The #1 Factor In Selecting a Franchise to Roll-Up
Hint: it's where you live!
People ask me all the time: how do I select a franchise to roll up?
There are almost 4,000 different franchises to pick with 250+ new brands each year. With so many choices, it’s easy to pick the wrong one.
The most important factor in executing a roll-up strategy is the number of existing franchises in your target market.
Location, Location, Location
The majority of franchises are location-based: territorial or brick & mortar. The more existing locations within your market, the more opportunities you will have to grow through acquisition.
We’ve had success rolling up Midas shops because there are many in Philadelphia. We own more than 50% of the pins here, with room for continued growth through acquisitions.
Does this mean Midas is a great brand for you to roll up?
Purely from a location standpoint, it depends where you live. The roll-up strategy wouldn’t work in Charlotte, NC, since there are only two existing Midas shops. You could open 10+ new locations, but that’s a different business plan than growing through acquisition.
How Do I Find a Franchise In My Market?
The short answer: a lot of research!
The good news is you can execute this strategy in almost any industry with hundreds of brands. I know people are doing this with sandwich shops, carpet cleaning, mold remediation, hair salons, house cleaning, & more.
The long answer: coming soon!
Until then, I’ve got two recommendations:
Get familiar with franchise brands. Go through Top 500 Franchises
Read through some FDDs on brands that pique your interest. Check out “Item 19 Financial Performance” & the list of existing locations near the end.
Reduce Risk by Rolling Up
When you’re getting into a franchise, it’s much riskier to open a new location vs. buying an existing one.
New Locations:
Find the perfect location
Build out with equipment, furniture, fixtures
Signage installation & permits
Marketing to introduce the location
Assemble a new team & hope they get along
Start with zero sales
May lose money for a couple of months
Existing Locations
Start with an established location
Equipment, furniture & fixtures in place
Signage is already on the building
Marketing to drive a fresh message
The team is already in place
Sales from day 1
Cash flow from day 1
When buying an existing location, your goal is to keep the wheels on the bus as you work on breathing new life into the business.
The most exciting part is that with a few adjustments, you can significantly increase sales of existing locations. Here are a few successes we’ve had recently:
$500k in 2020 → $1.0M in 2021
$1.2M in 2020 → $1.7M in 2021
$1.0M in 2018 → $1.8M in 2019
When Does It Make Sense to Open New Locations?
New locations are fun and exciting to open. We’ve opened two new locations in the past four years and are actively looking for more.
Some locations take off instantly while others struggle for months. You need sufficient cash flow from your existing units to help support the new location while the business builds.
As a business owner, your job is to balance risk vs. reward. New locations are risky but can provide excellent returns if you can find markets with high demand and low supply.
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Business with Beers
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Cheers!
Brian