Why Buying a Franchise Is Easier Than Buying Any Other Business | 340

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Transcript

SPEAKER_01 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_00 0:16

Real estate is a big part of it. So if in a real estate-based business, retail specifically, the real estate itself is incredibly scarce. So in MITIS, like we need a specific location that's zoned right, that's the sizes right, that's not too close to competitors in all of these things. And in the franchise system, if you think about it this way, like MITIS already controls a thousand of these locations. They are not losing control of them. There's only so many spots that a shop could go. And so for if I was Beers, Tire and Auto trying to get into prime real estate, it would be almost impossible because they are all controlled by the major players, right? There's a Pepboys, there's a Mavis, there's a Firestone, there's a Midas, there's a Minicke, there's a like whatever. There's probably not going to be an independent on that road. And so if you think, all right, they're already in the grasps of these franchise oars, these corporations, the only way for me to gain access, right, is is to do it through the acquisitions, right? The acquisitions of buying out that existing franchisee to get access to that real estate that otherwise I wouldn't have access to. Uh again, very specific for what I do in retail automotive. If you're like a nail salon and or you know, something that could go into any you know strip center that's 1500 square feet or whatever, like not maybe as important as something that is is so special, uh specialty like what I do. Um acquisition. So another big part of it, somewhat tied to the real estate, especially in brands that have been around a little while, is you know, acquisitions are the quickest way to scale any business. You look at my you know, my Midas business, 32 out of my 36 stores have been acquired. I I I had I have four new locations that we've opened from scratch. The one was just last week. We did another one last July, and then you know, two others in the previous years. But like the the speed, if you want to grow, it is through acquisitions in in any business. And in a franchise system, franchisees want to sell to other franchisees. It is it is the first preference is to find somebody else who's already doing it. And there's a lot of reasons for this. One of them is is just the synergies, right? Of somebody who is already in the business, they already understand exactly what you do. They they're they're possibly already approved by the franchise or for growth. They may be able to have cost savings, right? So when you buy it, like you're able to have costs on whatever accounting and district managers and all these different things. Versus like somebody from the outside has to get approved. They don't know the business model, and so they're gonna ask way more questions and be way more detailed than like I'm gonna be. Um, and it's gonna take longer. And the franchise or like you may think this is a great buyer, but the franchise or is like, nah, they suck, like I don't want them, we don't like them, for whatever reason, they can do it. And so a lot of franchisees just want to sell to other franchisees. And what this does is if you're up in the buying mode, so for me, from you know, for years, I've been in the buying mode, that it's a the FDD, the franchise disclosure document, basically gives you the pipeline. It gives you of all the people, like this is this is the Goddard school, it's like a early education franchise, they have hundreds of locations. I just grabbed a screenshot of it. You can go to like and you can go to these websites to download these. You also get them from the brands. Um, but you know, there it is. Here's all the locations, here's all the owners, this is public information, here's the phone numbers. These are phone numbers are normally uh to the location, not to the owner. Um, but it's very easy to find you know, LinkedIn and find all these people and message them and stuff. And so that's like as an outsider. Once you're on the inside, I mean everybody knows each other. You you go to conferences, even that Waterloo Turf, like it's next Saturday's their program, so I'm flying there, and you know, everybody gets together and they share ideas, and you know, ultimately that's how you can get these these deals done. Uh let's see here. We got a question coming in. How do I determine the value of a franchise you're buying? A multiple of SDE. Feels like a good single location. Wonder if there's a better approach. Yeah. Um, great question. It depends a lot. So on MITIS, um a couple different ways we do it. Yes, SDEs or for for those, it's it means seller discretionary earnings, basically like cash flow to the owner is is is short term. And so a lot of them do trade kind of at that two and a half to three X. So it's making $100,000 a year. And let's say there's a there's like a store manager in place so that you're not necessarily taking that role. Um, and you know, so that that's gonna trade somewhere around $250 to $300, maybe $350 kind of at the high end. Um but it it all depends. And I mean, I have bought stores as low as like a 1x, like I paid $110 for a store that was making, I think a hundred a thousand. Uh so it was, it was, it was about a one times. I've paid as much as five times. I've paid five hundred thousand dollars for a store making a hundred. But we do that a lot often using seller financing. So they're I'm able to structure the deal because it's franchisee to franchisee and they know and trust me, that we can put a low payment down. Maybe, maybe, I mean, I've put five percent down on some of these deals, uh, and then we just make payments over time. And that's often how we're able to you know come up with some win-wins where we can get the the total price that that the seller wants, but then we can get terms that are really you know favorable to us. So that's the main reason. If a if they have a lot of inventory, that is often in addition to this. We don't carry it a significant amount, um, but I've I've seen that for other businesses. For example, there's like some popular ones that buy uh sell trade use electronics, and so you know they may have sixty to a hundred thousand dollars of inventory on the shelf that you're once you buy, you're gonna be able to sell. And so often very similar, they may value the cash flow, something around that, and then plus uh some sort of usually slightly discounted value on inventory. And so it does vary, but often you know the goal is like how do we get the deals done? Uh, and that's been that's kind of been my uh my approach. And so when you're looking at these deals, especially when you're already a franchisee, that the the data is is usually shared. So like every day, Midas sends out rank sales rankings. I know what every single store in the country did in revenue. I know I know what the costs are gonna be, because like we all have similar costs. Even in you know, Waterloo Turf, the the turf brand I'm part of, they're sending rankings out for the market and who's the winner and all these things. And so like once you're in the system, you know who the players are, you know who may be struggling, you know who may be acquisitioned opportunities. And so all of that kind of compounds into if you really want to grow and you get good at uh being an operator, you have this giant pipeline. So like all these other people are in biz by sell and they're fighting over you know deals and chasing down brokers, and there's like lots and lots of like it's really hard, right? It's really hard to buy an independent business. And but when you're in a franchise system, it's almost reversed. It's almost actually incredibly easy in order to do it.