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.

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Business with Beers

Every week on my podcast, I bring you the stories of entrepreneurs about building their business, wealth & passive income.