121 | Stop Gambling on Startups: The Smarter Path to Business Ownership with Greg Mohr

121 Master Video
Patrick: [00:00:00] What if the fastest path to business ownership was not starting from scratch, but stepping into something already proven? It’s a question more entrepreneurs should be asking because the goal is not just to own a business. The goal is to own the right business, one that creates freedom, cash flow, and long-term wealth.
Welcome back to another episode of the Vital Wealth Strategies Podcast. I’m your host, Patrick Lonergan, and this show is all about helping entrepreneurs build real wealth with intention. Today I am joined by Greg Mohr, franchise consultant and Wall Street Journal, bestselling author. He’s the only Wall Street Journal’s bestselling author focused exclusively on franchising, and over the past 12 years, he’s helped more than 300 entrepreneurs.
Evaluate franchise opportunities and open over 500 successful territories. In this conversation, we break down what franchising really looks like, how to evaluate the right opportunities and how owning the right business can accelerate cash flow, reduce risk, and create true freedom. If you have ever wanted to own a [00:01:00] business but did not want to reinvent the wheel, this episode will expand the way you think about entrepreneurship.
As you listen, think about how this fits into your bigger financial strategy. If you’re serious about minimizing taxes and maximizing what you keep. And if you want more tools to sharpen your strategy, visit vital wealth.com/resources to access our vault of tax and wealth building resources. If you get value from today’s episode, take a moment.
Leave us a review. It helps us reach more entrepreneurs who are ready to think bigger and build smarter. Now, let’s get into my conversation with Greg Moore. Greg, thank you so much for, for joining us here today,
Greg: Patrick, it’s an honor. Thank you for having me.
Patrick: Yeah, this is, this is gonna be good. I, I think about, uh, our, our entrepreneurs and some of the problems that they’re, they’re facing and, uh, you know, I I I look at some of the, uh, opportunities out there to invest, uh, especially when we’re looking at franchises and it’s like, uh, there’s.
There’s some, there some horror stories that create some hesitation. Uh, there’s also this like desire to, [00:02:00] you know, replace my W2 income and how do I, how do I do do that? How do I diversify? It feels like, uh, you know, I’m, I’m unclear and, you know, I don’t wanna make a six figure mistake. I don’t wanna have to babysit another business.
Uh, I don’t want to choose incorrectly and am I doing this to, to create passive income or did I just find myself a. Another job. And so I think those are all things that, uh, we like to, to take a look at and, uh, I’m looking forward to digging into with, with you. And, you know, we, we just feel like philosophically entrepreneurs shouldn’t have to gamble six figures to create their freedom.
And, uh, so I’m, I’m looking for finding smarter ways to, to buy into proven systems with, with clarity and confidence and having you help guide us along the way. So thank you for joining us. This is gonna be fun.
Greg: Looking forward to it.
Patrick: So can you give us a little bit of your background? How did you get, uh, how did you get started in this, this arena?
Greg: Well, I’ll make it quick, Patrick, since we’re gonna go into the way back machine for that one. I actually got my first start in [00:03:00] franchise when I was 16. Back then, we all got jobs usually at, uh, somewhere, usually at fast food places. Mine just happened to be Taco Bell. Mm-hmm. Uh, they were hiring at the time.
I knew the manager, something like that. But I ended up moving up in the Taco Bell chain and found out I was working for a master franchiser. And she owned 50 Taco Bells throughout the Sacramento, California area. And I worked with her, uh, managed many of her restaurants, helped her build up her teams. Uh, fast forward.
About 30 years. I spent 15 years total in the restaurant management business. Got bored with that. Became a microelectronic circuit engineer. Uh, got a degree in electrical engineering, physics, got an MBA degree. Uh, I did 15 years in that. We, me and another engineer, we bought a dry cleaners, privately owned, got storage unit.
I got a couple rental properties, finally got outta the corporate world after 30 years. Sold off my half of everything to uh, to my friend. He got out at the same time and I thought to myself, you know. I gotta go out and do something for myself. Read Robert Kiyosaki’s book. Rich Dad, poor Dad Ruined my corporate.
Love it for me. Yep. In a good way. Uh, that was a good book. [00:04:00] And I said, yep, there’s gotta be something better out there. And that franchising thing was a whole lot of fun when I did that. I love going in there. Every restaurant you go into, uh, same thing Paul is. Procedures, step-by-step, playbook, everything you needed, uh, run like clockwork.
So I said, gotta go back in and do that. And I went out and went quick, happy on the internet. Got about 20 different franchise companies calling me up saying theirs was the greatest thing since sliced bread. I, everyone finally got a hold of a franchise consultant who knew they existed. I did not at the time, but he helped me really narrow down that list of opportunities and got me into a great franchise system.
Which I did that for a couple years, but I just was thinking to myself, you know, I like doing this franchise thing. This is a lot of fun. But I really liked what that franchise consultant was doing. Mm-hmm. Because he got to work from home, work with people all over the United States and excel all over the world for the most part.
Uh, good use of his time, so he didn’t have to drive around. I didn’t drive around a lot talking to business owners with the franchise that I did. So I thought, I went back to him and said, what organization do you belong to? I want to get into doing that. [00:05:00] If I did that, sold off my, my franchise and got into the franchise consulting business, and that was about 12 years ago and I haven’t looked back since.
Patrick: I love it. I love it. And, and this is great, and I think it’s worthwhile to discuss why, why franchises versus just starting my, my own business. ’cause I, I think that’s, uh, that’s a key question I think we should answer before we, we dive too deep into, uh, uh, the franchise investment opportunity. So, yeah. Can you, can you explain why I should go start a franchise?
Why I should go buy a franchise versus start my own business?
Greg: You should look at both. First off, always a good thing. Now, I, we ran, me and my buddy, we ran that dry cleaners. We knew nothing about dry cleaning, so we had nobody to turn to. Nobody to look to for, you know, what happens when this, you know, what do you do when this happens?
What do you do when that happens? What do you get? Your equipment? All that sort of thing. So starting your own business. If you’ve got your own great idea, beautiful, go with it and run with it. Uh, a franchise. Has did the same thing. They started their own business and they ran with it. They made all the mistakes [00:06:00] at beginning.
Same as you know, my, my buddy and I did made a lot of mistakes and we figured out along the way what worked, what didn’t work. Franchise does that already so they know what does not work, and then they figured out what does. And then they replicated it and replicated it again.
Patrick: Yeah.
Greg: So with a franchise system, you are paying for what the franchisor has already learned, but you want that franchise to get you to where you wanna be two to three years quicker than if you do it yourself.
But Patrick, I tell everybody I said, take a look at both of ’em. If you’ve got a great idea. Or if you wanna get a private owned business, look at that, compare it to the franchise and see what feels better to you.
Patrick: Yeah. Yeah. This is great. And, uh, there’s also, uh, you know, I think about systems and processes and, and running the business.
Mm-hmm. All of that research and figuring out what works and what doesn’t. Uh, I’ve, I’ve seen statistics around, uh, franchise success versus the traditional entrepreneur success. And, uh, they’re almost the inverse. The, um, [00:07:00] I, I don’t know. You, you look at four out of five businesses fail in the first five years, and then.
Those that make it four out of five fail in the next five years. And, uh, I think franchises are almost the opposite. It’s like, you know, the success rate is, uh, you know, well over 50% and it’s because their systems and processes and there’s, there’s this, uh, infrastructure supporting you to make sure that the business is, is running well.
They’ve been there, done that. And so, uh, I think that’s a, an awfully important piece of this whole discussion as well. So, um, great. This, this is, this is really good. So. I do have questions and I, I love the fact that you, you, you went out there and you were, uh, invested in real estate, you had the dry cleaner.
Um, is, is investing in franchises something I can do while I still have my corporate job? Or is it something that, you know, is like what you did where you’re like, I’m hanging it up and I’m going to go do, you know, full-time, uh, into this, this new opportunity? [00:08:00]
Greg: About half my people, Patrick, get into a franchise, what we call a manager run model, or semi-absentee.
Generally speaking, you’re looking at 10 to 15 hours a week. So I have quite a few people that either have another business or wanna keep their day job. They’re just looking down the road, seeing that, you know. They’re not quite gonna be where they wanna be in this certain number of years. They need something a little bit extra.
Now you’re gonna sacrifice some time upfront to get that time back to you later on. But yes, there’s many different franchises, many different industries where they have that semi-absentee manager run model where you can do that and you actually get to talk to people before you get involved in a franchise.
People who’ve already done that before you to get a real good idea of what does that semi-absentee. Uh, really mean for that particular franchise, and it’s gonna vary by franchise.
Patrick: Yeah. I, I love that. And, and I think you highlighted a, a really important thing there. Um. We, we love real estate. We own a lot of real estate.
We think it’s a great wealth building tool, but it is not like buying a, uh, a share [00:09:00] of Amazon stock that I can just own, continue about my day, and then I come back and it’s worth more money or less money. It just does whatever Amazon stock’s doing, right? If I go buy some real estate and I treat it that way.
I’m gonna have a massive problem, right? Um, you know, the tenants will have consumed the place. They’ll stop paying me, you know, I, my property taxes and mortgage payment are all due, and, you know, uh, if I’m not giving it my time and attention there, there’s going to be an issue there. Now it doesn’t take.
Full-time, time and attention. And I, I think the same thing is, is true with, uh, what you highlighted with franchise. Like, it’s going to take some of your time and attention and you’re still the owner. You still have to make decisions and make sure that the, the ship is on the right course. And so, uh, you know, I, I think I’ve seen people.
Interested in franchise while they’re, you know, we, we had this one doctor. It’s like, I’m gonna, I’m gonna buy a couple franchises, be a full-time doctor, and I expect these things to sort of take care of themselves. It’s like, I don’t, I don’t know if it’s going to play out that [00:10:00] way. Uh, so I, I think your, your, your wisdom and guidance there is, uh, is, is good.
So let’s, if, if it’s okay, let’s, let’s pretend for a second that I am, I’m interested in, uh, investing in a franchise. Mm-hmm. Can you help me through like. What does that process look like? Where do I start? Where, what do we, what do I do besides call you and how do we figure out what, what to do next?
Greg: Well, that the issue that I work with my people every day on Patrick, they don’t know where to start.
Like, just like me, I didn’t know where to start, so I’m gonna click happy on the internet. Um, but the first call is to, is to me now a little disclaimer here. There are other consultants out there and so, you know, uh, feel free to, you know, search around and look around. Mm-hmm. Sure. I prefer you call me, but I understand.
Do it. But when you do call me, the first thing we’re gonna do when we talk, Patrick, is I’m going to ask you.
Patrick: Mm-hmm.
Greg: What do you wanna know about franchising? What do you want to know about me? And tell me all about yourself. Yeah. So I want, I want you to be comfortable with [00:11:00] me.
Patrick: Yeah, this is great. And, and if I think about this, I’m, uh, I’m curious if you are, ’cause I could see, you know, me answering this question a couple different ways.
I could be like, well, I’m, I’m interested in these particular. Uh, avenues, right? Mm-hmm. Like let’s say fitness or food or something along those lines. Um, or I could be interested in, I want to make the most amount of money possible, right? Like, just guide me there. So is there, is there a right or wrong answer?
When it, when it comes to those, those types of, of questions and thinking, is it like, I wanna be involved in fitness? I would, you know, then I can trust you to help point me in a, a direction to, to, to make more money. Or is it like I should be focused on? Let’s just, let’s just get ROI on our, our investment.
Greg: All the above. Neither one or both, uh, people come to me and then, you know, after we’ve had our initial phone call, I’ll have you fill out a questionnaire and then on our next phone call, we’re gonna go through that questionnaire. I’m gonna have a bunch more questions for you. And one of ’em is [00:12:00] gonna be, you know, what do you like, what do you don’t like?
Most people don’t necessarily know what they like, but sometimes they do like fitness. We’re making the most money possible. Uh, and it makes it easy on me. Some people say whatever one makes the most money possible. It’s like, eh, cool. It’s easy. I can, you know, I’ve got a pretty good idea of how much you, uh, each one, uh, can, can bring in on that.
I’ll still go through my questions and invariably, 75% of the people won’t pick the one that’s making the most money. They’ll pick the one that is the best fit. On there. So HVAC, your plumbing or electrical may be the one that makes the most money in your area, but you really enjoyed fitness and didn’t mind, you know, instead of a service industry, you’d rather have a brick and mortar type place.
Mm-hmm. Or place. ’cause that’s what you really feel good about. And that’s what a lot of my people do, is they’ll take that balance of, well, it still makes some really good money out there. Maybe not as much as, you know, some of the, some of those dirty jobs do. Uh, yeah. But it feels better. Yeah, it fits better.
It utilizes the skillset that I like using on a daily basis. Better. Even if a manager’s running it still one day, I may decide [00:13:00] that I want to step outta my job and, and run that business. It feels, it feels, it feels right to them, basically.
Patrick: Mm-hmm. Yeah. This is great and, and I think we should. If it’s okay, can we step back for a second and, and understand the different types of franchises because I, my brain goes to, uh, fast food, like we talked about with your example at the beginning.
You know, I started working at Taco Bell. You know, I think we’re all familiar with. McDonald’s, you know, Ray Crock and sort of how that, that all came to be. So can you walk us through what, what are the different, because you, you just mentioned HVAC, like that sounds fascinating to me. I’m not familiar with too many HVAC franchises around me.
Uh, basically because I probably can’t tell it’s franchised. So can you walk us through where these different, uh, types of franchises, like the different industries they, they align with?
Greg: Absolutely. Patrick. So. Basically two different types of businesses in the US today, your brick and mortar and your service industry.
So brick and mortar, basically, you build it and they will come. A plus [00:14:00] real estate location. You drive by, you see it. Minimal amount of advertising and marketing people just drive by and see it and know you’re there. Generally speaking, $300,000 on it for something like that. And many different industries.
I mean you, not only the food that you thought of, but think of anything from Mako mco, Mey, um, massage Envy, massage Heights, super Cuts, great clips, sports clips. Many different industries and many different ones, semi passive manager run or some require full-time. They’re all different service industry.
Service industry is where your clients don’t necessarily know you exist until they need you. Like when your AC breaks on that there. You need a great franchise to send people to you when their need arises on that. So a lot of great franchises out there. We talked about HVAC, electrical plumbing. We also have restoration Senior Care tutoring.
Um, health industry is wonderful on those, those are probably more a small to medium sized office or brick and mortar on the health industry, uh, [00:15:00] but many, many different ones. In many strange ones, there’re about the service industry where you just need a small office or you do, like I did, was work from home and go out and see my clients.
You’re generally looking at around $150,000 for one of those. Uh, and again, many different ones that you could run. Uh, semi-passive, uh, manager runtime models as well.
Patrick: Yeah, great. So now you’re leading me to the next question. Mm-hmm. And, and that’s, we’ll call it the, uh, the ownership model. So you, you’ve touched on a few different things.
We, we’ve, um. You started off with the, the franchisor that you, um, worked for, owned 50 Taco Bells. Um, and, uh, is franchisor a franchisee? I know I need to get my terminology straight, but, uh, we got it. You work for somebody that owned 50, um mm-hmm. Uh, taco Bells, right? So I, I think of that and, and you can correct my, my, my thinking here is that a, is that like a portfolio model?
Like they, they’ve got, they’ve got enough where they’re, they’re managing the portfolio, which might have. [00:16:00] I don’t know, maybe a regional manager that’s sort of overseeing a, a certain number of those restaurants. And, uh, is that, how does that compare to a, because you also just mentioned a, a semi-passive owner with maybe a manager structure, and then there’s probably the owner operator, right?
Like mm-hmm. You know, I bought the franchise and I’m in there just like. I’m doing a lot of work, but I’ve got systems and processes to support me. So can we walk through those maybe three different levels? And if there’s other levels, like let’s talk about those two. But, uh, uh, I’m, I’m curious and, and almost like anything in life, right, we probably start off at, at one level and migrate our way, uh, through different levels as we grow.
But I’m curious to hear your perspective there.
Greg: So, most people start off with one unit, one single unit franchise system. On that. So again, manager run, you can run it yourself either way. That’s just one territory. When they think one unit, one territory, most franchises give you a protected territory so no other franchisees can come into your territory.
Patrick: Mm-hmm.
Greg: Which is also good because everybody works together. Nobody’s competing, but that’s one territory unit. Now, when you wanna move up from that, you may want [00:17:00] something in the area, like an area developer type franchise. We really like that franchise system. But you want a bigger. You want more territories, a bigger area to manage, so you may pick up three territories on that.
Now you’re an area developer. Uh, and that could vary. So for a service industry franchise, you can start doing three territories Right away you just have a larger demographic or a, a demographic area to, to service. Mm-hmm. With a brick and mortar type franchise, you may have a build out plan. ’cause now you’re looking at doing a build out.
So you may build a one the first year and then two the second year, and then that will go up from there. Uh, then you get into what’s called the master franchise. Like she was on that and that’s where, for the most part, um. You are going to buy a larger area, let’s say.
Patrick: Mm-hmm.
Greg: Five territories on that, and you’re gonna put in your pilot unit in one where you’re gonna do your training and you’re gonna sell those other territories to other people and train them to run it.
So you’re like the right hand person of that franchisor. Now, when you start [00:18:00] getting into bigger territories like that and growing those, yes. Most everybody has a certain number of territories. They’ll, they’ll have. And then what they’ll do is they’ll hire a manager, not only for each individual unit, unit territory, but then for the area territory as well.
I helped the gentleman get into a lot of the super cuts, uh, salon. Mm-hmm. When the Regis Corporation was selling off their corporate owned units, he wanted to get up to a hundred. And so I, we’ve got ’em up to 80. Uh, and then, uh, and that was, I think that was, I think that’s where I left him out was about 80, but every seven.
Super cuts. You’d hire a regional manager to run it.
Patrick: Mm-hmm. Sure.
Greg: So e eventually he just had to deal with. One district manager, and then the district manager ran, you know, a certain number of each, each one. So he structured it quite nicely to where you, he still only had to work with one person, so he still wasn’t putting in that much time.
Uh, and he was a doctor and he wanted to mm-hmm. He didn’t want extra money. He wanted to provide that money to use that [00:19:00] to help underprivileged people who didn’t, couldn’t get doctor services on that. Yeah. So that’s what his, his goal was in building that one up. But basically the structure is you have so many, so many units.
And after so many units, you hire a regional manager to take care of those. And then once you have, you know, three or four regional managers, then you’d hire a district manager to take care of all those. So you’re still only working with, you know, a small number of people on a regular basis. So it really helps you build up a great annuity that way.
Patrick: Yeah. So I’m, I’m interested in a few things now. Uh, and, and I’m, I’m interested in the. Because when we think about what we talked about with real estate, you know, the time investment, same thing with franchise. You know, there’s a time investment. Uh, I’m, I’m, if I’m investing my time and energy, I’m, I’m typically looking for better rates of return than what I’m can go invest passively.
And, and so I know this is a. This is not an easy question to answer, uh, because it, the answer’s [00:20:00] going to be, it depends, but is there a threshold that I can start to expect or I shouldn’t look under this threshold, um, for a rate of return for. Um, ’cause I, I’m, I’m assuming I’m putting some capital along with some debt, uh, on my, my investment.
Maybe I’m just doing using all, all cash. I don’t know. I’m, I’m curious your perspective on that. So, uh, there’s lots of questions wrapped up in here, but what, what can I expect from my rate of return? And then where should I go for financing? Is this a cash deal or, or, you know, am I borrowing money from SPA or something along those lines?
So,
Greg: gotcha. Rate of return will vary. Uh, you’re right. It depends. It varies quite a bit. I usually see some of the brick and mortar restaurants, not necessarily huge. I, when I worked for my restaurant change chain, we brought in probably, you know, five or 10%. To the bottom line on that one. Now, that’s not gonna be the same through all the restaurants, uh, franchises out there.
They all vary, but the brick and mortars are typically not quite as well as some of the service [00:21:00] industries where you can bring in 20, 25% on there. And then there’s, uh, I know there’s at least one in the service industry that brings in like 80% on that. Uh, if you do it yourself and a little bit less if you, if you, uh, bring in a manager.
Uh, to run it. But if you’re looking at service industry, I would say look for ones that can bring in about 20 to 25% on that many different service industries there. But you can, senior care is a good one, uh, for doing that. Uh, it does require a lot of caregivers.
Patrick: Mm-hmm.
Greg: But, you know, you bring in 50 seniors, you’re probably bringing in about a million dollars.
Patrick: Yeah.
Greg: Uh, uh, top revenue and probably dropping about 20%, 200,000 or so to the bottom line. So that’s a really good business. But you’ll have 65 caregivers that you’re working with when you bring in, you know, that many seniors as far as getting funding. Funding is actually pretty easy for franchises ’cause they have that proven track record of success.
Patrick: Yeah.
Greg: Uh, there. So it just comes down to your credit. As long as you’ve got decent credit, we can get you through those, uh, [00:22:00] get you funding. Uh, pretty easy, and I’ve got funding people that take care of all that. That’s all they do on a, on a regular basis is fund franchises. When you’re looking at the service industry, you’re around 150, 200,000.
You get in, you’re probably gonna be looking at, if you wanna go the SBA route, you go and ex an express loan, and you pretty much, you drop $20,000 into your, your bank account for your down payment, and then the SBA, whatever lenders that you’re using, will drop in the 150,000 to your bank account. So that one’s pretty easy.
Yeah. When you are looking at the brick and mortar type ones, you generally go for something like a seven a loan. Mm-hmm. And then you’re looking at 10 to 20% down. So it could be, you know, significant up to a hundred thousand or more depending on what type of, uh, of business you, uh, you get into on those.
Or you can use your own money. If you wanna use your own money, you can use your own cash. Or if you happen to have left your job and you have a 401k plan from a previous employer. You can do a self-directed 401k rollover, which is what I did to yeah. Fund my business. Um, [00:23:00] and that way you are not going into debt at all.
Um, completely compliant with the IRS. We have people that’ll do that for you. They’ll keep compliant, fill out all the paperwork for you. Um, you know, you can issue yourself. Little stock certificates. It’s really cool.
Patrick: Yep.
Greg: On that one. They, they had me doing all that. Uh, but that one’s pretty easy to do. I would say probably most of my investors like using other people’s money.
As long as the investment source is the debt, they’re good to go.
Patrick: Yeah. So I, I’m. I think you were referring to the Rob structure, the rollover business startup. Um, I, I think that’s a really fascinating, uh, opportunity. Can we, especially somebody that maybe is coming out of the corporate world that has a large portion of their wealth tied up into, you know, 401k and something along those lines.
Can you talk us through a little bit of, of, it sounds like you’re intimately familiar. Can you tell us a little bit more about how that. That works. ’cause I, I, I’m gonna explain the best I can and then you clean it up if that’s all right. So, uh, I roll my money over from my 401k into an [00:24:00] IRA. It’s a self-directed IRA and then.
I believe I’ve gotta structure my new business as what’s called a C corporation, uh, which is, uh, like you, you mentioned it issues stock certificates. And I’m, uh, most of the, the large businesses out there that we’re familiar with, uh, are C corporations, you know, the Amazons and the, you know, uh, target and Walmart.
Those are, those are all, uh, generally C Corps. Um. So now my, just like my IRA can go invest in Target or Walmart, it can also now invest in this C corp that I’ve created. It. Um, it buys those shares at, uh, fair market value, I would assume. Uh, I don’t know what that value is. That money goes to the, the franchisor and then, uh.
Um, or franchisee that, you know, now I’m the franchisor, but, uh, now I, now I effectively own my, my franchise inside the C Corp and I can pay myself a wage out of there. Um. Yeah. Please clean up anything I just said, but [00:25:00] that’s, that’s the best that I, I understand. Uh,
Greg: perfect,
Patrick: Rob.
Greg: Perfect. Almost, almost exactly.
Perfect Patrick. So yes, you create a C corporation and my people do, I help you do all that. Basically you just open up a checking account in, in your CC corporation’s name. Mine happened to be more Inc at the time. Mm-hmm. You know, they in creative ingenuity. Yeah. A lot there. A lot of thinking on that one.
And what you do is you just, like I said, you just transfer money from the 401k plan into your checking account. Issue yourself. Stock certificates, you’re good to go there, whatever you wanna put in there. Now you’ve got it. Now you use that money in there then to fund that franchise. So that franchise is funded, so good and bad points about that.
Yes, as a C corporation, you pay yourself, but you do have corporate taxes. And then when you pay yourself, then you have payroll taxes. So you do get the double uh, taxation on that one. The good points about it is. That you can still put money back in as you’re paying yourself back into the 401k plan as far as your stock [00:26:00] and the valuation.
They just, I think mine started out as just like, you know, straight hundred dollars. They just evaluated it at that. Mm-hmm. Every year though, you’re gonna have a stock evaluation done and your stock goes up in price. Now, at some point in time, uh, you know, you may not want to pay yourself. I didn’t have to pay myself a whole lot.
My wife still worked, uh mm-hmm. She was in the military, so that was fine. So I built up a little too much in the checking account. So at some point in time after you’ve done the C corporation done the rollover, you can just dissolve the C corporation and like my CPA said, make it an LLC tax as an S corporation.
So what you do then is you just buy back all your stocks from your 401k plan. So you just, money just goes right back into the 401k plan without any taxes on there. ’cause you’re just buying your stock certificates back.
Patrick: Sure.
Greg: So, yeah. Good, good and bad points on that. You are using your retirement fund that, so that’s a.
That’s,
Patrick: there’s some risk associated with that. Right. If it doesn’t work out, you know, those dollars are not coming back to us. Yeah.
Greg: Yep. Personal decision on that. But the, there’s a lot of [00:27:00] value there if you don’t want to go into debt.
Patrick: Yeah, yeah. No, that’s, that’s great. And I think, you know, we could. We spend a lot of time talking about tax with our clients, and part of me wants to nerd out and go, well, what if I made this investment and then I did a Roth conversion, you know, at a a discounted amount?
And then, uh, let’s say five years down the road I sell my business to, or 10 years, or 20 years or however long down the road I sell my business to private equity. For a, a fantastic multiple. And, uh, now all that money comes into my Roth, IRA tax free. Like, uh, my brain says that sounds like a fun idea, but, uh, that’s probably a whole separate episode, uh, on its own.
So
Greg: definitely not
Patrick: me.
Greg: A little more expertise in that area. Yes.
Patrick: Yeah. Very good.
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Um, so I, just to summarize, there’s, there’s a lot of opportunities to, to finance these. I can, if I’ve got the cash, I can pay cash. SBA, uh, and commercial financing is out there ’cause they like. F franchise opportunities because of the track record and the success. We, we’ve talked about how to use retirement dollars.
Um, so all of those things are, are, uh, really good, [00:29:00] good funding opportunities. And we also talked about rate of return. Um, you know, you, you highlighted that the margins, and this seems to make sense, the margins are pretty compressed on the, the food service industry, uh, you know, five to 10%, uh, which is, which is fine if we want better margins going out.
Into the service, uh, arena. Seems like there’s, uh, a lot of, a lot of wisdom there. Uh, is there anything else we should be talking about as far as like, um, the, how we fund the deal? Because I, I think there’s now a, a level of like, how do we evaluate, uh, which we, we touched on this a little bit, like. There’s rate of return, there’s my interest, but like how do I evaluate?
Because there could still be, let’s say I’m interested in, in services. I like dirty job type. There still might be a dozen different opportunities for me out there. So I’m, I’m curious how we we go about the evaluation process and how I end up landing on a particular opportunity over.
Greg: So Patrick, [00:30:00] as you and I are going through my questionnaire together, that’s gonna be some of the questions that we’re gonna go through as far as how you want to evaluate it and basically how you want to evaluate risk on there.
Mm-hmm. So that’s a big thing. Risk. How much risk am I taking? Two
Patrick: different, so this is great. I’m, I’m curious, like, can you talk us through, because. Uh, where does the risk come from? Is it just in the business opportunity itself? Is it, yeah, I, I, I’d love to hear your, your thoughts on, on the risk and why, why one franchise has more risk versus another.
Greg: When you looking at franchises, there’s probably 5,000 franchises, 4,000 franchises out there in the US today, about five or 10 of them. Five or 10% of them make it to 100 franchisees or more. So if you’re looking at franchises and you look at the ones that have made it to a hundred franchisees or more, no guarantee they’re gonna still stay in business.
However, now they’ve made it to the top five or 10% that made it to that number. They’ve been around for a while. They’ve duplicated it, produced their process wide. [00:31:00] Number of times you’ve got a lot of people to talk to. Your risk is now reduced a bit more. ’cause you know that franchise has got the longevity with it.
Or with it as well, there are emerging brands as well. Good and bad points about that. I mean, if you got into Orange Theory when it was an emerging uh, franchise, you would’ve been, you know, doing just fine. Yeah. But you take that risk. How many other fitness franchises popped up at the same time that didn’t make it on there?
So emerging brands are good. You can. Help develop that franchise ’cause you’re getting in on the ground floor that if that’s something you’d like to do, you work a little bit closer with the person who actually started the, the business, the franchise business itself. But reducing the risk, which you’re looking at there is just longevity.
A number of franchisees so that, you know, you’ve got a lot of people to call
Patrick: mm-hmm.
Greg: To find out how they’re doing and find out how long they’ve been there. If they’ve been there, you know, 10, 20 years, then you’ve got a lot of great people to talk to about what the franchise has done to improve itself.
Over that time period, how it stays, uh, abreast of the changing [00:32:00] times, how it works to help you take competition away or bring people to you and take away from the competition and bring ’em to you.
Patrick: Yeah.
Greg: So that, that is one, one aspect that I go over, uh, quite in depth with my people.
Patrick: Great. Yeah. I love it.
Great. Thank you. So I, I interrupted you. We were, we were talking about how we evaluate the franchise and we were talking about risk. And so what other factors come in when I, when I start thinking about, uh. You know how I narrow down my list before I make an investment.
Greg: Another thing you wanna look at is the turnover rate in the franchise itself.
Inside the franchise disclosure documents, most of them these days are gonna give you what everybody always wants to see is how much does a, does your average or median franchisee make
Patrick: mm-hmm.
Greg: On that. And they’ll have that information in there. The other piece of information is, uh, under item number 20, where they have a list of the franchisees who started the business and are still running it, and then the number of who of them who started the business and are no longer running it.
So you can get easy math to get a success rate. [00:33:00] We like to see 85, 90% or better. We don’t like to see a whole lot of turnover in that. So that’s another part of the evaluation you want to take a look at. Mm-hmm. In addition to that, in there, you wanna look and see how much litigation, and they’ll have that in the franchise disclosure documents.
Is there any litigation? Did anybody of the owners have any bankruptcies in there? And what is the background of the people that are running the franchise system? On there so you can get a good feel for, uh, whether or not, uh, you feel that they’re good people that can take you into the future.
Patrick: Sure. I love it.
This is, this is great. So. Now that I’ve, I’ve identified my, my franchise, I’ve figured out how to fund it. I’ve, uh, I’m, I’m making some money. I’m, I’m growing my footprint on the number of, of locations and people that I’m serving. Let, let’s fast forward and now I’m ready to. Called my, my franchise investing career to an end.
And what, what are the ways that I can, [00:34:00] uh, exit, you know? ’cause I, I, I touched on, I, I brought up. Private equity. I don’t know if that’s an opportunity to sell to private equity if there’s opportunity to sell to, um, other aspiring franchise owners. Yeah, I I’m curious what, um, what are the, the opportunities to exit the the franchise market?
Greg: Patrick, the first thing you’re gonna do as a franchisee when you go to sell it is you’re gonna tell the franchise or you wanna sell it. Okay? Because they still have to find, they still have to be approved by the franchisor on it. And what usually happens. Is that the franchisor is gonna tell other franchisees that are closest to you that you’re selling?
I don’t get a whole lot of good resales. ’cause most of the time when that franchise business, if it’s doing well, if it’s making money, one of the other franchisees in the area is gonna pick that up.
Patrick: Yep.
Greg: If they don’t, then you can put it on the market. A lot of our, our franchisors will, will give us a list of the, the businesses that are being sold.
So I have a list of them. I yell people all the time asking me for franchise resales. ’cause they really like to go into a business [00:35:00] that, a franchise business got the proven track record, somebody’s already done it, and now they’ve got immediate income on that. You pay for it, you know, three times net or so, plus any equipment that you have.
But it’s very easy, uh, to sell a franchise after that. Uh, that is the way that I see most people, uh, exiting that. And you don’t have to wait until the contract for, with your, uh, franchise or is usually around 10 years, usually sign a 10 year contract that you’re gonna be in business with them. But you can exit at any time.
I’ve had people come to me and say, Hey. After three years, I’ve built up this thing up, I’m making some money. It, it’s time to, uh, you know, move on. I’m gonna try something different. Uh,
Patrick: yeah,
Greg: help me sell this and let’s go find another one. And I say, tell the franchise horse as soon as you tell the franchise, or we can, we can take it from there.
Patrick: Great. And so, couple questions on that. Do I, do I have, I, I have to tell the franchisor, but then do I have freedom in who I sell it to? If they. Uh, let’s say my cousin wants to buy it. Do I, can I sell it to [00:36:00] them or do I have to sell it sort of through the franchise, uh, sort of model. Yeah, I, I’m curious about that.
Greg: You can sell it to whoever you want, however, whoever you want has to be approved by the franchisor. So some of the processes that we didn’t go through yet is the process of where I start. Taking you down the road of evaluating that franchise. And that franchise or and their team are gonna be interviewing you as much as you’re interviewing them.
’cause they wanna make certain that you’re a good fit. So when you go to that item 20 and you don’t see a whole lot of turnover, you know that franchise is very good at picking out the right people to run that franchise. So you, whoever you sell it to, still has to be approved by the franchise.
Patrick: Yeah.
Greg: Uh, on that.
That’s basically, that’s it. You gotta,
Patrick: yeah,
Greg: you gotta have, they gotta go through the same process that you just went through to do it. They’ve gotta be approved by the franchise, or if they’re approved by the franchise, or you’re good to go.
Patrick: Great. No, this is, this is fantastic. So. Uh, you just led me to something.
What haven’t I asked you about in this process [00:37:00] of, uh, finding the right franchise and, uh, moving forward with that process,
Greg: the vetting process that, that I’m gonna take you through, Patrick, after I find you that franchise, is that we’re gonna, I’m gonna introduce you to those franchise orders and then we’re gonna go through the due diligence process of evaluating that franchise together.
We are going to, uh, you’re gonna talk to them on a regular basis. Let you talk to ’em by yourself, and then we get back together and talk about what you’ve learned on that. We wanna make certain that you get all your questions answered. I’ve got a list of questions for you, for the franchisors, for the franchisees.
I’ve got franchise attorneys, got CPAs. We already talked about funding people, but we’re gonna go through there. We wanna make certain that that franchisors is evaluating you and interviewing you as much as you’re interviewing them. It usually takes between three and five months to go through the whole process, just depending on how fast or slow you want to go.
They’re gonna walk you through everything, how the, uh, they’re gonna walk you through why your territory, uh, will be a good territory and the demographics of that territory so that it is a good fit, so you can see where the numbers are coming from. On, on that. If, [00:38:00] for instance, when we get into the service industry, they’re gonna be looking at homeowners with a hundred thousand or more, uh, household income, and they’re gonna be probably looking at at least a hundred thousand of those households, and they’re gonna show you that on their demographics.
So these are the kind of things that, in-depth things that we’ll go through together to investigate that franchise. You’ll meet the whole team on there. You’ll go meet them in person, usually at their, at their offices. You’ll meet the operations team that’s gonna help you grow that business. You’re gonna meet the franchisor in there and you’re gonna go through this entire process, uh, before you sign on the dotted line and before you decide to invest in the franchise after your, what they call discovery day or meet the team day.
When you get together with everybody, they’re gonna send you home. They’re gonna decide if they want you. You’re gonna decide if you want them.
Patrick: Yeah,
Greg: everything works out. Sign. If it doesn’t. Say goodbye.
Patrick: Yeah, absolutely. Greg, this is, uh, this is fantastic because I, I, I think about what you’re, you’re, you’re outlining here and, and I, I’m going to tell a story about, um, we [00:39:00] had a, we had a client come to us and they were, they were interested in selling their business.
Um, not a franchise business, but just interested in selling and, and we know people in their space that are. MA advisors, right? They, they help people through this process on both the selling and the buying side. And they were gonna do it on their own. And, uh, fortunately they didn’t do the deal because it was a bad deal.
They, they had negotiated with a, a firm to, to buy their company. And the way it was all coming together, it was like, Hey, here’s some major concerns we have. And then they had some legal counsel that, that highlighted the same things, but. I, I think about the cost of not bringing somebody into the process that’s been there before.
That’s done it. Um, and it’s. It’s very expensive. ’cause a bad deal is, uh, not just, uh, time or not just a money perspective, but a time and emotional energy that goes into getting yourself out of something that, uh, maybe you never should have gotten into is, is so expensive. And, uh, and I [00:40:00] think about how it can change your trajectory of somebody’s life even.
And so I, I think about seeking wise counsel and, uh, just going through our conversation today, I think this is. What you’re doing is, is fantastic work. And, uh, I think we’re starting to see the shift towards, uh, owning my own income. Right? Like, I agree with you, rich Dad, poor Dad was one of the, the, uh, fundamental books in my life that changed my course, uh, as an entrepreneur.
Uh, it was, it was great. And so, uh, I, I think about that, that freedom. He talks about security and freedom. We think we get security, but when we think about maximum security, what does it remind itself? Prison. Right. Uh, and so freedom, uh, it, there’s some risks that come with it, but man, we’ve, we’ve got, uh, all sorts of opportunity and you’re giving people an opportunity for, uh, really having some, some true freedom and breaking out of that, uh, I don’t know, prism of what we’ll call security.
So, uh, I think this is great and I think your website’s fantastic. [00:41:00] Um, do you wanna give us, uh, just a few, a little overview of where people should go if they’re interested in, in more information?
Greg: Absolutely Patrick. Go to my website, franchise maven.com. That’s franchise, MAV as in victor e n.com. Email me at greg@franchisemaven.com or just pick up the phone and do it the old fashioned way and give me a call.
3 6 1 1 7 7 2 6 4 0 1. And by the way. I’m free franchise orders, pay me a referral fee if, uh, you decide to invest in one of the franchise I introduce you to. So does it cost you anything? Gimme a call.
Patrick: I love it, Greg. This is, uh, this is incredible. And, uh, we’ll have links to, uh, your email and, and website in the show notes.
And, uh, spending some time on your, your website. You’ve got all sorts of great resources there. So that’s, uh, that’s wonderful. So I think about the stakes, right? If, if, if I do nothing. Um, you know, I’m, I might be sitting in a concentrated position from an income point of view. It might all be coming from [00:42:00] my, my business or my, my high income W2 job.
And it’s like I need to, I need to change this around and I might have capital that’s losing purchasing power ’cause I’m not putting it to work in a. A model that really, really generates, um, significant income and, um, especially when I get good at, if I get good at this franchise thing, one of the things you talked about was, you know, selling after two or three years, you know, if I get in and find a, a problem franchise and I know how to fix it, man, that can increase value tremendously.
You know, if I look at a multiple of what hits the bottom line and I’m good at driving money to the bottom line, uh, that can be. That can be incredible. So this, this could be a fantastic wealth driving, uh, wealth building opportunity if, uh, if people take action. And so, uh, and I also think about predictable cash flow, right?
Like, uh, that’s the beautiful thing about franchises. There’s a system, uh, that are proven, they’re produced cash flow. Uh, we can strategically replace our W2 income, uh, or find a second, uh, career. We, we exit our business, we’ve got capital, and we’re looking for a new opportunity. This could be a good [00:43:00] place to, um.
To get started. So, um, I think this is, uh, this is fantastic, and when we think about what success looks like, I, I think about that journey you talked about, you know, getting involved as an owner operator and then having managers and then, you know, regional managers and district territory people. It’s like, this is, uh.
This is fantastic. And that’s, that’s where lots of wealth is built. You know, nobody on the Forbes list is there because they have a W2 job or being a stock picker, right? They are, they’re building businesses. Uh, they might be buying real estate, but those are the two, uh, ways that people get on there. And if they have real estate, it’s a business around the real estate.
So, um, it’s, it’s great stuff. So I don’t know if you have any thoughts or comments to add to any of that, but, uh, uh, I think this has been a wonderful conversation.
Greg: I appreciate it, Patrick. Yes, you’re right. That’s absolutely a wonderful way to be an empire builder is to start building your empire with businesses.
Patrick: Yeah. Great. Wonderful. Well, Greg, I appreciate, uh, all of your time and expertise and, uh, you have a great day.
Greg: Thank you for having me, [00:44:00] Patrick. It’s been an honor
Patrick: That wraps up my conversation with Greg Mohr. And just to highlight, we have a number of clients making over a million dollars a year that started with the franchise opportunity.
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