Guest: Welcome to the BiggerPockets Money podcast where we interview Greg Moore and talk about franchises.
Guest: So what we’re looking for is really to find out what kind of a lifestyle are you looking for? How do you want to spend your day? Do you like being in an office, nine to five, Monday through Friday? Is that something you enjoy and can really, you know, wrap your mind around? Or do you prefer being out and about, more schedule flexibility, more freedom to do what you want during the day? Or you just want to invest in a franchise and don’t want to do anything?
Mindy: Hello, hello, hello. My name is Mindy Jensen, and with me as always is my one of a kind, cannot be duplicated co-host Scott Trench.
Scott: Copy that, Mindy.
Mindy: Scott and I are here to make financial independence less scary. That was a good one, Scott. Less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or own 100 super cut franchises, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, today’s show is a little bit different. First, we’re releasing on a Wednesday. Second, we have a bit of a history lesson about the beginnings of franchises, read by our esteemed producer, Calen Bennett.
Speaker 1: The first example of something resembling the franchise was introduced in 1731 by Benjamin Franklin, who partnered up with Thomas Whitemarsh to establish a printing business in South Carolina in order to print Franklin’s works. The way it worked was that Whitemarsh had the right to print and distribute Franklin’s work, but he did this independently. Whitemarsh purchased the printing equipment and paper from Franklin, but he had to maintain and run it himself. And he was responsible for the distribution of the printed work. This was the earliest example of a franchise. Albeit without some of the aspects of the franchise business that we see today, such as training, branding, and so on that is included in a franchise package. The first modern franchise that looks very much like the franchises that we have all come to know, such as Dairy Queen, McDonald’s, and Burger King, was established by Martha Matilda Harper, who was a Canadian American hairdresser. She established a franchise called Harper Method shops in 1891. Harper developed what became the first effective modern shampoo. But she needed it to be an effective way to use and sell it in salons. We begin really seeing all the elements of a modern franchise in the Harper business, including the training, branding, marketing, advertising, insurance, and even some company field trips. This is where modern franchising truly begins. And the amazing thing about the Harper business is that it lasted for decades with 500 outlets with the final one closing in 1972. The franchise business began really growing in the 1920s and 30s. There were famous examples like General Motors selling a franchise to William Metzker of Detroit. The automotive industry is actually a very good example of why the franchise model works and why it became necessary in the first place. As car manufacturing began growing, car makers quickly realized that it was very expensive to fuel cars at a manufacturing site. And then they had to ship them off to consumers. Now, this is how we begin seeing the growth of gas stations. It quickly became cheaper to transport cars to local sellers across the country and then have them filled on site where the consumers bought them. Another great example of why franchising is a great business to save on costs is the famous Coca-Cola company, which struggled in the beginning with this transportation costs. Filling up all those glass bottles with Coke and then transporting them was running up huge cost even before the company sold the product. So what Coca-Cola eventually began doing was franchising its product to smaller outlets across the country. Franchises were required to fill up the bottles on site according to very strict instructions while keeping the formula a secret. Selling the product locally saved hugely on transportation costs, making Coca-Cola into the mega successful business it is today. The franchise model really exploded during the period between the 1930s and into the 1950s with the establishment of such major franchises as Kentucky Fried Chicken, Dairy Queen, and of course McDonald’s. What really helped the franchise model was the introduction of the Federal Lanham Trademark Act in 1946. This allowed businesses to safely and legally establish licenses with third parties, which is an essential requirement of a franchise. And this is how the modern franchise has operated ever since. Essentially, the franchising brand leases its products, its branding, and sometimes its premises, to a franchisee who is responsible for managing the business locally, which includes staff, production, or even packaging on site and all other aspects of the business including local taxes. The franchisee gets to keep the profit, but the franchise owner makes money from franchise royalties or fees, and those can be as high as 20% of the sales, although typically most of them are around 5 to 7%. The franchisee is also responsible for paying rent, staff wages, taxes, insurance, and all the other expenses that go along with running a business, plus the franchise fee, and that lets them use the product, the logo, and any additional marketing associated with the franchise. If you’re potentially interested in entering a franchise agreement, you might be wondering, what’s in it for the franchisee? Well, like everything else, this business model has its pros and its cons. The biggest advantage of venturing into franchises is that you’re not having to spend time and money developing your product. A lot of businesses, and most new businesses actually fail in the first year. Then about another half of them fail in the first five years, and a very small percentage survive the first 10 years. So if you’re thinking of starting your own business from scratch, it’s actually very risky, especially if you’re in the food industry, which is notorious for having a very high chance of failure. But the franchise, the risk of failure is actually pretty much taken away from you. Over 90% of franchises make a profit, and it’s highly unlikely that as a branch owner of a franchise, you’ll fail. However, you will need to consider the fact that your profit may be small. It will definitely be smaller than if you were the sole business owner of a successful company. Those fees will inevitably eat into your profit, and you will also need to know that typically franchises are required to charge an initial fee for every franchisee that signs up. That initial fee can range from $10,000 all the way up to $5 million, depending on the franchise. So you do need starting capital to buy a franchise. However, you are guaranteed a profit. You just need to work out whether that profit will be enough.
Mindy: All right, Calen, that was awesome. Before we bring in Greg, let’s take a quick break.
Scott: If you’ve been putting off life insurance, I get it. The old process was miserable. Phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you’d pay for. That friction is exactly why so many people who should have coverage don’t. Here’s what I believe. Most BP money listeners need term life, and the right move is to build a ladder. A few term policies of different lengths tacked together so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent or you get closer to hitting your financial independence number. The thing that makes that practical now is Ethos, a platform that helps you find life insurance all 100% online. Same day coverage, no medical exam, you just answer a few health questions online. Up to $3 million in coverage. Some policies as low as $30 a month. So building a two or three-layer ladder that used to take a month of appointments is something you can knock out before your coffee gets cold. Get your free quote at ethos.com/bpmoney. That is E T H O s.com/bpmoney. Application times may vary and rates may vary. DIYing your financial strategy can actually become a liability. I recently sat down with David Jackson at domain money to pressure test my own plan. What I loved was the objectivity and how comprehensive it was. Domain is strictly flat fee. They don’t sell products so the advice is unbiased and personalized to your situation. They integrated everything from my cash flow to my real estate strategy into one clear, actionable roadmap. If you’re ready to graduate from guessing to knowing, go to biggerpocketsmoney.com/cfp. Book a free strategy session and see what a real pro like David can do for you. This is a promotion for domain money, a registered investment advisor with the SEC. Bigger Pocket’s money may receive compensation if you choose to work with domain money as a client. I, Scott Trench, am a current client of domain money and received non cash compensation related to this promotional activity. This is not personalized investment advice. For the full disclosures, visit biggerpocketsmoney.com/cfp. When I was CEO of Bigger Pockets, Upwork was the number one place that we went to hire freelancers to power our business. One of the biggest growth acts is realizing that you don’t have to do it all yourself. Upwork made it easy to bring in the right freelancer when we needed them so that we could stay focused on what we do best. Upwork is a one-stop platform to find, hire, and pay expert freelancers across web and software development, data and analytics, marketing, business operations, and more. It’s free to sign up and posting a job is easy. Thousands of growing businesses already trust Upwork to hire flexible, high-quality freelance talent for everything from one-off projects to ongoing support. Visit upwork.com right now and post your job for free. That’s upwork.com to connect with top talent ready to help your business grow. That’s UPWK.com. Upwork.com.
Mindy: And we’re back. Greg Moore, welcome to the Bigger Pockets Money podcast. I’m so excited to talk to you today.
Guest: Thank you for having me, Mindy. I’m very excited to be here and I do appreciate it.
Mindy: Greg, in your bio, the first line reads, Greg Moore helps people escape their jobs and reach financial independence through finding franchises that fit their life’s needs. What do you mean by this?
Guest: You know, it’s interesting, Mindy, when people first come to me and they’re looking to get into a business for themselves, uh the first thing they think about is um the brick and mortar type franchises, restaurants in particular. They things that you drive by all the time that you see, uh and that’s that comes first to mind. So there are a lot of them are thinking that they’re going to have to, you know, put out a lot of money, uh invest a lot of money into it, put a lot of time and effort into it and franchises are not just about the restaurants that you see, you know, you always see the McDonald’s, the Taco Bell, the Burger Kings. There’s many different types of franchises. So helping people get into the right one is looking at what they really want to do. What where have they been, where are they at now, where do they want to be five to 10 years from now? And then introducing them to the fact that every industry, just about every industry out there that I can think of has a franchise opportunity in it.
Mindy: Can you give us some examples of what industries you’re talking about?
Guest: We can look at, if we’re looking at uh say the service industry for instance, which is one that not a lot of people know about. People don’t necessarily know you exist until they need you. Uh let’s say water damage, fire restoration. Those are really good ones that you can do. So 1 800 water damage, part of the Belfor Group. The Belfor group helped clean up after Katrina, does all the major cleanups. These are things you don’t think of because you don’t necessarily need it. Do you need a Tutor? You’ve got Tutor doctor that can come over there and they can send them over a tutor to you on that one. Mom and dad need help around the house at place at home. Sends caregivers into mom and dad’s home to keep them there a little while longer so they don’t have to. Uh are you looking to help people in sales? Uh Sandler Sales training will help people go out and help businesses become uh better sales people. There and if you’ve just looked at the home itself, you’ve got your roofing, you’ve got your pest control, you’ve got your kitchen remodeling, you’ve got your garage remodeling, you’ve got your painting inside and out on that. If you’re looking at businesses, if you’re looking at building maintenance, you’ve got a person that can do building maintenance, building cleaning, huge businesses in those and go, NGO, a great one for commercial cleaning, huge business that you can really build up on to that. Those are absolutely beautiful ones. A lot of those you can start from the comfort of your own home, so you’re not necessarily having clients come to you at your home, you go out and visit with them. So it’s a lot less of an investment. You’re not looking at a million dollars like for a McDonald’s. You’re looking at 100,000, you’re looking at 150,000, maybe a small office on that one. Uh, so many, many different things out there, Mindy.
Scott: Greg, it sounds like there’s a lot of options to become a franchise owner. What are what is the process for narrowing those options and becoming a franchise owner and selecting a good investment for you?
Guest: Oh, great question, Scott. The first step in the process uh is really to get a hold of a good franchise consultant out there that can help you through that that process. The way I started it, I started it by just looking around to see where all what different franchises were out there and just started clicking on everything to get information on. Kind of went click happy on the internet. And that produced a lot of people calling me, a lot of sales people from different franchises calling me and just saying, yeah, this is the greatest franchise since slice bread. You got to get in this one. Yeah, you got to get in this one. And then I had to figure out, okay, are they even available in my area? is it really what I want to do? You know, is it going between time and investment money, uh so many different things that I had to figure out on my own with all these people calling me at the same time. It’s a lot easier to get a hold of a franchise consultant. Now, I’d prefer you get a hold of me, but that’s not necessarily uh the thing to do. You can work with many different franchise consultants. There’s a lot of great franchise consultants out there. There’s going to be some basic steps that they’re going to take you through. And this applies to uh me and anybody else that’s out there. One, get a hold of a great franchise consultant, one that’s been in the industry for a while, has been around the block a few times, knows what’s going on out there, knows information about the different franchises. What I’m going to ask you, and what any good franchise consultant’s going to ask you is they’re going to go into your background. Where have you been? Where are you at now? where do you want to be? What are you looking to put into your franchise, timewise? What are you looking to put into your franchise, moneywise? What are you looking to get out of your franchise? One of the things that we’re going to look at is your expectations. So if you’re looking to say, well, you know, I want to get a McDonald’s and I want to be making a million dollars in one year. Well, that’s probably not a really great expectation right off the bat. It’s going to take a little bit of time to get to to do these things on that. So what we’re looking for is really to find out what kind of a lifestyle are you looking for? How do you want to spend your day? Do you like being in an office, nine to five, Monday through Friday? is that something you enjoy and can really, you know, wrap your mind around? Or do you prefer being out and about, more schedule flexibility, more freedom to do what you want during the day? Or you just want to invest in a franchise and don’t want to do anything? There are those possibilities as well. as far as the time amount, uh different franchises will require different things. So I will require you to work that franchise full time, they want you to be owner operator. That doesn’t mean, you know, working in the franchise itself. Most of the time it’s going to be working on the franchise, where you’re building up that business, somebody else is actually going to be doing the work for you on that. So don’t be thinking that if you get into a restoration type franchise, where you’re doing, you know, mold fire, water, smoke damage, repair. Don’t be thinking that you’re going to be the one doing that. They’re going to teach you how to do it just so you’ve got a good feel for it. you’re going to have somebody else doing that as well. So, franchises, some of them want you to work for the full time, to be the owner operator, uh executive operator working on that. Some of them you can do passively. So if you do or semi passively, I should say. semi passively, those are going to be the ones where you hire a manager to do everything and your role then is to manage the manager and manage the profit and loss statements. 10 to 15 hours a week. And then there’s a few franchises where you can run absolutely passively where the franchise is going to do everything for you. You pay about a 5% management fee for that. They do it all and you just invest in them. so you could stay with your uh job that you’re doing now, you can stay with the business that you’re doing now and have the franchise do everything for you. You just pay them to do it. So, when you’re coming to that that franchise consultant, what we’re going to be doing is we’re going to be asking all those questions, what are you really looking to do? What do you really enjoy? What kind of time are you invest in that franchise? What kind of investment that you’re looking for for a franchise? Then we’re going to go through the different industries and see which ones that you like, which ones you don’t like, which ones that when you get up in the morning, you really feel good about doing that. So we’ll start off with with a just a simple phone call to get to know each other. Uh make sure that you uh know, like and trust me to some extent uh that we can move on or with any good franchise consultant. I make certain that your expectations are you know, somewhat reasonable that we could find you a franchise that fits those expectations. After that phone call, I send you out a questionnaire and any good franchise consultant should where they’re going to go over a few more details, a little background of yourself, brag about yourself, tell us about yourself. Then we get into another call. We’ll we’ll sit down then for about an hour, a half hour, an hour, however long it takes, two hours sometimes. Um and we’ll go through that questionnaire. I’ve got a little matrix of business types that shows you the different types of businesses that you can get into, you know, whether it be, you know, sophisticated retail, simple retail, you know, automotive, uh the brick and mortar. And then I use all that information from having, you know, a couple talks with you and that quesstionnaire to go through. and I compile all that together and then I start looking and thinking, okay, what franchises would be a good fit for this person? And I might come back to you with about five or 10 different opportunities. And our next call, what we’ll do is we’ll go through there and we’ll go through those opportunities together and we’ll go through them in a little bit more detail as far as, you know, what your role is going to be, uh how it fits in with what you were telling me, that you want out of your life and that you want out of that business. And then we’ll narrow that down to maybe two or three franchises that you take a look at and say, you know, that, I could see myself doing that and that fits my criteria that I’ve given you already on that one and then we go into the franchise investigation process together and we go through that whole process uh together and I stay with them the whole time.
Mindy: What does a franchise consultant cost?
Guest: Ah, the best part about it is that we don’t cost our clients anything. We are free. So we get paid if and when you decide to invest in that franchise. And the franchise or then pays us a referral fee, uh kind of like a staffing type agency here, that sort of thing. And by law, the franchise can’t charge you anything more for the franchise fee. If you use a consultant, or if you don’t use a consultant, they actually really like it when you use consultants because we pre qualify you for that franchise. So from the franchisee’s point of view, what we’re doing for them is a lot of their upfront work. So they have certain qualifications for each one of their uh candidates that come in there. They have background qualifications, they have financial qualifications. uh the time frame of what you want to work. So all of those things franchise wars tell us, this is what we’re looking for in a great candidate. This type of person will be successful in our franchise. So we don’t bring anybody to them that does not fit their criteria and conversely, from our client’s point of view, we don’t bring them any franchise if they wouldn’t necessarily qualify for. So.
Scott: Um, could you give us a couple of examples of clients who, you know, maybe like three different personas, somebody who really wanted to hustle and grind and build a business, somebody who wanted a semi passive franchise, and somebody who wanted a totally passive, I don’t want to do anything experience and how you might guide those three people or or outcomes that you’ve done in the past with those effect?
Guest: Yes. Good. So I had one gentleman that came to me. Uh we had a bunch of uh super cuts that were being sold at one point in time uh corporate on locations and he came to me and he said that, you know, that sounds pretty great because he goes in the super cuts, gets his haircut all the time. He said, I need to pick up one of those corporate locations. I love those. So we went through his process together. We did as we went through and found out, you know, what it is that he was really trying to do. And I think that the biggest thing I got from him is that he just really wanted to partner up with his dad to do something on that. Well, it turns out his dad really didn’t get into haircutting too much. So we narrowed it down and we kind of eliminated the hair the haircut styling industry and we actually put him into a handy man connection franchise on that one. Uh but that’s going through the process of figuring out what his goals were, what he wanted to accomplish um on that. Let’s see, another gentleman, he moved from the East Coast over to Oklahoma. He he was an IT person and he was looking to get into an IT franchise because that’s what his background was. So he said, I’m not getting paid as much as I did back on the East Coast. Greg, can you help me find uh an IT franchise that I can do here in Oklahoma that I can get paid the same or more, obviously, than I was getting in um back on the East Coast. So again, I still go even though they tell me, you know, when IT, I don’t just, you know, throw IT franchises at them. I still got to go through and say, okay, you know, what what’s your real goal? What are you really trying to accomplish here? What do you really like doing? I mean, is that your dream job that you’ve had all your life as IT or just because it pays good? Uh on that. So we went through that whole process, found out, you know, what his background was, what he liked doing, what he really enjoyed out of life. Uh so we ended up putting him into an automotive franchise. Uh I forget which one it was my key or something like that where that’s what he really enjoyed doing. I mean, he liked the IT because it it paid good. It was a good job, but his real passions were, he really liked working with cars, and he really liked working with vehicles. So we went through that whole process and found him uh found him that one. very happy. He’s had that one now for for many, many years on that. And then I’ve got another gentleman that back to the the super cut example. He was a doctor and he wanted to help out people who were uh not able to afford doctor’s services, but he needed a way to pay for it on that one. So we started looking at the Super Cuts and he said, well, how many can I get? I said, well, it just depends on how many you want. Because I want a hundred of them. I was all right, well, that’s a big chunk. let’s take it a little bit at a time and see what we come up with. So we put him into 20 to begin with on that one. Uh and again, we went back in his goal was to create an income source where he could help people who could not afford the doctor’s services uh to help pay for that uh so we wouldn’t necessarily come directly out of his pocket. So got him into 20 and then we got him into a few more and right now I think we’ve got him up to about 80 of them at the moment. So his goal was a 100 on that one. Uh but he is just is as happy as can be because now he’s got that money coming in that he can use to uh help out uh under privilege folks get the doctor services they need. So, it just comes down to really looking at, you know, what each one of these individual person’s goals were, what they are really looking to try to accomplish and find a franchise that fits into that mold that can help them get to where they wanted to be five to 10 years from now.
Mindy: How do you know if a franchise is right for you? And who is a franchise not a good fit for?
Guest: You know, going with the second part, the I think my I’m my true entrepreneurs are some of the more challenging people that I come across because the true entrepreneurs that that have come to me and I get a couple different varieties there, they’ve already done it themselves. So the challenge for them for the true entrepreneurs versus when you’re getting involved in a franchise is that the franchise has already set everything up. They’ve already done everything in the past for you. They’ve got that plan of action laid out. They’ve got the processes, they’ve got the procedures and they want you to follow those because those are their proven methods. They’ve done it, they’re duplicating it. That is why you get into a franchise. So you don’t have to come up with all of that. So some of my true entrepreneurs aren’t real good franchisees and we’ll find that out as we go through the process because I’ll be telling them that, you know, you can’t just go in there and and say that, you know, I see some things that you can do differently. Let’s start making changes right away because the franchisee is just not going to go for it. Um conversely to that, though some of the some of the entrepreneurs that have been around for a while and have done things on theirself, started up their own businesses, come to me and said, I don’t want to go through all that again. I know what it takes to build that business up to where I want it to be and I don’t want to do that again. I want to go with a franchise because it’s a much simpler model and I can get to where I want to be, you know, two to three years quicker. So who a franchisee is not necessarily a good for is somebody who cannot follow those directions and wants to do everything themselves uh and go in their own direction and do things the way they see fit. It’s good for people who are looking for that structure, looking for that proven model and can follow that and are trainable and are coachable to become what the franchise is already laid out for you to become.
Mindy: You know what I’m thinking, Scott, I’m thinking, former military is perfect for franchise because they have to, I was just talking to my friend Liz and she was talking about how she’s she’s getting ready to go to officer training. and she’s like, they they make you do all of these things. like she has to give up coffee. I’m like, why do you have to give up coffee? She’s like, they do it to make sure you can follow rules. And like that seems so awful. I would never want to do that. And now I’m thinking, oh, maybe franchisees is not the the right choice for me because I don’t want to follow somebody else’s set rules. Um, it doesn’t sound like there’s a lot of opportunity to go out and try thing new things. And when, you know, as I’m thinking that to myself, I’m like, well, when I go to Taco Bell, I don’t want to try my local Taco Bell’s brand new item. I want to go there for the thing that like I’m going for the nacho fries. I expect them to be there and I expect them to be just like the one across town and just like the one in Oklahoma and just like the one I had last week in California. And that’s the reason you go to the franchise is because it’s the same thing over and over and over. You know, with food.
Guest: That’s correct up to a point. On that one. So, there’s, let’s take your Taco Bell example, uh, for instance. So, at some point in time, somebody had to come up with the Taco Supreme, and somebody had to come up with the burrito Supreme. That’s where the franchisees come in. They might at some after working at it. So you start a franchise, you don’t want to just go in there and start jumping around, say, let’s make changes because I see things could be better. However, after you’ve been a franchisee for a while, you might be looking at things for them to improve on, then you go to the franchisor, start bringing those things up. So some of those things that you see at Taco Bell have been started by franchisees. They came up with that idea. They might have a couple of test restaurants that they’ll start them out with. And then if things look good, if they get a good feedback from it, then they can build up on that. So you do have some amount of creativity available to you after you’ve learned the system and you start working together on that. So you’re still there for some, some creativity, absolutely.
Scott: Well, walk us through the the you know, the the the I I know it’s going to vary dramatically, but what what are the financial returns of this? Right? I I if I’m thinking about this from a as a franchise as someone considering buying a franchise, I want to do one of several things at minimum. I want to make more money than I’m I can make in a corporate job, right? Because I’m going to be essentially almost a business owner, not quite a franchise owner with with with all this. I want to turn my initial investment and return that probably within one to two years, especially if I’m working hard all day long. Um, I really want to pay that back quite quickly and I want the opportunity to scale in some in some format. Can you give us a sense of of proportion there? How long does it take to pay things back? Is this a two-year payback? a 10-year payback? Um, what what are what are some some income stories and what are some success stories?
Guest: Correct. So, on that one, first off, a lot of people ask me, how much how much can I make on one when a franchise system? So, to begin with, uh a long time ago and a land far, far away here in the United States, the when the franchising first came out, the franchisee development people, the sales people said, you get into this franchise, this is how much money you’re going to make. Okay? As it turned out, it didn’t happen all the time. Uh and it didn’t happen enough from what they were telling them for the Federal Trade Commission to step in and say, if you don’t have that information, you cannot give that information. So you will find that information in the franchise disclosure documents under atom 19, the financial disclosures. Um as a franchise consultant, I just can’t come out and tell people this is how much you’re going to make because that is breaking the uh Federal Trade Commission rules. Now they’re not going to throw me in jail or anything like that. But if the franchisee doesn’t make the amount I told them to, uh you could go back and sue me. and it’s just not good business practice. However, to your point, Scott, of how much can you make on this, that’s one of the things we’ll look at. That’s some of the things that I know, but I can’t necessarily tell my my candidates, but when they tell me what they’re looking to make, I can point them in the in the right direction. So, for instance, some of those hair salons out there, they’re great businesses, simple to run on that cost about 250 to build up. Um, you’re not going to be running it yourself, you’re going to be doing it semi absent. but you’ll probably be netting about $50,000 a year on those. You won’t be doing much work, a good place to park your money. So five years return on something like that, is what you’d be looking at. Uh, and that’s not a uh earnings claim by the way, so disclaimer there. Um, services industry industry is probably one of your better ones to be looking at there. because now what you’ve got is a lower investment level. So you’re looking at 100,000, 150,000 on that quite a few of those services industries are million dollar businesses. And if you go and look under under bus by sell, for instance, you look at franchises that are selling, you’ll see quite a few of those that are selling the services industry for a million dollars, for $2 million dollars. and they usually sell them for, you know, three times net on there. So they’ve built that up into a good business. So services industry, um especially when you get into, you know, restoration, uh senior care businesses, those are ones where you can easily build up uh, you know, the franchise is going to give you a territory size of 30,000 seniors. You put about let’s say 50 seniors in there, something like that, you know, you’re probably bringing in uh, you know, a couple hundred thousand to the bottom line somewhere in that vicinity. So we probably take a couple of years to get there, but now you only spent for that business uh to invest in it. a small office overall total of $150,000. So three years payback is easily done on something like that, considering that, you know, your go getter, uh and you go out there and do it. Uh so it’s going to vary. I would say Scott, service industry industry is going to be your best bet if you’re looking for a two to three year return is that various ones of those have uh uh better returns, quicker returns than others. You can also get into the business quicker. If you’re looking at the brick and mortar, you’ve got to find that real estate location, you’ve got to do that build out uh and that’s going to take you six, nine months to get all that done. So you’ve invested your money and you’ve got another year until you’re opened up, maybe a little bit less. Uh so that’s going to extend your time out plus you have that overhead that you’re going to do it. So some of those might be, you know, a four or five years on that one. Uh you know, one of the one of the ones that this surprises the heck out of me is um if you like animals and you love working outdoors, uh you can go up and clean up after other people’s animals. pooping, scooping poop of all things. and that one, uh the franchise I’m thinking about those are like million dollar businesses. I just it boggles my mind. Yeah, that’s what sucks me. Yeah. Boggles my mind, but some of those businesses that you don’t think about actually bring in quite a bit of money. So, yeah, service industry, two to three years you can get them back. brick and mortar is going to be extended out a little bit more on that one. Uh but a lot of it really has to do with you and how much you really go out and go get that business or hire a great manager that’s going to go pick up that business for you.
Mindy: Oh, okay, that brings up a couple of questions. Let’s talk about separating from the franchisee if you decide that you no longer want to own this. And uh, so how do you sell a franchise? And how do you, how do you value that? I would assume that a an existing franchise that is, you know, successful is going to be worth more than buying into a franchise that you then have to set up and do all of the work for yourself. Right?
Guest: Great question, Mindy. I get that quite often from people they come to me because they’re looking at resale type franchises versus a new one. So the difference between them right off the bat on that one is that starting up a new franchise is going to be a lot less of an investment than getting a resale franchise, an existing one to go in there. So, start off with that part of the equation. You are going to be looking at probably about three times net what I do a lot of resales on that one, but I usually see them going for about three times net plus any equipment that you have in there. They’ll usually start the price out around four or five times net, but it comes down to about three times net. So if you’re buying into that existing business, the your paying for that income. So if you’re paying three times net, you’ve already got uh there’s already looking at uh three-year payback period. Um now that’s not considering that maybe you’re going to start go out there and increase that business and bring more business in so that you increase your your net profits even more. That’s a possibility. But that is going to be an extra investment where you’re paying for that income on that. whereas with a new franchise, you are not paying for that extra. So if you want a business that’s um that’s making, you know, $100,000 a year, you’re going to have to be paying $300,000 for it. or you can start from scratch at $100,000 and then build it up over two or three years to that $300,000. So it’s kind of a give and take on that one. Now, the other part of your question, how do you sell that franchise when you’re going again. But first thing that you do is you tell the franchise or your franchise or that you’d like to sell the business on that. Now, you have a contract with them, the contract’s generally going to be for five or 10 years on that. Uh but there’s going to be in the franchise agreement away for you to to sell at any time you want throughout that time. Uh you just tell the franchisor, the franchisor will tell the different consulting groups that they’re with, like myself, that we’ve got this franchise that wants to sell this business. So, now you’ve got, you know, a few hundred people across the United States trying to find people to help you uh sell that business for. You can get in touch with your local business brokers over there and the franchiseors usually going to put it out um when they see most of the time they’ll put it out on their website that they’ve got a resale in this city and this is what it’s going for there. So it’s actually a pretty simple process to sell uh that franchisee at any time you want to uh for a good profit once you’ve built it up.
Scott: You know, I I I wonder aloud if uh a franchise is a great option for somebody who is um, you know, maybe a little younger in their career, not reaching their peak earning yet, wants to accelerate that to some degree, um, but they don’t have a 100 rand to drop on a franchise or 50 or 250 or whatever it is. Have you ever worked with partnership situations where somebody who has capital buys the franchise and somebody else runs the franchise and the profits are split?
Guest: Yes, quite often. Usually though what happens in that situation there is that those two people know each other. I generally have never had anybody where I’ve had two strangers come together do that. So yes, I’ve had that with people who are who know each other. Somebody’s got younger, it’s got the energy, got the experience. or maybe not have too much experience, but it’s got the energy, has got the time to go out there and do it and somebody who’s a little older, has the money, but they don’t necessarily have the time. So quite a few of those uh partnerships come into play there. And any age is great. It’s franchising is a great way to get some good experience uh without necessarily having, you know, to go to college or or go to school because the franchisor is going to teach you everything you need to know. They’ve done it before, they know what to do. You just have to follow their instructions. military people and they great example, great people to do it. Uh the franchiseor will allow you to drink coffee while you’re doing the franchise, so that part’s good. Uh but they are going to they’re going to teach you everything you need to know. So it’s a good way to become a business person without necessarily having to get a business degree on that. So yeah, partnerships are great. young people are great.
Scott: Go ahead, Scott, sorry. any any tips on uh structure for those partnerships?
Guest: How does how does the investor protect their capital, for example? and how does the the young the the the hustler who’s going to run the thing make sure that they get paid and have good upside?
Guest: I would say how does the investor protect their capital, for example? and how does the young the the the hustler who’s going to run the thing make sure that they get paid and have good upside? I have some fantastic CPAs and lawyers that I will send them to on that to get that done. On that one, that that business structuring and laws, um not necessarily my expertise. I know a lot, I’ve done a lot. uh but I generally put people in in in touch with folks who who do that for a living on that one. LLC is probably the simplest thing, you know, the liability corporation, uh maybe a C corporation if they want to go that route. you can do a C corporation, use your 401k money to make a C corporation but uh, I’m not an expert in that field, so I turn them over to experts.
Mindy: Let’s talk about mistakes to avoid when selecting a franchise.
Guest: Right. So in in my book, uh Real Freedom, uh why franchises are worth considering and how they can be used for building wealth, I do go over that on that one. Um so, when you’re looking at franchising and the mistakes to avoid with doing that, on there, there are a few different things that I tell people that they should be looking at there. So, one of the first things is to make sure you understand the business or industry before getting started in there on that. So, you may you don’t necessarily have to be an expert in that industry, you don’t necessarily have to know that industry. but if you’re going to go into an industry that you’re not sure about, you should start investigating that and understanding the industry uh before you sign that franchise agreement in there. The franchise is going to help you with that. I’m going to help you with that, but understand the business and the industry before getting started into it. Um, number two, is not figuring out how much the franchise actually costs. So quite often out there when you’re starting to clicking on things or starting to looking through things, you’ll see advertisements for this franchise is $50,000, this franchise is $35,000. That’s the franchise fee itself. That’s not the total investment. So all franchises, almost all of them are going to be around a $50,000 franchise fee itself. Now that’s what you pay the franchise or to get trained, to get to know all the systems, all the processes on that. There’s going to be the total investment. That total investment’s going to vary not only by franchise. So if you’re looking at a brick and mortar, like me and now we’re talking about earlier with the McDonald’s, a million dollars to build something like that out. They can’t give you an exact number because if you’re building something out here where I’m at in Looking Missouri, it’s not going to really cost you much. If you’re in the middle of New York City, yeah, real estate’s going to cost you something. If you’re looking at something that costs you it costs you some money. So, keep that in mind, always find out the exact cost. The easiest way to do that is not only with the franchise disclosure documents, but as you’re going through the franchise investigation process is talk to the other franchises as many as you can who have done this before and find out from them what was the total cost? The franchise is going to lay it out for you, but if you get enough, talk to enough of the other franchisees, you get a good idea from them, what have they to spend? Were there any incidental costs that maybe the franchise or didn’t mention or that uh you found that you needed to do. So, total investment of the franchise, get that down. Uh, just because it’s a hot franchise, does not necessarily mean it’s for you, okay? just because it’s a hot business doesn’t necessarily mean it for mean it’s for you. So people like, you know, they go in and they see, you know, Burger King, Dairy Queen, McDonald’s, all those places they’re hopping, they’re cruising. Uh, but keep in mind that you’ve got to, you you’ve got to be into that sort of thing working with those people that you’re going to be working with on there. So those are going to be not only your customers, but you got to consider the employees that you’re going to have. Do you want to be working with um, younger people. So if you’re getting into a fast food place, I mean, that’s where I got my start at Taco Bell. So when I was a manager at Taco Bell, I mostly hired, you know, young people. I had high school students, I had college students. Do you want to manage those people? Uh, if not, uh, maybe those that hot, you know, McDonald’s franchise isn’t for you. But consider who you’re working with, what type of industry that you’re in, uh, and just because it’s hot doesn’t mean it’s for you because also if you get into like a Chick-fil-t, that one’s a hot one. You like Chick-fil-t, Chick-fil-t’s great. busy all the time, wonderful, absolutely stunning. You’re working full time, Monday through Saturday an the story on that one, okay? If you don’t want to work full-time Monday through Saturday, you always got Sunday off. great people to work with. Chick-fil-t’s wonderful folks, but if you don’t want to work Monday through Saturday, if you want more schedule flexibility, that one’s out. Got to get you into something else. so consider that when you’re looking into a franchising. Uh, and as we talked about before as Scott mentioned, how much money you’re going to be make. Uh, thinking that you’re going to be rich in a year or two. Uh, if you’re a real go getter, may be a possibility. But generally speaking, no, you’re not going to be rich in a year or two. Uh, you’re going to be doing what you enjoy doing. You’re going to be having a good time at it. You’re going to be loving that business because it is the franchise for you, but you’re not necessarily going to be rich in a year or two. Uh, and you’ll figure that out. Again, talking with other franchisees, as you go through the investigation process, finding out from them, how much did you make? when did you start making it? What it take to get there? You’re going to get a good feel for that. As far as not only can you picture yourself doing what they’re doing to get to that level, uh but is it at the level that you want to be at on there. funding, uh mistake number five. Quite a few of my people, especially my investors, always like using other people’s money to invest in a franchise. Some people don’t. Some people want to use their own money. Some people don’t want to go into debt. But look at funding, see if it’s right for you. I did not want to go into debt. I don’t like debt. That’s just me. Most of my my investors are like, I’m not using my money. I’m using somebody else’s money. Go get me a loan and let’s make certain that that franchise is going to service that debt, so I never have to go my money into it. I use the uh roll over for business, the 401K roll over, created a C corporation, uh used my 401k money, never went into debt, never took out a loan. I went that route. But uh some of my uh some of my investors think I’m nuts and uh they say always use other people’s money. That’s how you get rich. so, personal opinion on that one, but always looking to funding for your business. Um and as I just talked about there, mistake number six is talking to existing franchisees. So before you get into that franchise, you need to talk to as many franchisees as it takes until you start getting feedback that is the same over and over again. Now we’re hoping that feedback that you’re getting from those franchisees a good positive feedback over and over again. Uh if it’s not, we’re out of there and we move on, okay? Generally speaking, I get involved and all this. generally speaking the franchises I introduce you to are going to get for the most part, good positive feedback from their experience. We want to know, you know, would you had this do it all over again? Would you? But you need to talk to as many franchisees that takes to get a good feel for the business. And that goes into another question that we go over early on is when you’re looking at a franchise, how large of a franchise system do you want to look at? You want 20 franchisees in it? 10 franchisees in it? 1,000 franchisees in it? That’s going to make a big difference. Do you know that of the I would say 4,000 plus franchises out there in the United States today, only about 5% of them make it to 100 franchises or more. So if you want to be in one that’s in one of the top uh franchises, then you’re going to want to look at a franchisee that’s got 100 franchisees or more in it because then you’re already in the top 5% of that. Now, conversely, if you’re looking at something to get in on the ground floor of, then you may want something that is more of a startup franchise, five or 10. So, you know, if you got into Orange theory back one of those, you know, only five or 10, obviously you got into something really good. So, it’s just that’s going to be your risk level that you’re going to be looking at there and that we’re going to be talking about. making use number seven, make use of free experts. Uh the score team, S E that you have in your local area, great people to talk to on there. Uh talk to funding experts, talk to franchise attorneys. always make use of all those experts before you sign on the dotted line and get that franchise agreement in there. Um and of course, franchise consultants always talk with them because we generally have the inside snows. We get paid when somebody gets into a franchisee, so we have to not only make certain that we do just that absolute perfect match up, but most of our business after we’ve been in the consulting world for a while comes from referrals. So our people not only have to get into a good franchise that they enjoy, but they have to continue to enjoy it to where they’re sending people to us after they’ve been in the franchise for a while. Greg put me into a great franchise, go talk to him if you want to get into it. So we have to make certain that we put people into franchises that we know are good franchises, but always take advantage of free experts. Go chapter, uh talk to the Chamber of Commerce, get involved with them. Uh good CPAs, good franchise attorneys, and you know, good funding people so you learn all the ins and outs.
Scott: Um, can we can we go dive those those are a phenomenal list of mistakes there. I’d love to dive a little bit deeper into funding the franchise and you know, off the top of my head I can think of my cash savings, 401k loan, home equity line of credit. Can I use other things like small business loans? What other other common ways that folks finance the the franchise investment?
Guest: So usually, probably, I would say four most main different ways that they use to to fund that. So if we go through the one that I did, and the one you mentioned Scott, the 401K. So if you don’t want to go into debt on that and you want and you’ve got a 401K plan, uh from a previous employer, not the one they’re at now, where you got the money for. what you can do with that is what they call a roll over for business. So you take that money out of your 401k. You put it into a self-directed 401k plan. Now it’s self-directed because then you can buy stock in any corporation you want to. So you go and create a corporation, Greg’s corporation, Greg C Corporation, you create that and Greg C corporation now has a checking account. So, this is all basic. You just take this money out of your 400k uh self-directed plan. You send it over to Greg’s C corporation checking account and Greg C Corporation then issues stock in it. And I say you do it, but you don’t actually do it. So what you’re looking at there is we’ve got, you know, there’s a couple of great uh companies out there that will do it. 10th financial, uh Benatrads, fund. We got a few different ones that do it and they do it all for you. So what you’re looking at there to do that, Generally speaking is $5,000 what they charge for it. They’ll create that C corporation, they’ll create those stock certificates, they’ll create everything for you. It really doesn’t take that much effort on your part. Then they’re going to monitor that. so they’re going to keep you in compliance with the IRS. So you’re looking at probably about $150 a month from then on to monitor that plan and make certain that you’re in compliance with it. a lot of good things about that. Uh the bad things that I hear is that it is your retirement money. So it is more of a personal uh view on how you want to do that if you want to use your retirement money for it. CPAs kind of 50-50, CPAs not all them like you using your retirement money for that sort of thing. So your CPA might kind of push back on that. A great way to invest in your business if you don’t want to go into debt and you don’t mind using that retirement money.
Scott: If you are if I buy a property, a business or property or anything inside of my retirement account, regardless of how I structure it with all this stuff. My understanding is that I then can’t take the proceeds of that business out and spend it on groceries next week without without paying taxes and a penalty if it’s a tax deferred account for example. Is that a consequence of doing it this way or is there a way around that?
Guest: Uh, so more details about good and bad points about that. One is that you’re now a C corporation, okay? So just see corporation, now you’re going to be taxed twice. So you got your C corporation taxes and pay roll. So Scott, if you want to take that money out and start paying groceries for it, then you’re going to be paying yourself a salary. So you can be paying that money. so you just take that out of the salary on that. That’s how you do that. But yeah, and I was taxed, you know, as a C corporation then taxed then as a salary as well on that one. So, good and bad points. you can put money into it. One thing that I found that was really fantastic is that when I got to the point where you had so much money in your um checking account and your C corporation, you know, you can put some of you can continue to put some of that back into the 401K plan because now you’ve got obviously your own 401K plan that you should put money into and depending on your age, you can put so much back into it. But when I um dissolved that C corporation and switched over to an LLC, all the money that was left over in the checking account, then just went into my 401k plan and I wasn’t taxed on it. and just got stuck.
Scott: So this this is an option. It seems like you would really have to have no other sources of funding, um no cash, no home equity, no no other no other accessible options, but if you and if you had your money in a 401k, you could use this option. It would be expensive to set up. It had it would have you’d have a C Corp and have all these other other issues, but it could it could be done. Um this this sounds like a a less favorable option than some of the other other ways to finance the the franchise though.
Guest: Depending on your point of view, you’re not going into debt. You have zero debt. You’re investing in yourself. And there is a lot of good advantages to having that 401k plan, but it is your retirement money. I think that’s the biggest negative on that one. So it’s not a bad option. It’s just you got to get the give and takes on that one. on that one. Uh, and it is quick. it is quick. So if you want something that’s quick, do that. Now, if we go into the loans, the SBA loan, small business administration loan for example, that’s not quick. So if you don’t mind waiting for a while, you get an SBA loan. I’m not too sure what the rates are right now for that one, but the rates are generally fairly good for that one. They generally take, you know, a good amount of time, uh depending on the business. So some of my uh my lenders can get it done within a month, but sometimes it takes two or three months on that one. Always a good way to go for that one. Uh pretty simple process for for that as far as you just fill out a whole bunch of paperwork and sent it on in and uh then you get a loan for that. So, quite a quite a few people, I’ve done probably 25% of my people will do the 41K rollover, the rest of them are doing loans when they get it. Uh SBA loans are a good strong one for that. Uh generally speaking if you’re looking at a brick and mortar, then you get a 7A loan on that. And then they just give you the money as you need it to build that that up. 10 to 20% down. is what you’re looking at there. I believe the SBA uh also wants you to um put up your house for collateral, so they’re going to want some collateral on that to show that you can do it. Uh that you can pay that back. That’s going to vary a little bit. And then you can get an express loan for something that’s like a service industry, that’s going to be a little bit easier to get a pretty quick loan on that one. Um you can also do home equity, line of credit, obviously or home loan, uh those are pretty simple. Again, you’re putting your home up uh for that. and then you can you can also you can go with the term loan on that one as well, which the rates aren’t going to be quite as good as the SBA type loan, but they are a little bit quicker on that and you may not have to put up as much capital or collateral, excuse me, as you would on some of the others. And again, I have experts on that. always get good to have experts in that field. So I’ve got a few different funding people uh that will definitely go over the different options and what is best for you based on your situation working with your CPA on that as well.
Scott: Well, Greg, this has been phenomenal. We’ve learned a tremendous amount about franchises here, um, top to bottom. I had I had no idea that you that the process starts with a franchise consultant. Um, I had no idea that there’s 4,000 options um out there and that most of our many household names are are franchises and you can really get into it any any which way, funding it, there seems like a lot of creative ways to fund fund it. and it seems like a really good option for some folks um who want to kind of go in that in between space between owning their own business and and uh uh working working their their full-time job that they have currently. So really cool option here that I think is is uh unknown to a lot of people. Thank you for sharing with us today.
Guest: My pleasure, Scott. Thank you, Mindy.
Mindy: Thank you, Greg. I didn’t even know franchise consultants were a thing and it sounds like that’s a really great uh great option for somebody who doesn’t know exactly what they want. Like if you know you want to get into McDonald’s, great. Just reach out to McDonald’s. But if you’re not sure you know, you think you want a franchise, but you’re not sure which one or you’ve listened to this and you’re like, hey, I didn’t even know that Super Cuts was a franchise because I did not. Uh, Greg, where can people find you?
Guest: Greg at franchisemaven.com, M A V is Victor E N com, you can find me there on my website or just give me a call. 361-772-6401 anytime.
Mindy: Oh, I think you’re the first person who’s ever given out their phone number on our show.
Guest: I’ll let you know how that was. Yeah, let us know.
Mindy: Greg, thank you so much for your time today.
Scott: Scott, that was awesome. I could have easily talked to Greg for another 17 hours. I learned so much about the concept of franchises. I don’t know if you know this, but back in a hundred years ago, I was considering opening up a franchise for a little company called My Favorite Muffin, mostly because they made the best muffins I’ve ever put in my mouth, but also because their franchise fee was really, really low. It was like $13,000 or something like that. And then I had a Jimmy John’s sandwich, I’m like, oh, I want to open up this franchise as well. And I just, I really like the concept of franchises. I just don’t want to actually work in them. So I was super excited that Greg has opportunities for you to not actually have to work in them as well. I I learned a ton from this episode and I’m so excited that we talked to Greg today.
Scott: Yeah, and I I mean, I I think franchises are a really interesting model. I I imagine that this is something like really any business that you want to start that you’re going to have to put two at minimum, but probably three, four, five, seven years into building them out to a point where they’re passive or mostly passive and can and can support a really, really nice, comfortable lifestyle for a very long period of time. But if you’re willing to do that, like, you know, I think there’s some good questions out there. Why why not maybe transition out of that corporate job at some point and buy a couple of franchises and begin that pipeline uh, in the next couple of years and get to that that stable point. you’re at least working on an asset. You know there’s a resale market, likely two or three times net cash flow, that kind of stuff, that can help you value those things. So there’s really interesting, it’s really interesting um wealth building tool that I haven’t really considered at all. I also have some questions um, that that popped up after we finished recording with Greg that I’ll just leave hanging there. One is, um, if franchises come from these companies that that really they that’s a reputable model, you’re following the playbook, all that kind of good stuff, then estimating things should be achievable. You should be able to estimate demand, um, costs, those types of things and profits with a higher degree of certainty than like starting a new business, for example. That means financial engineering comes into play, how we leverage the business, those types of things can really make a big difference. And then one other question I’ll throw out there is, you know, if I own one super cuts and I want to sell it, he, you know, we we learned probably two or three times cash flow is going to be that the type of the price point that I’d sell that franchise for. What if I own all 50 in the metro area? The all of a sudden does that go for four or five, six times because I have a monopoly on that market. Um, so is there a multiple arbitrage there for creative entrepreneurs? So those would be some questions I’ll leave dangling. Um, I don’t know the answers to them, but it might be might be fun for somebody to explore.
Mindy: I think that those are great questions, Scott. I think that uh, maybe that would be the monopoly, I mean if somebody’s looking, he had somebody that was looking for a 100, that might be a really enticing offer to him. He might also decide that no, he doesn’t want all of those. That’s a, that’s an interesting puzzle and I wonder it, I think it would, you know, I think the answer is it depends. It depends on who’s buying. Maybe that peaks his interest and maybe it doesn’t. Or her interest, we’re not sexist here, even though I always say he, which makes me sexist. For the record, I go to great clubs.
Mindy: Bigger Pockets does not endorse great clips over super cuts or super cuts over great clips. Find your own hair cuttery that you enjoy best. All right, Scott, yes, we should get out of here. That wraps up this super fun episode of a great episode. I guess I’m almost uh endorsing super cuts over great clips because I said super instead of great. Uh, that’s that it wraps up this super great episode of the bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, don’t forget to floss Albatross.
Scott: If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench. It is produced by Calen Bennett. Research and writing by Anna Kora, additional research and writing by Calen Bennett. Editing by Exodus Media, copywriting by Nate Wineb. Lastly, a big thank you to the Bigger Pockets team for making this show possible.
