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MJ DeMarco

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Damn, those McDonald numbers are insane... insanely bad. In the best case scenario as an absent owner, I wouldn't work at McDonalds one day a week for 150K.

As I've advised for over a decade, the only feasible option in franchising (majority of the time) is to be the one selling the franchise, not buying them. When you buy a franchise, you're essentially buying a job with greater risks than a regular job, and many times, not getting an EV benefit of potential bigger returns. (Most franchises are local operation with scale limitations).

The best case scenario becomes a well-paying job with an illusion of "being your own boss".

However as others mentioned, I do see it as a viable deployment of idle cash, as in the "I'm a retired athlete and need to do something with it" strategy.
 

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Start by searching on BizBuySell for the keyword: Search Businesses For Sale - BizBuySell.com.

Turnkey businesses are good for wealth preservation.

Not good for wealth growth.

One of the greatest pieces of advice my mentor ever gave me: "The easiest way to get rich is to buy an existing business, make it a little bit bigger, and sell it. Then do that again."

You can't necessarily do that with most turnkey solutions.

Most of the businesses on bizbuysell are already established, are franchises and retail outlets.

I'm more interested in a turnkey solution where a provider does all the leg work like feasibility studies, finds the land, sorts out the planning permission & designs, builds the factory or manufacturing or distribution plant from scratch and hands over the keys ready for operations. My only goal should be to organize the finances and put together the operations team.

Are you familiar with EPC? And BOT? That's the sort of solution/provider I had in mind when I made my original post.

I reckon there are a few companies that provide turnkey solutions for the manufacturing/distribution industry.

For example this one and this one, they are just a bit out of my budget :D ... I need a smaller provider, hence why I was checking out alibaba and such.
 
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Another thing to think about other than potential net income is the risk and liability associated with a franchise. What if that location sucks a$$ and the business fails? What if you get sued? Franchisor makes almost the same as the franchisee yet takes on almost no risk. Brilliant and clever model to scale fast and take on almost no risk in doing so.
 

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A very interesting thread!
I never thought about franchise before that thread. Since these two days of it I talked to a few people and recogniced, that most businesses here around are franchises.

Now I don t really get, how that could work: for example a simple lawn mowing business.
When I do it really good and make 10 people around here opening a one person lawn mowing side business.

Every one earns maybe 500 /month and gives me no franchise fee, but 10% of the revenue . Maths 10x50=500/month.
Maybe I could catch them by loaning the equipment for cheap.

Could selling franchise work in such a small scope?
What else could I provide, people making to buy my f and not opening an own business.
 

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It’s a safer bet if you are scaling fast. I am going to be building locations for a group of three guys that are going from 5 stores to 100 stores throughout the country within the next 5 years. The clients I work for have 40+ and the largest (owned by one person) has 1,200 growing rapidly. He has begun to buy up entire companies (80+locations), restructuring and expanding. In about 5 years he won’t be far from becoming a billionaire.
 
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Brrr

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What did you see in franchising exhibition?

The BFA (British Franchising Association) holds a bunch of expos around the country every 3 months or so. It's free to go and lasts a couple of days.

I would say 80% of the expo is for franchisees (or aspiring franchisees) where companies have a stand and are basically trying to recruit people to buy into their franchise. Then I would say 20% of the expo is geared towards business owners that are looking to franchise their operation.

They have free talks on all kinds of topics related to franchising. Both for franchisors and franchisees. It was an incredibly interesting and eye-opening experience. Not least because you get to see what businesses are out there with this model.

If you were asking specifically what I saw, I went to all the talks on how to franchise your own business. Topics like "10 things to do before you franchise", "Is my business right for franchising", you get the idea. On the strength of how good the talks were, I ended up hiring a franchise consultant to look at my business and start the process.

I also had a look around at what kind of businesses there were: a lot of food ones as you can imagine (how many more coffee franchises do we need?) but also a good amount of "service" franchises (eg. cleaning, art schools, property stuff).
 

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In most of these scenarios, what you have isn't an income stream, but another form of voluntary high-paid slavery
Not sure I agree there. Most people I know that own franchises own a bunch of them and just rake in cash. They don't actually work at the Burger King they own lol.

I mean, it depends on which franchise. I mean look at McDonalds. Many of them have customers all day and night. I see the line at 2AM and think I wouldn't mind making 2% (or whatever) off every sale.

Sure you can start some new burger joint from scratch, maybe be successful, and rake in cash but a more guaranteed stream of income is starting a fast food franchise. It's just like stocks.. there's a risk/return dynamic going on.

Damn, those McDonald numbers are insane... insanely bad. In the best case scenario as an absent owner, I wouldn't work at McDonalds one day a week for 150K.
That's owning one McDonalds. Most McDonalds owners own at least 3 or 4 of them and never show their face in the restaurant. They certainly aren't flipping burgers either.

~600K/year isn't too bad imo, but I guess everything in relative.
 

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Recently, I started looking into the world of franchising and gathering as much info as I could.

Why?

At first because it's something that I wanted to potentially structure my business for in the future. My mindset was that franchises are proven money making systems. Their value is immense. That to "franchise", you have to have something amazing like McDonald's. My goal for my research was to learn how to brand a tiny bit closer to McDonald's.

However, after looking into it for a bit, I started getting disappointed with what's out there. Most of the franchises that exist are not money-making systems, but high paying CD's, high paying jobs, or often times slavery disguised as an opportunity.

Take for example these charts that I found:

View attachment 28790

View attachment 28791
Link: Which Franchise-Friendly Industries Are Most Profitable?.

Car dealers make under 2% profit.
Restaurants: under 4%.
Gas stations/convenience stores: 2.7%.

Now factor in the royalty rates.

Car dealers: 2-10% typically of gross sales.
Restaurants: 5-6%
Gas stations/convenience stores: 3-7.5%

In most of these scenarios, what you have isn't an income stream, but another form of voluntary high-paid slavery. The franchisee isn't the one that's making the money, but the franchisor.

So you're telling me if I get a Circle K, put up all the investment capital, pay you a franchise fee, work my a$$ off for 100 hours a week to get it going, then you'll come in and take 5-10% with the ad fees, whereas I only get 3%? Go F*ck yourself.

In what world is that acceptable? Turns out in ours.

McDonald's

Let's hop to McDonald's.

How much do you think the average McDonald's makes a year?

The investment cost is typically $1,000,000 to $2,200,000.

How much do you think you'd make on $1M to $2.2M?

Turns out .... $150k a year on average. Here's what it costs to franchise a McDonald's store

Here's a breakdown of one store's income.

View attachment 28792

F*ck.

And you know how much McDonald's makes on average per store?

$156,491.877

View attachment 28793

Just do the math and divide up the net income by the number of stores.

For every $1 you make, they make $1.

Owning one of their franchises isn't owning a "business", but a high paying CD that comes with more risk attached to it.

It's ridiculous and upsetting.



The Mindset shift

After researching all of this, I had a bit of a mindset shift. @Walter Hay has been pushing his franchising book on the forum, and mentioned that the sales were slower than the other books. My theory was that it's because most people don't think they have something franchise-able. However, after doing my research, the conclusion I came to is that this form of thinking is a limited belief and nothing short of bullshit.

Do you know how much income the average franchise brings in?

View attachment 28794

According to this article, these amounts. Some of those amounts are respectable, however, they are by no means impressive.

There's probably 100+ of us on this forum that have some sort of business that 1) makes more than that; and 2) can be taught to someone in a different geographic location.

For example, in my business, with a $100k to $250k capital investment, I'm confident that someone with the time and hustle can turn that into a $100k income at a minimum, and as high as a $1M+ in bigger markets like New York City.


My conclusion

Franchising isn't just for the McDonald's, Subways, etc. The returns that they're giving people are absolute dogshit. Franchising is for anyone and everyone that has a system that is scalable and can provide a good source of income for the franchisee.

If you have a business that makes $100k+, can be taught to someone else, and they can replicate it for low 6-figures, then you have something that is franchise-able.


What do you guys think?

Restaurants and C-stores have profit margins that suck. There is no way around that. You're right, it's basically wage slavery. The internet has changed everything. I think it's amazing that you can make as much as a franchisee with a fraction of effort now online.

The real effort in turning something into a franchise is to dummy proof it and document every part of your process and create a lot of SOPs. Then there are the freaking legal contracts.
 

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Walter Hay

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A very interesting thread!
I never thought about franchise before that thread. Since these two days of it I talked to a few people and recogniced, that most businesses here around are franchises.

Now I don t really get, how that could work: for example a simple lawn mowing business.
When I do it really good and make 10 people around here opening a one person lawn mowing side business.

Every one earns maybe 500 /month and gives me no franchise fee, but 10% of the revenue . Maths 10x50=500/month.
Maybe I could catch them by loaning the equipment for cheap.

Could selling franchise work in such a small scope?
What else could I provide, people making to buy my f and not opening an own business.
There are plenty of lawn mowing franchises sold. I think they are a shocking waste of money, and I have rescued several people from blundering into buying a job and paying for the privilege of mowing lawns.

Instead they could have some cards printed and offer the first cut for free. If they set a date and time to do it and they actually turn up on time on that day, they will have their first customer, PROVIDED they do a great job, preferably doing extra tidying up.

The cost of acquiring customers will be insignificant compared to the cost of buying a franchise and paying a % of what they earned.

Walter
DON'T BUY FRANCHISES..... SELLFRANCHISES
 

Walter Hay

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The BFA (British Franchising Association) holds a bunch of expos around the country every 3 months or so. It's free to go and lasts a couple of days.

I would say 80% of the expo is for franchisees (or aspiring franchisees) where companies have a stand and are basically trying to recruit people to buy into their franchise. Then I would say 20% of the expo is geared towards business owners that are looking to franchise their operation.

They have free talks on all kinds of topics related to franchising. Both for franchisors and franchisees. It was an incredibly interesting and eye-opening experience. Not least because you get to see what businesses are out there with this model.

If you were asking specifically what I saw, I went to all the talks on how to franchise your own business. Topics like "10 things to do before you franchise", "Is my business right for franchising", you get the idea. On the strength of how good the talks were, I ended up hiring a franchise consultant to look at my business and start the process.

I also had a look around at what kind of businesses there were: a lot of food ones as you can imagine (how many more coffee franchises do we need?) but also a good amount of "service" franchises (eg. cleaning, art schools, property stuff).
It's great to see that you have got started. You should be aware that most franchise consultants have a vested interest in selling franchises, so you need to compare your proposed franchise as best you can with something similar.

That should give you an idea what initial fee and what royalty level is reasonable.

The UK does not have compulsory franchise legislation. The industry in that country is self regulated and that is handled by the British Franchise Organisation. You can find them here: Home · The British Franchise Association. I note that you attended exhibitions put on by the BFA but I included this because others in the UK might find it helpful.

Membership is optional, but it would be an uphill battle to sell franchises in the UK unless you are a member of BFA.

Walter
 
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Walter Hay

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Restaurants and C-stores have profit margins that suck. There is no way around that. You're right, it's basically wage slavery. The internet has changed everything. I think it's amazing that you can make as much as a franchisee with a fraction of effort now online.

The real effort in turning something into a franchise is to dummy proof it and document every part of your process and create a lot of SOPs. Then there are the freaking legal contracts.
I agree completely about the poor deal it would be to buy franchises of Restaurants and C-stores.

Yes if you want scale your business by franchising, you need to make it dummy proof, and for that you need a well set out and complete Operations Manual. (Franchises always use that term, not SOPs.)

In my thread: Rapid Scaling a business by franchising post #1 is the full Chapter 9 of my book, which gives detailed information on How To Decide If A Business Is Suitable For Franchising.

I hope that helps.

Walter
DONT BUY FRANCHISES....... SELL FRANCHISES
 

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With McDonalds, it's almost a sure thing. They give you everything you need to know to generate a modest but steady return. Yes, it's only 4-8%, but it's going to succeed pretty reliably.

Yea interesting you point this out... I always thought about buying franchises one day. I read a story recently about a guy who owned 10 kfc/taco bells and was profiting millions a year - definitely not great for the guy owning just one.
 

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I agree completely about the poor deal it would be to buy franchises of Restaurants and C-stores.

Yes if you want scale your business by franchising, you need to make it dummy proof, and for that you need a well set out and complete Operations Manual. (Franchises always use that term, not SOPs.)

In my thread: Rapid Scaling a business by franchising post #1 is the full Chapter 9 of my book, which gives detailed information on How To Decide If A Business Is Suitable For Franchising.

I hope that helps.

Walter
DONT BUY FRANCHISES....... SELL FRANCHISES
I have been interested in reading your book Walter. It sounds great.

I would love to get to the point where I could franchise out a business.
THAT seems like the way to really scale your income.
 

Walter Hay

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I have been interested in reading your book Walter. It sounds great.

I would love to get to the point where I could franchise out a business.
THAT seems like the way to really scale your income.
I have written my book from personal experience. I licensed my chemical business (similar to franchising) long before I sold it, and when my importing and B2B business started to grow too fast for my family to handle the growth, I franchised it out.

Selling franchises was easy because I had a great system, huge profits, and proof of income.

Here is a valuable hint which is detailed in the book: I substantially increased the value of each territory by employing commission reps in a defined territory with the result that I had territories for sale that were already making good money.

Some of those reps bought the franchise. If they didn't want to do so, I sold it for a much higher fee than I could have obtained if the territory had been greenfield without proof of that area's profitability.

I was still able to sell greenfield territories because I had a number of franchisees all willing to tell prospective buyers how great their franchise was performing.

Growth was phenomenal, but manageable even when I built a network in four countries.

I was negotiating the sale of a Master Franchise for country #5, the USA, when urgent heart surgery put a stop to growth and I had to retire. The USA would have added 260 franchises to my worldwide network.:arghh:

That's what scaling on steroids looks like.

Walter
DON'T BUY FRANCHISES.......SELL FRANCHISES
 

PapaGang

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I have written my book from personal experience. I licensed my chemical business (similar to franchising) long before I sold it, and when my importing and B2B business started to grow too fast for my family to handle the growth, I franchised it out.

Selling franchises was easy because I had a great system, huge profits, and proof of income.

Here is a valuable hint which is detailed in the book: I substantially increased the value of each territory by employing commission reps in a defined territory with the result that I had territories for sale that were already making good money.

Some of those reps bought the franchise. If they didn't want to do so, I sold it for a much higher fee than I could have obtained if the territory had been greenfield without proof of that area's profitability.

I was still able to sell greenfield territories because I had a number of franchisees all willing to tell prospective buyers how great their franchise was performing.

Growth was phenomenal, but manageable even when I built a network in four countries.

I was negotiating the sale of a Master Franchise for country #5, the USA, when urgent heart surgery put a stop to growth and I had to retire. The USA would have added 260 franchises to my worldwide network.:arghh:

That's what scaling on steroids looks like.

Walter
DON'T BUY FRANCHISES.......SELL FRANCHISES
This sounds brilliant. I hope you've recovered from your heart surgery!
 
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Bones81

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Selling franchises is definitely fastlane, buying them, well it depends. Some treat their franchisees better than others.

I've been researching acquisitions and have run across a number of franchises. For anyone looking at buying one, I would recommend reading David Barnett's Franchise Warnings to get an idea of the hazards you face. In a lot of instances, it's not any less risky than starting a business on your own except now you have those franchise fees that have to be paid come hell or highwater. Also, depending on the franchise agreement, you can get booted out for various reasons and be left holding the bag on all the debt.

Long story short, the only way I'd consider a franchise is by buying a location that is already established and has a proven record of profitability.
 

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Wow. These are some pretty ugly numbers. I never knew it was that bad.

We routinely see 6 and 7 cap multi-family properties in certain areas which is about the threshold to service the debt and turn a decent cashflow. The cool part is often there is an ability to raise rents and quickly turn these properties into 10-12 cap. There are also a lot more tax advantages in RE.

The opportunity cost of franchise ownership just got really high.
 

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Although this is bit of a gravedigging post, I think it is worth adding on Franchising gives you a great opportunity to see if a location is good or not, allowing the business to have some of the best locations possible chainwise.

In a PDF I found (The Role of Franchising On Industry Evolution), One of the things I was able to get from it was that bigger chains continue franchising out allowing the Franchisee to take the initial risk while testing the market spot. Just in the end if it is more than successful or being one of the better performing stores the Company ends up buying out the Franchisee's location and making it apart of the chain.

Talk about good risk/investment management. I'll also have to check out @Walter Hay book, sounds pretty good.
 

Walter Hay

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In a PDF I found (The Role of Franchising On Industry Evolution), One of the things I was able to get from it was that bigger chains continue franchising out allowing the Franchisee to take the initial risk while testing the market spot. Just in the end if it is more than successful or being one of the better performing stores the Company ends up buying out the Franchisee's location and making it apart of the chain.
That very impressive document takes the reader back to Roman times when the concept of franchising was then well entrenched. It was not as we know it today, but the principles are there.

For those who read it, I would like to say, there are many ways to set up a franchise network, and my book is effectively a simplified, by the seat of your pants approach based on my DIY experience.

After the sale of my business #1 (Industrial Chemicals) I had abundant financial reserves to pay for a franchise consultant, but I am an independent thinker. Just as in Sinatra's famous song MY WAY, I preferred to do it my way.

I believe that the result is that my book can help entrepreneurs to launch their franchise and start their Growth on Steroids journey much faster than if they follow the complex, and to my mind bureaucratic systems employed by professional consultants.

Best Wishes to @Parks

Walter
 

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