718: Does it Make Sense to Buy a Franchise as a Side Hustle?

23:24So your self-directed 401k plan then can buy shares of Nick's C Corporation stock. So you just take that money and put it into Nick's C Corporation checking account. You write yourself out a stock certificate. I actually had little stock certificates I had to write this stuff out on. And that's how you fund it there. No penalties whatsoever. It's a pretty simple process. At some point in time, you probably want to change that over like I did from a C Corporation to an LLC. Now, there's many different ways, and I'm not an expert in taxes and things like that. So your CPA would be a better person to talk to about that and when to do it.

23:59So my CPA told me at one point in time, he said, okay, you've run the gamut of your C corporation. It's now time to switch over to an LLC tax. And since I'm doing it myself, taxes and S corporation. So again, CPAs, I'm not giving advice. No tax advice here. Sure. Like C corp is taxed at the corporate level. And then all the earnings that you take out are also taxed at the personal level. So it's like the argument against it for solo operators has always been, well, avoid the double taxation and just go with the LLC, S Corp, something like that. That's correct, Nick. That's what I was doing. But this is a creative way to finance the startup costs.

24:33Correct. I didn't need a whole lot. So it wasn't too bad for me. But what ended up happening is that now your stock went up in price. So now you just buy your stocks back. So then when you buy your stocks back and go out of that, you don't get taxed on that because you're just buying the stocks back. So that's not a taxable event. So now I had a whole lot more in my 401k than what I started with. Okay. Let's walk through an example here and maybe we can use the$50 ,000 startup costs in terms of raw numbers and maybe we borrowed$40 ,000 of that. I don't know. That's probably going to mess up our math.

25:12But let's pick one or pick a recent example from a client of yours and let's talk through some of the numbers and the break-even points and the debt servicing and all of this stuff that people are going to be curious about. Okay. So let's say you just start off with an SBA type loan. And let's say you start off with about$200 ,000. So you put$20 ,000 down. You get an SBA loan,$200 ,000. And that's the total buy-in. But do you think is it necessary? Are the startup costs really that high? It depends on which one you want to take a look at. Now, if we're looking at something like the one that I got started in, which was a School of Mitchell telecommunications consulting franchise, $50 ,000 franchise fee.

25:49And then after that, it was just marketing and advertising. So no, there's not. a lot on that. And the margins were great. Because it's just labor, yeah. Just labor, yeah. Basically, it's just labor on that. So I would share in the cost savings I did with my people on there. So I got 50 % of that. So if I was saving them, you know,$1 ,000 a month, I got$500 a month. So now that's$500 a month. And all I had to do was mostly just labor and then probably spent, you know,$25 ,000,$30 ,000 on advertising and marketing. Okay. That's so the rest was mine. So that one's pretty easy. If you go into something like the plumbing or electrical, then you've got a few other things that you need to purchase.

26:30But if we want to take a look at something that's mostly you work from home and you go out and do it, you go out and meet with your clients and customers, like a cost savings type franchise, where there's no overhead, then yep. Yeah. Or even like a tutoring type of thing where it's like, I don't even need a specialized van or any, I don't know how many equipment it's just like, Like, you know, I'm going to go hire tutors who know what they're doing and I'll be the administrator. Correct. So now all you, your only expense there is your tutor. And the only time you need a tutor is when you have clients and customers.

26:59So you get the customer first, you find the tutors, you match them up. So you got, you probably, you know, interviewed a few tutors just to see who's going to be the best one. The franchise tells you how to do it, where to find them. So now you've got a client. They give you$1 ,000 a month. You pay the tutor$500 a month. And now you've got$500 back. per month from that. And with that, you don't necessarily need an office because you're sending the tutors over to the students, whether they meet them at school, a library, however you want to work that out. We look at just the service industry. Then no, there's not a whole lot of overhead on that.

27:34And the only time you need people that you have to spend extra money on, like I said, when you get that tutor is when you already have the client and they already start paying you. Would that be a common labor margin to look for? Is like, I'm going to double my labor cost is what I'm charging the customer to have the margin to pay the franchise royalty, to pay for my marketing and overhead, to pay for my debt service? Is that kind of typical? It is. Thereabouts, just depending on which franchise that you're getting into on those. But if I run an example, let's say SeniorCare, for instance, where you're running it out of a small office, we can use some good numbers on that one.

28:08So that one's a good one to get into. If we look at SeniorCare, so you've got a small office, a couple of employees, and then you have seniors and you have, let's see you build that up after a couple of years to about 50 seniors. Once you get up to about 50 seniors, you're going to be bringing in a million dollars top end. And you're going to be dropping about$200 ,000 to the bottom line after everything's all said and done. So I want to know because I put many people into the senior care business and that's pretty typical. This is like a facility, like a elder home facility? Nope. You send caregivers out.

28:41Sorry, I didn't make that clear. So you have a small office and you're going to keep mom and dad at home a little while longer so they don't have to go to an assisted living facility. Oh, okay. Okay. So you send caregivers into their home. So that's a good one for 20 % margins on that. If you have a manager, you probably pay them maybe$50 ,000 a year if you want to do that, which is a good price, a good salary. And then you're dropping still$150 ,000 to the bottom line on the senior care business with 50 seniors. They're doing that. So that's a good one. a good semi-absentee one to get into, and a good service industry.

29:15And your total investment on that's probably going to be right around$150 ,000, maybe$200 ,000. And you're getting the office together, training the people, a couple of people, because you're going to have somebody helping you out with staffing and doing interviews for caregivers. So that's going to be what your total cost that you're looking at for that one is. Yeah. I mean, I could see this being a completely remote operation too without having an office space. You could actually do that. The only time, the only reason that you really need the office space is because you have those caregivers and you might want to meet with them on a regular basis.

29:47But otherwise, there are some that you can, your manager, again, we're on the side hustle show, so we're just talking side hustles now full-time. So your manager's doing it. So your manager can do it from home, can do it remotely. Every once in a while, you're going to want to meet with people. So maybe you get a Regis office and rent it out once a month so everybody can get together and meet. But yes, you can do that remotely. It's semi-absentee. Okay. So I see even if you're going the full office route here, like you said, 150, 200K startup costs. And once you have this thing up and running, you're netting 150 ,000 a year, have a manager that's doing it and like kind of just managing the manager.

30:27And yeah, you see 150 grand flowing back to the bottom line and it's a mobile service where you had me scared. I'm like, I got to have a senior home with 50 people and like, oh my gosh, the medical overhead and regulations around this. Like, oh, this is going to be a really complicated build out. But here's an alternative path to that. That would be a lot. We do have senior homes. There are a lot more. There are a lot more involved. Well, it reminds me of care.com, which is kind of a matchmaking type of service or platform for caregivers, for babysitters, for pet sitters. And I think they probably even have tutoring too.

31:01But it's just kind of, you know, upload your stuff to the site. And it's kind of like a matchmaker service where they got to play the demand side and the supply side, which in this case, you kind of do two just on a smaller scale and try and build up the local, you know, brand recognition for your own little slice of the franchise. That's true. And what you're doing there and why you're local is that you're building up your name. So even with the senior care industry, there's so many different senior cares out there. But the people that are putting mom and dad in your care, I don't know that they're as much concerned about the senior care name brand itself.

31:37They are more concerned about how they feel about Nick, not about the brand. Yeah, who's the person who's actually coming to go see grandma? So they want to believe in Nick, not necessarily the senior helping franchise. Yeah, there's actually some just down like half a block away. I always see him out helping, you know, walk this lady, you know, getting her exercise. It's like, oh, I wonder if he's through one of these franchises. Could very well be. That's true. She should have had a shirt on. If you have to guess it, that's something to remind them is that you need to advertise. So wear the shirt when you're out walking.

32:10More with Greg in just a moment, including what separates the people who successfully operate a franchise versus those who don't, and how we can build both near-term cash flow and long-term equity using this model, where somebody else came up with the idea, you just had to execute on it. That's coming up right after this. 2026 is going to be your year. I can feel it. With our partner Shopify, 2026 is when you finally make it happen. Time to go from ideas and inspiration to action and results. Shopify gives you everything you need to sell online and in person. In fact, millions of entrepreneurs have already made the leap from household names to dozens of side hustle show guests.

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33:23Go to shopify.com slash side hustle. That's shopify.com slash side hustle. And here you're first, this new year with Shopify by your side. If one of your new year's resolutions is to spend less time working in your business and more time working on it, it's time to get out of the weeds and bring on some help. For that, millions of businesses trust our partner Indeed. Don't struggle to get your job post seen on other job sites. Indeed's sponsored jobs help you stand out and hire fast. Plus, you get an average of 45 % more applications than non-sponsored jobs. With Indeed, there are no monthly subscriptions, no long-term contracts, and you only pay for results.

34:04That's why for my next hire, I'm using Indeed. There's no need to wait any longer. Speed up your hiring right now with Indeed. Side Hustle Show listeners get a$75 sponsored job credit to get your jobs more visibility at indeed.com slash side hustle show. Just go to indeed.com slash side hustle show right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash side hustle show. Terms and conditions apply. Hiring Indeed is all you need. So this is it's a different way to look like everything I've done has been like self-funded and have never taken on debt but we talked we did a vending machine episode last year and we kind of joked i was like oh you know zero to a hundred grand in vending machine revenue it's like you could also call it zero to five hundred thousand dollars in machine debt or something it's kind of like yeah it's a lot of equipment financing in that case but similar here it was like well i'm going to you know the the revenue from the machines that the snacks and drinks, the stuff that they're generating pays for all of that debt service and then some.

35:11And so it sounds similar here where that's the name of the game is to build it to the point where the revenue that the business is generating pays down the loan. And then after a couple of years, you're in the clear. And that's not something we want you to guess at. That's something we want you to calculate before you get into that franchise. We want that calculated out by going through the process of due diligence with the franchisors and then following up with the franchisees. So you've got a good feel for this is how much I'm going to spend now on everything. The franchise has the cost broken down in item number seven of the franchise disclosure documents under total investment.

35:46So we want that pro forma on there. And then we want to know from the franchisors, okay, what is the standard buildup? How many clients am I going to get this month, next month, this year, next year? And then when do I, and then here's my debt service. Here's all my expenses. When am I breaking even? The franchisor is going to go over a lot of that with you. you're going to follow up with the franchisees at least 10, if not more, until you start hearing that same thing over and over again on there and you get a good feel and you can fill out that performance. So now you're not wondering, you're not guessing, okay, it should be, not should, it's been done before.

36:19This is how they did it. This is where I'm going to hit break even. This is where I'm going to hit profit. You want to know that before you sign anything or make any investments. Do you find from your clients that those estimates tend to be fairly accurate? Yes, they do. Quite accurate. And some of my franchises, my clients who got into franchises actually got and beat that. I had one lady that went into, yeah, she went into a, what did she go? Oh, Mr. Sparky. She went into a Mr. Sparky, which is Authorities Brands Electrical Services franchise. She made Rookie of the Year. So she knocked it out of the park and she was a real estate investor with her husband on that.

36:52And she actually beat that estimate. That was a little bit more of an investment because there's a little bit more work there. And moreover, So it was probably a little over 200 ,000. Can I pause on that and say, well, from the people who are having outsized success relative to the averages, what are they doing differently? They are hiring the right people. So you have to look for the right manager right away. So with the electrical services one, that one's going to be a challenge. So you have to work closely with the franchisor because you need a master electrician for that one. So what they're doing is they're staying on top of their master electricians.

37:22So now you're running a semi-absentee because your master electrician is basically the one that's doing all the work. You can't do anything electrical in there, in any house at all. Yeah. And do you find that this is a person who is kind of a solo journeyman person and they suck at the marketing side and they just look, if you find me business, I will fulfill that business, but they don't want to be like the business owner. It's a weird, maybe a different mindset. It is. That's exactly what you're looking for and what they help you find, whether it's electricians, whether it's a handyman service those people that do that work they're great at doing that work one thing they're not great at is going out and building up that business yeah so the reason they would go with you is that because you know that business and you know how to build a business and you know how to work with people on that they're going to let you do that you just think just like you said nick do you send me the business i'll get it done i don't want to deal with that part of it you do it i'm good i'm your master electrician i'm your master handy person i'm your master plumber and I still see this franchise game as entrepreneurship but maybe entrepreneurship with with training wheels with some guidance here because it's like you follow somebody else's playbook follow somebody else's recipe so again not having to start completely from scratch and yes it comes at a cost but we're doing your due diligence up front kind of mapping out that projected pro forma like here's what we expect to happen you mentioned not not I mentioned hiring the right manager was kind of a way to level up and perform better.

38:56Not everybody thinks like an entrepreneur. I mean, if you're an entrepreneur and you want to get out there and be an entrepreneur and do it, you're one in 100. So there's 99 other people out there who are going to say, no, I'm going to work for you because that's what I enjoy doing. That's what makes me feel good. That's what I'm comfortable with. Perfect. If you're an entrepreneur, there are not too many of you out there. One in 100 people, definitely, you're in the top 1 % club. But any other mistakes that you see people like, failure rates, well documented, much lower than like just a regular independent startup, but still not zero.

39:33So like, what do you see where these things go south? So this is transparency in franchising. The great thing about franchising is you have a lot of transparency in the franchise disclosure documents. So you can go look in there under item number 20, which shows a number of franchisees who started the business and are still running it and a number of the franchisees who started it and are no longer running it. We want to see 85 % or 90 % success rate or better. Pretty easy math to get that done. There's people that are going to leave this system. But that says a couple different things if there's a lot of turnover there.

40:02A lot of it, what it says is that the franchisor is not picking out the right franchisees. So he or she doesn't have a good selection process. But you're asking specifically about some of the bad things that happen with people that get into franchising. When you're doing your due diligence, don't look at things that are maybe in style, in fashion right now. We had a big run on yogurt shops a few years back. That was the exact example I was going to say. There you go. So everybody thought their yogurt shop was the greatest thing in the world. So they're putting out yogurt shops and people were buying them left and right.

40:36Not a lot of them made it. that went up and that went down pretty darn quick on there. So that was in fashion. So what you got to look at is what that business model is all about. What has it done in the past? Where is it at now? And where do you see that going in the future? So you have to make certain that's the sort of thing that people are going to be doing for quite some time. So don't get clouded by what's in fashion at the time. If you're first time into franchising, your first time in entrepreneurship, maybe, you probably want to look at those franchises that I mentioned earlier that have 100 or more franchisees where they've done it and they've proven it out.

41:08Because the ones that you're going to have a challenge with is the emerging ones that maybe haven't gotten their systems quite down yet. Now, if you got into Orange Theory when it was emerging, you're golden. Yeah, it's hard to know. Is it going to be a trend, spike and a dip, or is it like, you know, we're going to ride this hockey stick all the way to the moon? That's a challenge when you're first starting out. A lot of those emerging franchises are good, so I don't want to disparage those. A lot of people like getting into something that's emerging because then they can be part of the brand as it's building up and they can have some more say in how the brand goes, where it goes from there.

41:38If that's what you like doing, then that's something you want to take a look at. But there's going to be a little bit more risk in something like that. Like you said, it's not going to shoot to the moon. But you really need to take a look at that business model and where they're going to get their money from today, tomorrow, and into the future. one thing that we haven't touched on is the idea sure we're building near-term cash flow i think that's a great goal for any business but we're also building equity we're building asset value in a business because it's typically going to sell for you know three times annual earnings or whatever it is depending on the industry so it's kind of yes if the goal is to replace the day job that's a really great short-term goal but like long-term like now that it becomes this potentially, you know, generational wealth building type of asset?

42:27You're seeing clients go that route too, and exiting or flipping into something bigger or, you know, taking that and putting it towards their nest egg and retiring. A couple different routes they take on that, Nick. There's quite a few of them that, you know, they say, you know, their kids are getting a little bit older, high school, college, and they say, you know, we're looking at this together as a family so that I want to build it up. And then once the kids get out, then they have the opportunity to say, yes, I want to be part of that franchise and maybe grow out some more territories, diversify into other franchises.

42:55I have people do that. I've also had people that have built up their franchises after three years and come back to me and said, okay, I've done this one. Let's get this one sold and let's get me into another one. I'm ready for my next adventure. The latest one that I had was a gentleman who got into a senior care franchise, love senior care. And after two years, three years, two years, he said, I'm bored. This thing runs like clockwork. I need something else to do. Let's go find me something else. And that's what that's all about is you've got something at the end of the day to sell if you want to.

43:25Now, people come to me and say, I want a resale franchise. Find me one that's already in business and I want to buy it. Real challenge for me on that one, because when you go to sell your franchise, first thing you do is you tell your franchisor, I want to sell this. Good. You're doing great. Three times net plus any equipment. First thing the franchisor is going to do is going to go to the other franchisees in the area that are close by and say, hey, Nick is selling this franchise. One of you folks want to pick it up because they want somebody that's already proven in their system to have first choice to pick it up.

43:56Most of the time, that's what happens is that one of the other franchisees pick it up. So I don't get a whole lot of good resales unless there's no other franchisee in the area, but occasionally I'll get some, but not too often because other franchisees will pick up. So it's a good resale of value on franchises. And I got a lot of people that are looking for them. That's interesting. So you get a proven business. And so now the neighboring, the guy in the town over has the opportunity to come in and buy it, but not at the initial franchise fee cost. Now, now you're going to pay it as if it was just a full-blown business resale.

44:26That's correct. So now you're picking it up for three times net plus any equipment. So you've got the cash flow, got a proven business, but you're going to pay for it. Yeah. I can imagine, you know, it could be hard to part with if you're down to that 10 hours a week of management time and it's spinning off good cash flow. That's kind of the passive income dream in a lot of ways. It sounds like it's feasible given the right team members and the right business. It's a valuable asset to have when you've got it all built up. It's like an annuity. Now you've got all the time in the world to go do whatever you want to do.

45:00You can do what you want, when you want, and you've got the money to do it. You're speaking our language, Greg. The book is Real Freedom, Why Franchises Are Worth Considering and How They Can Be Used for building wealth. The website is franchisemaven.com. You can check Greg out over there. What's next for you? What's got you excited this year? This year, you know, I've got to try something a little bit different this year, is that sometimes people come to me and they say, you know, I've got a franchise that I'm looking at that I don't work with, but they want my help evaluating it. So I'm not too sure if there's a market out there for it, if people will actually pay for it, but I have put together a little mastermind program, where if people want to do that, they don't necessarily want me to help them find a franchise, but they want to get with other people and just talk through franchises and want me to teach them how to investigate a franchise.

45:48We'll have to see what comes of that. Most people just want me to help them find a franchise. That's where I do most of myself. And if you have a business out there and you want to turn it into a franchise, I've turned a few businesses into franchises as well. So that's good. But that's where I'm at, just helping people, turning people into entrepreneurs through franchising. All right. Coming soon, the Side Hustle Show franchise. Spin it off in whatever niche. I don't know. Kind of a national market already. So we'll see. But again, franchisemaven.com. Greg, really appreciate you jumping on and kind of sharing the ins and outs of how this stuff works as a potential side hustle angle for you.

46:25It's one that we haven't really covered a whole lot of. So appreciate you joining me for that. Let's wrap this thing up with your number one tip for Side Hustle Nation. There's probably a franchise out there for everybody, but everybody is not for franchising. I'll introduce four people to a franchise. Three of them will say no. We'll agree on it together. So I'm not here to pressure you into it. Just a good option to look into. Very good. We will link up all the resources mentioned in the show notes for this episode. And as a listener bonus, I also put together a list of 50 franchises, along with some estimated startup costs and income potential as a place to get your creative juices flowing a little bit, see what kind of options are out there, and try to target those on the more inexpensive side of the spectrum.

47:10But again, just see what's out there beyond what we covered in today's call. You can download that for free at the show notes for this episode, sidehustlenation.com slash franchise, or just hit the link in the episode description, and it'll get you right over there. If you're already a subscriber, just check your inbox. should be in this week's newsletter. Big thanks to Greg for sharing his insight. Big thanks to our sponsors for helping make this content free for everyone. Sidehustlenation.com slash deals is where to go to find all the latest offers from those sponsors in one place. Thank you for supporting the advertisers that support the show.

47:42That is it for me. Thank you so much for tuning in. If you're finding value in the show, the greatest compliment is to share with a friend. Fire off that text message. Let them know, hey, I think you should check this out. Until next time, let's go out there and make something happen. And I'll catch you in the next edition of the Side Hustle Show. Hustle on.