5 Reasons Franchising > Independent
Hint: express train 🚂
We will pay over $3M this year in royalties as a franchisee. I get asked often why not start our own brand to pocket that cash.
5 reasons why we love franchising:
1. Marketing
Marketing is critical to growing every business and dynamically changing every year. You’re burning money if you don’t have a dedicated team to maximize ROI. I know people who still want to run advertisements for exhaust repair in the newspaper. 🤦🏻♂️
50% of the royalties we pay ($1.5M/yr) go towards a marketing fund. The franchisor has a marketing department that is responsible for:
Branding
Website
Fancy online marketing: SEO, geo-targeting, competitor re-targeting, etc.
Creative for Media
Media buys (TV, radio, internet radio)
Promotions
Every franchise is different in how they charge & manage marketing. I vote on which promotions we will honor and what local strategies we want to focus on.
As an independent, I would still need to spend roughly the same amount (5% of sales) on advertising. However, I’d have a lot less buying power than the franchisor with a budget that’s 30X bigger.
2. Instant Brand Recognition
With an established franchise, you have instant brand recognition:
Need your carpets cleaned? Stanley Steamer
Got a clogged toilet? Rotor Rooter
Need brakes? Midas
Craving some soft serve ice cream? Dairy Queen
We’ve opened brand new locations and had business on day 1.
An independent brand would take much longer to build
3. Built-In Community
Buying a franchise is like joining a country club.
From day 1, you're part of a community of other owners who genuinely want to help each other. We share best practices on selling, hiring, operations, & administration. We compare P&Ls to see where opportunities are to improve margins, cut expenses & increase cash flow.
A few of my best friends are fellow franchisees.
When someone is ready to retire or move on, where do they look to sell first? Within the community to a trusted franchisee.
As an independent operator, I must find or create a mastermind group with other like-minded shop owners.
4. Owner Financing
The majority of our 30 locations were acquired using owner financing. Owner financing has the power to create win-win scenarios:
For the seller:
Monthly cash flow
Earns interest + principal
Names their price
Close quickly
For the buyer:
Down payment: 2.5% to 20%
Interest rate: 1.5% to 6%
Term: 4 years to 13 years
Home has never been used as collateral
Affordable monthly payments
Close quickly
Owner financing is much easier within franchise systems because of the built-in community and trust established over the years. Once you establish a reputation as a solid operator, most sellers are open to the idea.
It’s 10X harder to get an owner-financed deal on an independent business
5. Speed to Scale
You can grow very quickly within an established franchise brand through acquisitions.
We’ve done multiple deals acquiring 3, 5, & 7 existing locations in a single transaction. Other franchisees have acquired 30 to 50 locations in a single transaction.
The factors above help contribute to this speed:
We can focus on operating a profitable business while corporate handles marketing
We can open new locations that have business from day 1
We are part of a network that shares best practices & solves problems
We don’t need a bank, lots of cash, or outside capital to finance acquisitions
It would be difficult to grow at the same speed as an independent. After 10 years, maybe we’d be at 5 locations instead of 30.
Royalties: A Ticket to Ride
There are many paths to creating financial freedom. You can reach the same destination by starting your own business or as a franchisee.
Speed is the biggest differentiator. Paying royalties is the cost of the ticket for the express train 🚂
Unfortunately, not all franchises are created equally. Stay tuned for more on franchise selection.
If you enjoyed this newsletter, subscribe to get future ones delivered to your inbox.
Business with Beers
Every week on my podcast, I bring you the stories of entrepreneurs about building their business, wealth & passive income.
Cheers!
Brian