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231: Should You Buy a Franchise?

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Buck: Welcome back to the show everyone today my guest on Wealth Formula Podcast is Kim Daly. Now Kim, well she has been in this space, this franchise space for a long time, for the last 20 years and she’s been helping people achieve their financial goals, enabling them to get into the franchise opportunities that are most appropriate for them. She’s got a lot of incredible background but you know her skills are really matching a client’s background interest and skills and ultimately life goals and to matching them into top franchise opportunities and so today we’re going to pick her brain get some insight into what may seem like a daunting process, but one that you know I’ve considered. I know a number of people have considered in the past and with that let me introduce Kim Daly. Kim, welcome to the show.

Kim: Thank you Buck it’s great to be here.

Buck: So Kim I want to just start out by asking you, like how did you get into this space as a franchise consultant? How did you arrive there?

Kim: I mean are you questioning that I didn’t grow up saying hey I want to be a franchise consultant?

Buck: That’s right.

Kim: Yeah I fell into it like you know a lot of people fall into their thing. I was an entrepreneur and it started many businesses and the first job and the only job I actually had after college, I was on my way to med school and I answered a classified ad in the newspaper, remember the classified ads? And it was for a franchise company and it changed the direction of my life.

Buck: So you were going to be a doctor is that right?

Kim: Yeah so growing up there were two things I wanted to be Buck. I wanted to be a motivational speaker and I wanted to be a doctor but like how does one become a motivational speaker really right so you go to med school and you want to help people you go to med school but here I am you know many years later and basically I am a motivational speaker I mean I inspire people to the dream of business ownership and using my own entrepreneurial experiences in the last 18 years as a franchise consultant and really becoming an expert and a voice in this industry to help people really understand what franchising is, what’s the real value proposition, what are you getting, what are you owed, what are you not owed, how to explore franchising, how to ask the right questions, so that’s what I do.

Buck: Have you yourself owned franchises and I mean I just obviously don’t know a whole lot about your background but have you actually you know owned them yourself and is that part of the experience?

Kim: Yes so this business that I’m in called Franchoice.

Buck: It’s a franchise isn’t it?

Kim: Yes it is. It’s like a franchise, I mean we don’t have a franchise agreement we have a consultant agreement but it’s the same setup. You said you’re from Minnesota we are headquartered in Eden Prairie. So I am supported yeah I’m supported by a corporate office I pay royalties back to my back to my corporate office and so and they go out what they do is they go out and they contract with the very best franchisors. So they’re doing all of the homework for me in terms of creating an inventory of opportunities that I can bring to people so that my full-time effort can be dedicated to finding investors who want to learn about franchising and then bringing the two together like a matchmaker.

Buck: Got it okay. So let’s talk about first of all what is a franchise and why should anyone consider you know buying into a franchise?

Kim: Okay sure so you know a franchise investment really, I’m going to go for the investors perspective that’s sort of the audience. So a franchise investment is all about buying down the learning curve of starting a business right because you’re partnering yourself with people who’ve already gone out there and figured it out. So the entrepreneurial path is to create as you go right the trial and error the missed opportunities from spending time trying to figure things out and that can become very costly right? And that’s why in fact many entrepreneurs fail mainly because they run out of money before they really figure out how to make money. So here on the franchising path where from day one you’re gonna pay a franchise fee right which goes to the franchisor and that buys you access to this proven business plan, the initial training, the vendors, technology, a proven marketing plan and ongoing support. So it’s this idea that you are in business for yourself but not by yourself. So you’re not that entrepreneur out there in the wilderness chopping down trees hoping that you’re making up a trail that you know leads somewhere good, you’re paying a fee to walk on a trail where the path has already been created and you’re going to be supported all along the way. So that’s kind of like tactically what we’re doing is we’re buying this we’re buying down the learning curve because we’re buying into this proven business plan but ultimately when I’m really working with my investors I really want to make a connection for them to the partnership. So it’s one thing to buy into a proven plan but it’s another thing to buy into an organization of very strong leadership where the people that you’re giving your royalty dollars to have your best interest at heart where they are out there every day looking to grow the opportunity keep your opportunity relevant to the times like a time like we’re in right. I’ve always said for years that widgets will not make an investor happy long, term like buying a you know a particular business because you love the product. Leadership is what makes you happy as an investor. When your leadership can pivot your company in an adverse time can keep your company growing and keep it relevant to the competition and to the changing customer demand I mean we’re in business to make money so that’s ultimately what keeps your business thriving and growing and makes you money right. So ultimately what you’re really buying in a franchise is you’re buying a relationship.

Buck: Yeah makes sense so and let’s talk about you know just comparing that and contrasting that with you know other options and for example you know I before we got on I mentioned you know I’ve started a few different businesses myself, I would say that it’s definitely not for everybody to do that because I think there’s as you mentioned there’s a significant learning curve frequently. Your idea ends up either you know doing great or you end up losing a bunch of money and then you also fundamentally I think have to have a certain itch and I think that that might be a little different from your typical franchise person who’s really looking potentially on something to say I don’t need to be this guy who came up with this new idea, I just like this idea of running a business and I don’t really want to waste a bunch of money I mean is that kind of the major difference between starting from scratch and franchising?

Kim: 100 so well said yeah right franchisees want to take somebody else’s idea run with it and make money and you know I talk about building wealth through franchising and the wealth gets created through the scale like it could take an entrepreneur five years to figure out the business and get it up and going and in that five-year time period I could take a franchisee who could own five locations of whatever they’re doing right because again not sitting and figuring anything out from day one you are going you’re moving toward profitability because you have this proven plan in front of you and you’re executing and you’re being held accountable you know to execute and to go.

Buck: Yeah and then and then the other option of course is to look and say you know go to one of these sites like biz buy sell blah blah blah you know and take a business that you know that is currently on sale that may not be a franchise and potentially buy something like that. I honestly have looked in that space before because again just having some various interests and thinking I’ll plug and chug let’s do it. The challenge there I’ve found is being a guy who started businesses on my own, I know there’s always stuff buried in closets that if you buy something unless it’s a very very significantly large business with operations and things in place and management that you can potentially get screwed.

Kim: Skeletons in the closet.

Buck: Yeah right is that kind of and I don’t mean to be giving you the answers but I’m guessing what the problems are with some of the other approaches to business ownership is that how you would is that kind of what you see in that space?

Kim: Yeah you know what you know what Buck I mean when I meet someone and I’m asking you know what are your goals what do you want to use this business for, there are many ways to skin the cat right? Franchising is just one option. I certainly don’t try to push everybody into a franchise investment, it’s not right for everybody and for that person who may be looking to recover a corporate salary let’s say you’ve been severed from your job and you’re looking to you know recover 200 or 300 thousand dollars in income like within three or four months I mean starting a business from scratch is not the answer right it’s not going to happen so buying an existing business for sale could be a better fit but the thing you have to you have to know is that if you’re buying a business that’s throwing off that kind of cash you’re paying for that right so multiple of that and so you that ups the risk because now you got to put down you know lots and lots and lots of money compared to if you have the time to kind of allow the business to ramp and like you said you get to be there for every you know hiccup in the business. When people come to me and ask me about buying an existing business for sale I say it’s sort of like the difference between having a baby and adopting a teenager right so if you if you adopt a teenager and you haven’t been there to like develop the personality and you don’t really know like why they have a chip on their shoulder and other than that teenagers all have chips on their shoulders but like you know I see where I’m going with that versus when you have a baby and you’re there for every milestone in that child’s life and you’re developing and nurturing that personality then when they grow up you know exactly how they got to who they are right that’s sort of that’s exactly what you were saying and that’s sort of the difference between the two but I mean again I help people buy into existing franchises that are for sale so it really depends on the investors goals and the time frame in which they would like to achieve those goals assuming that they’re realistic and that’s part of what I do as their consultant is to help them understand what reality looks like and to make sure that you know any of these owning a business buying a business is the right option for them.

Buck: Got it and and so when you when you think about returns on these, well there’s two questions I have. One is if you could talk about you know the cost and that sort of thing for franchises you know as a function of returns, how do you typically look at that or is it all over the board?

Kim: Okay so the first thing I’ll say is as the consultant in the process I never ever make any earnings claims to anybody right it’s just not my job I’m not a business broker I don’t have a license to sell a franchise so I don’t get into the idea of like answering the financial questions. What I do is I teach people what are the right questions to ask I’m not a big fan of asking a business owner like how much do you make because it depends it depends on their you know what kind of tax advantages they’re taking advantage of it depends on how they finance their business are they paying off loans was it cash right there’s too many depends on that question but so I’m going to teach my candidates how do you really learn the financial opportunity of a business more by understanding what owners are doing when they wake up to go drive that activity right. So I want to teach them how to turn every business sort of into a sales pipeline and understand like where do I apply the gas to drive the maximum speed in this business and you want to go to the top performing franchisees in a system to really hear what they’re doing. Oftentimes people out of fear will say, you know I think it’s out of fear they think well I’m going to talk to the people who who it hasn’t worked out for and I’m like well you know when you turn to the people who it hasn’t worked out for what is that really going to teach you. When you turn to the top performing people who’ve mastered the model to this point in its growth they’re going to have a science to what they do especially if they’ve been able to replicate those results year over year over year. So they can tell you logically, not emotionally, what is driving their top performance. Now if you know what’s driving top performance logically then you equally know why people in your business will not be successful so very often when you talk to people who it hasn’t worked out for there’s a lot of emotion and opinion behind their failure that I find often times no offense to anybody who’s ever lost money because it is very disheartening right if you fail in your business but oftentimes it’s not the truth it’s just their truth does that make sense. That’s a very evasive answer to your question, that’s all you’re gonna get.

Buck: Well you know we’re a group of investors a lot of times we want to we kind of want to cut to the chase. And along that line you know you had you mentioned okay well you’re trying to you know you lost the job you’re trying to replace income. My wonderful audience we many of us are spoiled rotten, we’re just looking to make more money all right it’s not a sob story it’s just you know how do I make more money and and you know from a tax perspective I’ve addressed the the idea of business ownership many times, the problem is that I’ve got a number of investors listeners of this podcast who are making you know multiple hundreds of thousands of dollars multi you know even multiple millions of dollars and they are interested potentially in getting involved with business because what they’re doing right now is say they’re a neurosurgeon making a million and a half a year and they want they want to do something in the business space but you know what frankly they’re not going to be driving to work every morning they may want to be more passive they may be interested in potentially having you know some interest in managing managers but not really beyond that, are franchises something that can be relatively passive for individuals looking to create wealth through owning businesses or is this a all hands on deck kind of thing.

Kim: It’s a great question and it’s definitely can be used as a semi-absentee investment unlike starting a business from scratch that entrepreneurial route which would really require the owner to be there through every stage of it. So if you invest in the right type of business that is set up for semi-absentee ownership that can be manager run that would rely on the manager’s expertise to carry out the day-to-day functions rather than the owner’s expertise then that that could absolutely be achieved and that’s actually how you scale a business and really build that wealth you know and you’ll talk to people about you really don’t need experience and some for some people that feels counterintuitive and I’m like well you’ll hire to the experience of the business I need you to be the CEO who can manage managers who then will work in the business while you work on the business right. So in that semi absentee investor state you might be putting in 10 to 15 hours a week at night or on the weekends and it could even be less than that. There is a highly selective group of businesses that are really more of an investor’s play, they’re more expensive to get into. So there’s always this trade-off of money for time right so the the less time the owner would be putting in the more infrastructure there has to be to support that business right the more time you’re willing to put in as the owner the lower that investment could be because you’re making up for that infrastructure with your own effort and time does that make sense.

Buck: Yeah for sure like anything else I mean I think the more you know generally speaking the higher the risk you know the you’re not going to pay as much and if you’re looking for things that are turnkey you’re going to pay more so I mean it’s pretty typical stuff. Let’s talk a little bit about the fact that we are in a sort of you know an unusual time you know with this whole pandemic thing I don’t know if you heard about heard about it and how is it affecting you know the types of businesses that you deal with or is it all over the board? I mean I’m curious.

Kim: Yeah it’s been an interesting time and you know this is again when I say like widgets don’t make investors happy long term but strong leadership in a franchise does. Never has there been a better time in history and franchising than now to be looking at franchising because you can really see where there are strong cultures and and strong leadership, where franchisees are not panicking there’s been a pivot in their business model to maybe a virtual platform to a delivery service. So I mean I’ve seen franchisors eliminate royalties and turn corporate revenue streams like through online purchases to back to their franchisees reducing royalties like all kinds of things have happened here to help save our franchisees and by the best of the best franchisors. I certainly don’t speak for every franchise organization out there I imagine there are some that are really struggling and the leadership hasn’t really met the demands but in my little Santa Barbara boutique world here at Franchoice which is the best of the best in franchising

Buck: Wait Santa Barbara what are you talking about I didn’t know you guys were in Santa Barbara.

Kim: Hey I used to live in Boca Raton I usually use that example Boca is like the most perfectly manicured places that’s sort of like what we have here in my inventory. I’m not matching people to just any franchise out there I’m matching them to the best of the best. And the best of the best as validated by their existing franchise owners like it’s one thing to be ranked in the top 500 out of you know entrepreneurs top 500 but it’s quite another when the majority of the franchise owners that my team would speak with say you know hey I knowing what I know a hundred percent I would do this again you know even if you’re not making the kind of money you got in for and they’re willing to validate that they would do it again I mean that’s amazing validation right and during your due diligence process as you work with me to explore franchise opportunities to find the one that’s like the best fit for you, a big portion of what we’re going to do is we’re going to go out and we’re going to interview those existing franchise owners and that question of you know how much money does it really take to get the business going and what kind of returns are there, we’re actually going to address it to the people who’ve invested the money and who are making the return. The franchisor by law has to disclose this information in their franchise disclosure document so the federal trade commission regulates franchising and every year a franchisor must produce what’s called an FDD or a franchise disclosure document, it’s kind of like the prospectus for a stock right so it entitles you the investor to full disclosure if there’s ever been any lawsuits or bankruptcies any fees you’re obligated to pay and in there there’s a section on the initial startup cost and there’s also an earnings claim section. So we can pull numbers out of that franchise disclosure document but I always try to coach my candidates to understand that a document is just that right it’s not a living breathing thing that a business is. So in order to really understand the story that those numbers create we have to be in relationship with the people, we have to be out there talking to the franchisor and then taking what we’re learning in that book theory from the franchisor and validating that in the real world by talking to their existing franchisees and ultimately I don’t know if you’re aware of this but a franchise is not yours to buy until the franchisor has offered you the opportunity. So the evaluation that you’re going through it’s a mutual evaluation and ultimately they say hey

Buck: Swipe left swipe.

Kim: Right we think you’re qualified we want you but do you want us and at that point then it’s your business to say yes or no.

Buck: Okay so I am listening to this podcast and I’m like oh gosh you know has been telling me that my W2 stuff even though I’m making a lot of money then I need to consider having some business ownership possibility this franchising sounds really interesting this Kim Daly person sounds like she knows what she’s talking about. So what happens when I reach out to you and we’ll talk about how to reach out to you in a minute. The person who’s reaching out to you, tell us a little bit about the process that they go through with you, what that looks like, what you do in the whole process you know and then presumably to the point where you’re purchasing some kind of you know where somebody’s purchasing an asset.

Kim: Okay great I love that question. So the first thing I do in order to bring opportunities to someone is I have to get to know them personally, professionally and financially. Who are you and what are you looking for, what are your dreams, what are your goals, what are you going to use this business investment for? Once we’ve clearly identified or outlined those characteristics through a basic questionnaire and then about a one-hour consultation phone call then I get to work and I go to go do some research come back a few days later with what I believe are the top three to five options that have available territory where you would like your business to be and that match those characteristics that we’ve outlined together. So then I would make a high level introduction between you and the franchisors I called this my blind date right blind date round it’s like speed dating you’re gonna start talking to franchisors you’re gonna play the field and I’m gonna become your dating coach and I’m gonna teach you how to like keep your mind open and just go with the flow and have some fun there’s so many ways to make money I think that’s like the most fascinating part of my business is we get trained on new concepts all the time and it’s like what are they going to think of next you know. If there’s a business for it there’s a franchise of it and there’s just so many ways to make money. So once you go through your blind date round and you kind of get your bearings and you have some thoughts and opinions about what I have found for you then we start working together to to pair this list down and then I’m going to really get into the back end coaching like how do you actually explore franchise so that you can be competent that you’ve asked the right questions, you’ve done all the right things so when you’re ready to say yes or no you can feel very confident in your final decision. And I work with candidates for about one to two months I’ve been doing this for about 18 years and I’m very consistent around that six week mark if this is the right thing for you don’t have to spend six months figuring it out, no offense but no franchisor wants to date you for six months. We want decision makers we want to you know get in there learn the information absorb it move on to the next chapter learn the information absorb it move on and then complete that process and then just say yes or no. And all of my service I should have started out with this but everything I do Buck everything I do for people it’s free.

Buck: Okay because you’re because you’re ultimately like a you know like a real estate agent then right?

Kim: I’m like an executive recruiter like for franchising.

Buck: Right so they they pay you.

Kim: The franchisor yeah so it’s free. People are like really you’re not going to hit me with a backend fee? Never. I’m going to offer you all kinds of coaching but on the flip side of that, what I tell people is when they get if they get argumentative with me I’ll be like, you’re not paying me any money and you don’t have to take any advice I’m ever going to give you right there’s no reason for me to mislead you but ultimately it’s your life it’s your decision so I’m just here to guide you if you want my guidance but at the end of the day people are making decisions on their own.

Buck: Yeah understood. Let’s talk about what goes into that. So you make the introduction but it doesn’t just end up with an introduction right you mean you you’re gonna do some due diligence together you’re going to say well how you looking at this these are the issues that you’re you know that you need to look at okay let’s let’s look at their uniform circular or whatever those things are called what are the things I need to look at I mean I presume all that’s part of the the the process from the consulting side absolutely yep and it used to be called a uniform franchise offering circular excuse me and then it got changed to the franchise disclosure document. So you have looked at franchising before.

Buck: I told you you know I have I mean I have entrepreneurial ADD and so I’ve looked at anything and part of what makes me pretty good at what I do on the investing side is my you know my my desire to constantly be looking at things so yeah I have looked at very briefly I mean I’ve never really learned enough I’ve learned enough to be dangerous where I could you know I may have gone to directly to a franchise and said yeah I wonder what it would be like to own a bunch of subways and then they sent me a big you know packet which was called the uniform circular at one point and I was like yeah I’m not gonna go look through this I’m not gonna.

Kim: No I save people time I mean ultimately yes if you’re going to sign a franchise agreement I think you do need to have familiarize yourself with all parts of that franchise disclosure document but that’s where I come in so I’m going to help you go you know I tell people look in the beginning when you’re dating multiple franchisors you want to know what’s in it for you and what’s in it for you is the money so we’re just going to pull the money out of that FDD first and we’re going to play with the money of the investment and the ROI because if that doesn’t make sense you’re not going to want to go any further why do you need to know how you’re going to sell your business which is part of the FDD if the numbers don’t make sense for you right to even want to invest in it. So that’s what I do I help save people time and focus them on what’s important, I’m going to teach you when it’s time to go interview those franchise owners what are the questions what should I be asking we talk about the psychology of interviewing business owners because it’s really important that as you’re meeting people who own a business that you don’t create a limiting belief for yourself about what’s possible based on the people that you’re meeting in the franchise right. I want to teach you again how to figure out how to drive that gas pedal to your own level of performance. It’s something Buck that I did in my business here at Franchoice, I was an average performing inconsistent performing consultant for many years for the first eight years and then I decided to get serious in my business and really maximize what I could control and one year later I had built the largest franchise consulting business ever that had ever been built and so then I didn’t want to be a one-hit wonder so then I really had to examine my numbers and figure out the science of what I was really doing to drive that result and then once I did that and repeated it for a couple of years a couple of other very smart consultants came to me and were like hey let me do what you do I gave them my science and now one of them goes on and doubles what I do right and now I also share this science

Buck: So this is your, you came up with this franchise? This is your franchise?

Kim: No I just jacked the level of performance in my business

Buck: So you’re like a super Mcdonald’s

Kim: Yeah like let’s say that let’s say that you’re validating a business and the average owner you’re talking about is I’ll use basic numbers just pulling out a hundred thousand. I don’t want my candidates to feel like that’s a limitation like I can only make a hundred thousand there should be no limit, I mean if you have a if you in some businesses there is an actual cap to how big one location can get and then that’s why you’d have to build you know two and three and four and five locations, but that’s what I’m explaining that just because the average person in a franchise is performing to a certain level that’s not all that’s possible, there’s always going to be one person who can break free from the pack and produce twice as much or three times as much as everybody else and when you’re validating a franchise I want my candidates to go to those people who’ve broken free from the pack the top 10 of the performers to find out what are they doing to drive that type of result rather than kind of settling for well okay the average performing person is doing this and so that’s kind of the number I have in my head I just think that that’s a that can be a very limiting belief to begin your business with.

Buck: Understood. Well good. What am I missing? Am I missing anything? Is there anything that you think that we ought to know about this process that we haven’t already talked to? I mean obviously there’s a lot to it but as an introduction.

Kim: Yeah you know one thing we haven’t talked about are the tax advantages that some franchise businesses can create. So you mentioned we talked about the investor mindset and coming in more as a semi-absentee investor and I have some people that have significant cash flow from a w-2 job and they’re looking for tax savings or tax shelters with the business not even necessarily cash flow in the first few years it’s more to create that tax shelter and I also have businesses that fit those investors as well so you can look at franchising as replacing your w-2 job like you’ve been unemployed or you’ve been downsized or right-sized whatever and you’re looking to reinvent yourself right you’re 52-54 and you’re like listen if I go back I may get laid off in two or three more years so maybe it’s better for me to consider just reinventing myself for myself at this stage there’s that guy who wants to dive in full term and full time and maybe over time become a semi-absentee owner but then there’s the investors such as you mentioned like you know physicians or people that have thriving businesses that are making a lot of money but those to make that money it requires their time and attention like my business requires my time and attention so I have other passive investments that don’t require Kim I’m passionate about what I do and I want to be here but you know there’s some point in my life where no offense to my people but I don’t always want to have to be tied to my desk in order to you know have income coming in so we all have to consider ways to build that revenue that doesn’t require us to wake up and exchange our time for money right. And then so there’s that investor mindset and a lot of those those investor mindset businesses also as I mentioned can come with some pretty good tax advantages for those people who again are trying to offset big income they’re making in their w-2 job or other investments.

Buck: Yeah I mean you know specifically I think you know we talk a lot about tax efficiency in this this program you know a lot of people are going to be interested in I think a couple of things one is you know the potential depreciation and elements of that but also to look at these opportunities as potential passive assets and start building those buckets of passive income up that we can do a lot more with so very interesting stuff. Kim how do we get a hold of you?

Kim: Okay so my website is thedalycoach.com and that’s my last name d-a-l-y the daily coach. I love to give people a little daily dose of Kim Daly on my website. I have videos I have testimonials I mean I cover all kinds of business coaching subjects in my video library I have testimonials where I’ve gone into the storefronts of people that I’ve helped change their life and some of the work I’m the most proud of, I love all of my people to death so I ask everybody even those people who didn’t buy a franchise but they learned something through my process write me a testimonial. So you’ll see hundreds of testimonials and all kinds of you know resources books and other things that you may want to check out and also the contact me form so if you are interested in starting your journey how do you know you’re curious you want to learn more about franchising absolutely I’ll follow right back up with you and we can begin the conversation.

Buck: Fantastic again that’s thedalycoach.com and Kim thank you so much this has been a fantastic interview. I think we’ve got a lot of information here and hopefully some of you are going to go down this road. I may take Kim up on this and go down through the process myself by the way so I’m totally curious and you know me I’m gonna you know I’ve got my fingers in a lot of different things. So anyway Kim thanks again. Wonderful to have you on the show.

Kim: It’s an honor to be here. Thank you so much.

Buck: We’ll be right back