Why Franchises Are Easy To Roll Up
Becoming a multi-unit franchisee has the power to change your life.
We have been rolling up auto repair franchises for the last few years.
We started buying locations 1 or 2 at a time. Then we did bigger deals acquiring 3, 5, and 7 locations at a time. Today we own almost 30 locations, with more in the works.
There are 3 reasons why franchises are easy to roll up:
1) Plug & Play
New acquisitions are “plug & play” since almost every existing franchise uses the same point-of-sale software and follows the same core process.
On day 1 of acquisition, almost nothing changes from an operational standpoint. Business as usual for the front-line team, makes for a smooth transition.
What do you think would happen if we walked into a new acquisition and changed the following on day 1:
New Inspection Process
New Sales Process
New Pay Plan
50% of the team would quit – even if the changes benefited everyone in the long run. People don’t like change.
With franchises, there is minimal change up-front. We start implementing our company-specific processes after everyone gets settled in.
2) Closed Network
Franchises systems are closed networks that have built-in trust.
I can contact another franchisee I’ve never met before to discuss business performance, margins, what’s going well, and what challenges they are facing. I can openly ask about purchasing their locations or ask for recommendations of who else I should talk to.
If I called up Joe’s Auto Repair down the street and asked how much sales he did last month, his gross margin, payroll cost, and if he wants to sell, he’d probably tell me to F-off.
Most franchise systems share reports ranking locations by sales for the week, month, & year. I know who the top performers are to learn best practices. I know who the lowest performers are that may be interested in selling. We all have similar cost structures and can ballpark the profitability of any location.
All of this is possible because it’s a closed network.
3) Owner Financing
We’ve done over $6.0M in owner-financed acquisitions. There are many benefits for both the buyer and seller, which include:
Speed - quicker & easier than going to the bank
Terms - 5-20% down, below-market interest rates, payments over 13 years
Collateral - I’ve never put up my house and push back on personally guaranteeing
Taxes - the seller gets to spread out the capital gains over many years
Cash Flow - the buyer gets payments they can afford & the seller gets reliable monthly cash flow
To loan the money, the seller needs to know, like, & trust the borrower. In a franchise system it’s very easy to become known & liked by participating in committees, attending conventions, and sharing your best practices with other franchisees.
Trust comes from being a great operator. The seller needs to trust that you will operate the business profitable and will be able to repay the loan.
As I mentioned above, the seller can see your sales just as you can see theirs. They will take note of how your current locations are performing. The better you perform, the more confidence you can build with the seller.
For more on seller financing, check out this post:
Finding the Right Franchise to Roll Up
The best franchise to start rolling up is the one you’re currently in. While other businesses may sound great, the grass is rarely greener. Diluted focus leads to diluted results.
If you don’t own a franchise and have the goal of acquiring existing locations, I have a few recommendations:
Legacy Brand - look for a brand that has been around for 20+ years. A legacy brand has survived multiple economic cycles. It is also more likely to have older franchisees who want to retire but don’t have an exit plan yet.
Fragmented Ownership - look for a brand with fragmented ownership in your target market. If there are 40 locations you want to see 20 to 30 different owners. It’ll be tough to buy existing locations if there are only 2-4 owners for all 40 locations.
Bigger operators, like me, rarely sell off individual locations.
Owner Operator NOT required - some franchises require the franchise owner to be the operator. Others allow “hands-off” owners. Many hands-off owners think they are “investing” into a franchise, not buying themselves a business.
The business doesn’t get the attention it needs. The owner loses his operator then business goes to shit, creating a great buying opportunity for you!
Start making friends with other franchisees with full-time jobs or another primary business.
Service Business - service businesses are not easy to operate. They require a lot of work to hire & train the right people. If you’re a great operator you will have lots of opportunities to buy out operators who can’t handle it or get tired of it.
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Business with Beers
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