expenses. I made it to where she would have 20% of her income leftover as discretionary income.

    3. Not to mention going in on a huge risk / investment like this with a 2-year boyfriend sounds extremely risky.

      I also hear a rule of thumb for small business start up that you are reinvesting / operating at a loss for about 5 years before you start seeing any profit (maybe market(s) specific) and most fail within 3…is she willing to put in the effort over the long haul? I don’t know if her mortgage or school loan debt will wait…if this isn’t a start up has she tried to figure out why the owner is selling? Or did they approach the owner with a deal? I think it’s rarer that someone is selling a profitable business than a sinking business.

      From the sounds of it I don’t think your friend has done her hw on this venture. She may convince herself she can’t do it – just make sure she educates herself and doesn’t just listen to her bf and the other unnamed person.

      1. says:

        If you aren’t a restaurant chain that has already been established, there’s a very good chance the restaurant will fail. To run a non-franchised restaurant and turn a profit means you are generally working open to close at that restaurant and taking work home with you. If you want to turn a profit early, on a new idea, it generally means you have to cut expenses. You can’t exactly use less lighting, so salaries and wages, get the cut. You may have one or two waitstaff and a part-time cook, but you are the one sweating in the restaurant day in and day out.

        A guy in my town did competition cooking for 20 years before opening his first restaurant. It was a BBQ restaurant and he invested good money into timed smokers that offered temperature control, so he wouldn’t have to spend his whole life in the restaurant. Three years later, he is debt free on the restaurant and loving it. But, I also know he worked open to close every day the restaurant was open for 2 years. He easily worked 16 hour days, 5 days a week.

      2. Yea – running your own business takes a lot of motivation and time commitment. Good points on the fact this guy was slaving away for twice as many hours as a normal human…that is definitely something the LW’s friend should be aware of.

        I joke that my second job is my band. Sometimes we are putting in almost 40 hours on top of our 40-50 hour full time jobs on logistics, learning, writing, recording, promoting / advertising, booking, practicing – it is ridiculous.

      3. Forgot the most important part – we make 0 money on that job, haha. Everything gets re-invested.

      4. says:

        For him, it worked, because he was in his early 50s, with college aged kids, and he was already married. Try being in your late 20s and pulling those kind of hours. You can kiss your dating life goodbye, which means some of your best years to date are gone.

      5. blackbird says:

        Another note on restaurants – I’ve heard that most newly-opened restaurants are in the red for the first 2-3 years after they open. If she decides she wants to be involved in managing day to day operations, she WILL be working open to close, 7 days a week (assuming the restaurant isn’t closed on Mondays) with no breaks, ever. My boyfriend was an executive chef for quite some time. He worked 70-80 hours a week, and he would be called in on his days off, without fail, almost every time. He didn’t even have a stake in the restaurant! He was doing it to have his name on the menu and the title on his resume. I can’t even imagine what it was like for the owners.

        Does your friend have any previous restaurant experience? The service industry is a completely different beast of a culture – and if she has no experience with it, she’s in for a very rude awakening. If she hasn’t already, she might want to check out Kitchen Confidential. There’s a pretty good section in there on owners who have no idea what they’re getting themselves in to.

    4. 4% interest on student loans? haaaa i wish. try 8%. womp.

      1. thats exactly what i thought! who has these 4% student loans?? why arent mine 4%, wth

  7. cookiesandcream says:

    I’m not trying to bash the LW, but I was left a little confused by this letter. First of all, how did she qualify for a loan so big when she has so much debt? I imagine her credit would be really bad, so the interest rate on that loan must be pretty high. Then the LW says that the idea “came out of nowhere” and then goes onto say how her friend had told her about wanting to run her own business. Her friend could have easily been looking at ways to get out of her current job and then this opportunity came along, so why not try it out? Another thing that I didn’t understand is why the LW is so worried about her friend’s finances. Unless if you’re worried that your friend will come crying to you and ask you for a huge loan, then I wouldn’t worry about it too much. If you’re still concerned about your friend, then see if she’s interested in going to a financial planner with you or have her sit down with someone who’s already opened a restaurant in the same franchise to gain some insider knowledge.

    Lastly, I’ll be the first person to admit that I’m overreaching here and basing this on pretty much nothing, but I get the feeling that money isn’t the issue. The LW contradicts herself in the second to last paragraph when she calls her friend responsible, but then goes onto say how she has a lot of debt and routinely lives outside her means. I’m not accusing the LW of anything, but why wasn’t she concerned about her friend’s finances when the debts started piling up? I guess one possibility is that getting a huge loan to start a risky business is one bad decision too many.

    Anyway, LW, your friend may not know what she’s getting into, but the truth is, no one can know for sure what’s going to happen. This could easily be the best thing to happen to your friend or it could be the worst. Just sit down with your friend once and ask her if she’s thought this through and if she’s considered her backup plans (ex. what if she loses all of her money, does she have a rainy day fund, can she support herself if she loses all of her money, etc.). Then after that, it’s her life to live. I know it’s hard to watch people make bad decisions, but just remember that you’ve made bad decisions (like all of us) and that a good friend is there for both the good and the bad. Good luck, LW!

    1. It doesn’t contridict itself if the friend makes alot of money. If the friend makes $100k a year now, and has 5k in credit card debt, it is no biggie. neither is the student loans. If she has credit card debt just because she doesn’t feel like stretching to pay it off, then it makes sense.

  8. I agree with the other comments that the likelihood of your friend actually getting a loan – short of a significant down payment – is slim to none. Your friend isn’t trying to hear how you don’t have faith in her decision though so you don’t have to play the bad-guy. Nor should you – it’s not your finances. If you really want to be a good friend to her – then sit down with her and go through the research together. Help her look at what is required and help draft up the outline for the business plan she will need before she steps into a bank. As with any business, expenses start from jump – income not so much. And nothing cools your jets faster than an excel spreadsheet.

  9. Addie Pray says:

    A. Your friend is not a “very responsible girl.” No way. “Several thousand dollars in credit card debt” and she “routinely lives outside her means”? Those are big no-no’s, I think. But I’m deathly afraid of debt.

    B. Holy hell, now I want to open a Chik-fil-A franchise, despite my aversion to debt. How much do franchises really cost? You mean for $100,000 I could buy my very own Chik-fil-A and eat it whenever I want (except Sundays, of course)? ‘Cause if that’s all I have to do, I’m in. Who wants to go into business with me? I may bankrupt us by eating all the sauces.

    C. Yes, we’re really talking about Chik-fil-A again, sheesh.

    D. I’m so swamped at work. So, someone figure out who is going into business with me and when we can open a Chik-fil-A while I get back to work.

    1. Landygirl says:

      I’ve heard of this Chik-fil-A but have never had it. I don’t even know where one is near me. Luckily we do have In and Out Burger where I live. Open one of those, it’ll put your CFA business to shame.

      1. Addie Pray says:

        Oh, I do love In and Out Burger. I make sure to go there for a burger every time I go to LA.

      2. Addie Pray says:

        I sound like a snob – by “every time I go there” I mean the 2 times I’ve been there in my whole life.

      3. blackbird says:

        I have not seen a Chik-fil-A in Chicago, and I think you would be doing a world of good by opening one. Just sayin’.

      4. Addie Pray says:

        One opened recently! On Chicago and… Wabash I think it is. At the Chicago red line stop. It’s so big and shiny and delicious.

      5. yes! right by that mcdonalds. And it. is. awesome. Best week of my life was the first week it opened, and they thought it’d be a great idea to just leave the sauces out to grab at will. silly chicago chik-fil-a people… haven’t you heard of sauce hoarding?

      6. In-N-Out is all family owned, no franchises. 🙁

        But Five Guys is kind of similar and you can buy one of their franchises.

    2. Here’s what I found out for you, and I thought it might be an endeavor that we could go in on as we are near one another:

      The Good
      – The company asks operators to pay just $5,000 as an initial franchise fee.
      – Chick-fil-A pays for the land, the construction and the equipment. It then rents everything to the franchisee for 15% of the restaurant’s sales plus 50% of the pretax profit remaining. [The last part is unsettling, but a bit of creative accounting can help.]
      – Operators, who are discouraged from running more than a few restaurants, take home $100,000 a year on average from a single outlet.

      The Bad
      – One in three company operators have attended Christian-based relationship-building retreats through WinShape at Berry College in Mount Berry, Ga. The programs include classes on conflict resolution and communication. [Who wants to go? Not it.]
      – Family members of prospective operators–children, even–are frequently interviewed so Cathy and his family can learn more about job candidates and their relationships at home. [My kids will ruin our chances for suuuure!]
      – “If a man can’t manage his own life, he can’t manage a business,” says Cathy, who says he would probably fire an employee or terminate an operator who “has been sinful or done something harmful to their family members.” [Where to begin with this one…?]

      Not gonna happen…

      1. Addie Pray says:

        Good work, PFG-SCR! But this is very disheartening. What a crappy Monday this has become.

      2. Here’s the story:

        There is mumblings in there about 12 discrimination suits.

      3. Stay out of the restaurant business ladies. Take my advice and sell tiny classified ads out of your one bedroom apartment. It’s foolproof.

      4. Addie Pray says:

        McLovin – do you own a McDonald’s franchise? Is that where the “Mc” comes from? When are you going to be Reader of the Week, by the way? You need to get on that bandwagon. We know nothing about you. I really am noisy, aren’t I?

      5. Nah I don’t even eat at McDonalds, but I have been to McDonalds University a few times(outside of Chicago). What else is there to tell? I’m the strongest man in the world, I fell off my chair once at a Hooters, and my dog and I have recently been adopted by a stray, and very cross-eyed, cat.

      6. Addie Pray says:

        You’re a dude? I just assume everyone here is a woman unless their name tells me otherwise. I guess “McLovin” was a give away. I’m slow.

      7. wow I just died a little on the inside, you really thought I was a chick??

        As for the name, I literally had the worst fake ID ever in college. So……when the movie SuperBad came out and McLovin got the second ever worst fake ID……my buddys instantly started calling me McLovin.

      8. So this kitty can look him (or her) self in the eye without a mirror? Niiiice 🙂

      9. No wonder we don’t have any in Alaska. There’s not much else to do but sin in the winter time!

      10. My fiance’s brother goes to Berry College- I think we can check that off of the list by association!

      11. I don’t know if it matters to you, but Chik-Fil-A as a corporation has made waves for being anti-gay. I can’t remember the details and don’t have time to look them up now (I should be working!!) but I do remember something in the news, maybe last year, about Chik-Fil-A Corporate’s stance on homosexuality.

        This is the kind of thing that leaves a bad taste in my mouth, regardless of how tasty their food is. I’ve only eaten there a few times in my life, long before I knew about the gay thing, when there was a CFA “Express” or something on my college campus. But now that I know about that, I’ll pass on their food. BUT I also know this isn’t a huge deal to everyone, so if it doesn’t bug you, more power to you on opening a franchise! 🙂

      12. Addie Pray says:

        100 thumbs up! Yes, this does matter to me. Chik-fil-A’s anti-gayness is disgusting. And it’s why I hate – HATE! – Chik-fil-A as a corporation. And it’s also why I feel really terrible each time I get off the el one stop early just so I can go into that shiny pretty building for some of those delicious – DELICIOUS! – waffle fries. And the sauce – THAT SAUCE – is out of this world. I wish I had the will power to say no – and while we are at it, confidence, conviction, discipline, and determination – these are things I work on in therapy.

    3. *laugh* You could probably open one in Anchorage. I know we don’t have any in Alaska.

    4. I don’t have a clue of what Chik-fil-A is, but your enthusiasm is just… so.. tempting. I’m IN!

  10. lets_be_honest says:

    MYOB (mind your own business)

  11. I don’t agree that debt suddenly makes you irresponsible. If she qualifies for this loan, then there is money and debt. If I was you, I would ask her more about the plan and listen to what she is saying. If it was me, I would only go into a business with a husband. This guy is willing to start a business with her but not propose? sounds shady.

    Honestly, I have a rule that I tell people once how I feel, very firmly but kind, so there is no question about where i stand. Then I never bring it up again. I say speak your peace then let it go. She is an adult making her own decisions. FYI, half the time I have done this, the person hasn’t listened and everything worked out anyway.

  12. I’m going to try and add a different perspective to this…

    1) Your friend may have just gotten this idea and looked into it and therefor is very excited. So slow down a second and see what actually happens, you may be jumping the gun on this one.
    2) OR, this may be something she’s been carefully thinking about and planning for a while but she just told you about it since she’s finally making some concrete plans.

    But honestly, her money is none of your freaking business. Unless she asks you to invest in this idea or she borrows money from you frequently, it is not your concern. You can politely say something IF she asks for your advice. Otherwise, this has nothing (and I mean NOTHING) to do with you.

  13. We’re not responsible for the things our friends do.
    If you don’t think it’s a good idea, you don’t have to pretend that it is; especially if she asks your opinion. If she asks, you can tell her (nicely) the reasons why you don’t think it’s a wise career movie. But otherwise, she may just have to learn from her own mistakes.

  14. does she know the restaurant business?

    the answer to that question is what would determine how worried or not you might want to be.. at her current job, you say she has freedom with her schedule. well, that is out the window if she is going to be operating a restaurant.

    the first job i had in a bakery, it was owned by these two friends- it was kind of this same story, i think… they started it together, and slowly moved up, getting a retail space downtown, then their own bakery in a different neighborhood, ect… they closed the business about a year ago because they were putting in 100+ hours per week to keep the place running. having your own business is no picnic!

    that being said, it is her life… let her make her own mistakes. unless she wants you to be an “investor” i wouldn’t really get into it.

  15. I wonder about LW’s friend’s personality type.

    I am one of those “idea folks.” Nothing thrills my little noggin more than a bright, shiny, new idea. Enthusiasm abounds, and not even sleep can get in the way…until the next bright, shiny, new idea comes along. And then, if I’m not careful to put my feet on the ground, I find myself with a pile of unfinished projects (and sometimes the financial consequences that go along with them). Mr. Jubietta likes to tease me by saying, “Ooh, shiny” to see if I’ll bite.

    That’s my monkey, and I’m really aware when I see it riding other peoples’ backs. I want to pull out my Glock and empty a clip into the “outee” at the middle of it’s belly.

    If this is LW’s friend’s monkey, too, it might be worth pointing out a pattern…with tact, kindness and the clearest of intentions. And then ask if one of the other folks getting involved in this venture has the “data people” personality to help balance, or the “results people” personality to keep things on track. With the right mix of people, the idea might have legs. (But I’m an idea person, all ideas have legs if you ask me.)

    Two other thoughts. $100K is actually a small-ish initial outlay for a franchise…looking at the whole gamut of franchises out there. And, franchise is not the same thing as trying to sell a loan officer on a small business plan for “Harry and Joe’s Doughnuts and Lube Shop.” On the up side, the franchise comes with a business model, a pre-planned culture, and lots of processes already in place. On the down side, the franchise comes with a business model, a pre-planned culture and lots of processes already in place.

  16. Ok, here’s an idea. The loan sounds like a really bad idea because it is quite large and most new businesses, especially restaurants, fail. Maybe you could talk to your friend as a voice of reason and suggest that she and her potential partners put together a business plan presentation and try to obtain a business grant instead of a loan? Then if the company does go belly-up she’s not stuck holding the bag with that huge loan.

    Your friend has obviously made her finances your business since you know such specific numbers, so I would say you definitely have the right to talk to her about such a big decision and express your concerns.

  17. Thanks for the advice, everybody. I am going to avoid giving any more details because I’m really trying to protect my friend’s privacy here (I’m actually a very regular commenter, too ;). A lot of you guessed right about things- Jubietta in particular nailed my friend’s personality type! Also a special thanks to and AKchic for the more technical look at things.

    The consensus is to stay out of it unless she asks my opinion, which I am happy to do…she already HAS asked my opinion, actually, before I wrote this letter, but she hasn’t mentioned it since. So basically I was looking for ways to handle it if she brings it up again. I made it clear I thought it was way too risky of a venture, but tried to stay upbeat about it so she feels comfortable discussing it with me in the future if she wants to.

    Again, thanks. You’ve given me some good talking points if she asks me about it again.

    1. Addie Pray says:

      I’m going on a limb and saying: it’s ForeverYoung! SpaceySteph? … I’m just shooting in the dark. Aha, _JW_! … I don’t know. This game is not fun.

      1. Addie Pray says:

        I was going to guess Sarah, but I thought Sarah would already have some sassy spot-on advice for herself. But her silence in this thread is significant. Hmmm…

  18. sobriquet says:

    No, it’s probably not any of the LW’s business what her friend does with her money, but it is absolutely her business to at least express her concerns. I certainly hope that my friends care enough about me to give me that courtesy instead of just blindly supporting every stupid decision I make.

    My advice is to broach the subject casually, with questions instead of concerns. Ask her a million questions! What are your expectations? What kind of risks are involved? Have you talked to a financial adviser yet? Are you ready to start out spending 12 hour days behind a cash register? (I’m sure there are better questions to ask, but you get the idea.) She should be able to answer all of your questions and you won’t offend her in the process as long as it comes off as sincere and casual. Maybe you’ll find that she has a solid plan. Maybe you’ll bring up questions she hasn’t thought about. Or maybe she’ll shoot you down and it will become clear that she’s in over her head. Regardless, this conversation will let you know if she’s ready to for this kind of an investment (and lifestyle change).

    And then, no matter what, just support her. That’s all you can do as a friend, and you seem like a good one.

    1. Questions: how big is your franchise territory?
      How much or what percentage do you pay for advertising?
      How much are your monthly/quarterly franchise fees?
      What is your anticipated food cost?
      Are there certain menu items that require specific vendors and are there any exceptions?
      Do you have any input or control over menu items?
      Can you produce your own marketing materials with or without franchisor approval?
      … and so many more

  19. LW, you might encourage your friend to speak with a qualified financial planner and discuss her investment ideas with that individual. If you’re close friends, ask her questions about her plans: why the sudden interest, how much time is she prepared to put into this, what if the business fails (I’ve heard restaurants have a 50% failure rate), what research has she done? Mr. Greebo owns a (knock on wood) successful business and believe me–it takes A LOT of time. Easily 70 hours per week. You don’t mention your friend’s background, and that may make a difference.

  20. LW, I can’t imagine any real friend not saying something if they truly are “worried sick”.
    Just keep the conversation in terms of how you feel – thrilled for her, but afraid too, etc.

  21. I seriously doubt she’ll get the loan, but who knows? Starting a business is a risk for anyone, not just people who have a lot of debt. I think if you focus on that, it’s a lot better than acting like she personally isn’t responsible enough. But I don’t understand how she’s “responsible” and pays her bills on time but has thousands in credit card debt and lives beyond her means.

  22. bittergaymark says:

    The only way to get ahead in life is to take foolishly reckless risks. No, seriously. It is. So, your friend gets in over her head in debt. Big fucking deal. She can declare bankruptcy like everybody else. Seriously. Nobody else plays by the rules anymore — why should she? Hey, it works for Donald Trump. Multiple BKs in his life. I say, butt out. It’s her life, it’s her decision.

  23. GatorGirl says:

    Who in their right mind wants to open a restaurant? Who wants to work ridiculously long hours in hellish conditions to make little pay? I’ve worked in many different restuarants in my life, and my family owns a resaturant/banquet hall and I think your friend is nuts. My parents routinely work 16 or more hour days, the company barely breaks even on a great week, there are constently issues with staffing, the food distributors, the chefs, ect ect ect. I would advise your friend to stay in her (presumably) well paying job and not join the ridiculousness of the restaurant industry. It sounds like a “fun” and “easy” job, but really it is difficult, stressful, time consuming, and has a high rate of failure. Stay away.

    Also, “routinely lives outside of her means” is not financially responsible. I think it might be the exact opposite.

  24. With my ex-husband, I have been the owner of many restaurants, both independent and franchised. Small Business Administration loans are available and although the require a ton and a half of paperwork and usually it helps to hire a professional to guide you through the process, it can be done.

    HOWEVER, unless you friend had restaurant MANAGEMENT experience, I would urge her to rethink this plan. The front of the house part is tough but not as much as the actual management portion of figuring out food cost, labor, overhead and making a workable schedule and paying bill – including your own salary.

    Purchasing a franchise is supposed to reduce the risk by giving new owners name recognition, menus, set decor, advertising and often training. BUT the training is generally inadequate unless you have extensive experience in the management aspects, she’ll need ongoing mentoring/assistance. It’s possible to hire this help but that will severely impact her bottom line.

    Also, franchise operations are in the business to sell you a franchise. The franchisors get a percentage of sales (or sometimes of profits but generally it’s off the top) and they’ll take a percentage for ad campaigns which your friend probably won’t have any input into and may not even be applicable in her region or target market. They may also sell franchises near your friend’s which can cannibalize her sales and kill the restaurant. A five or ten mile radius may sound like plenty, but it’s not…

    There are so many factors to be considered when going into the restaurant business… we haven’t even talked about finding and keeping good employees, getting robbed, CPAs who abscond with your payroll taxes, cooks who rack up thousands in 900 number calls, and much much more. I’ve seen it all and I’d recommend it only for those who can afford to lose their dough and who have a very strong constitution.

    Not sure how you convey all that to your friend. Maybe just do some research on her particular franchise or print out my comments for her. If she insists on moving forward, have her check out SCORE, Service Corps of Retired Executives, they provide mentors in various fields who assist newcomers in their endeavors.

    Good luck and thanks for caring. She may need a shoulder to lean on in this process.

    And unless she’s very very lucky, there’s not really an exit strategy as it’s tough to sell even a profitable restaurant and any new buyer would have to meet the franchisor’s approval as well.

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