September 1, 2022

Why Franchises Might Be The Way to Your First Million

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Why Franchises Might Be The Way to Your First Million

Unconventional Acquisitions

September 1, 2022

I know your idea of a franchise reminds you of a crusty old pretzel that you picked up at the mall or a not-so-sexy business where you’re constantly wondering if and when corporate is going to get involved.

Hell, I’ll say it. Franchises are boring.

But here’s the thing…while you may not be living your best life as an industry disruptor, you could actually be living out your path to financial freedom as a money-makin’ machine. 

According to Statista, there were just shy of 754 THOUSAND franchise establishments in 2020. Not a mom-and-pop shop trying to make it in a shark’s world. We’re talking the same business model turned over dozens and dozens of times.

And if you get really good at running your favorite flavor of franchise? Well…that could be the secret to your investing empire (and leaving the rest up to the big dogs in corporate).

I know it may not seem like the most conventional method of business buying, but that’s also kind of why we love it here at Unconventional Acquisitions.

Here’s why franchises might be a great M&A strategy for you:

1. More Boomers Who are Franchise Owners = More Likely to Sell Their Biz.

Ah, yes. The Boomers.

We talk about them a lot over here on the blog because they’re an easy way to find a business to buy through M&A

Just like buying any business, a boomer-owned business is a smart way to find your first or next boring business to buy because the owner is approaching the age of retirement.

Whether they’re ready to be tired and retired, or just looking to simplify their life and spend more time with family, this is by far the most likely population to source a boring biz from. 

Same goes for finding a potential franchise to buy from. 

2. You Can Focus on What You’re Good at and Leave the Rest to Corporate.

While you won’t feel like you’re flying high like a typical founder, think about how many months (years?!) you’ll save waiting to see if your small business will ever escape the start-up stage. 

When you invest in a franchise (or pick up a couple of franchises on the side), you’re also able to offload all of the stuff you HATE doing, so you can stay in your zone of genius. This is maybe the best part about buying a franchise depending on the importance of brand identity.

Here’s some of what you can expect to take off of your plate when you’re operating a franchise:

  • Marketing materials (i.e. mailers, websites)
  • Branding & graphic design work
  • SOPs & other best practices 
  • Tech, software, & systems 
  • Managers, employees, and other staff members

Something to think about with franchises though is that their multiples tend to be higher during the valuation process. 

That means their market value tends to be higher, usually because of brand association, so you’re also less likely to see the benefits *ahem* efficiencies that typically happen when two companies are merged together.

It’s not a bad thing, but you should know that you’re most likely not going to strike it rich from buying a franchise, even if it is in a boring industry. 

However, if you’re reading this and you’re already involved in a franchise and don’t want to start off in a brand new industry, this may be an option on the table that you haven’t considered previously. 

3.  You’ve Got Instant Access to a Closed Network and Aaaaaall The Data. 

Another reason we love franchises as a small business acquisition strategy is really just about a numbers game. One thing you might have thought of…is that franchises work off of one big database.

If you want to nerd out and look over a specific franchise location’s customer traffic, sales numbers, performance metrics, etc. they’re all at your fingertips.

Not only that, but you can also get the inside scoop on even more important info (like if an owner is nearing retirement). You could even find out if someone is possibly interested in selling their franchise without alerting their employees with a public sale.

You can also think of the backend of a franchise as a closed network—everyone knows everyone. And the more you’re known as someone interested in buying, the easier it will be for you to scoop up these deals. 

Some franchises may also have special resources and support for owners who are looking to sell, which is another perk of working a deal like this. 

A word of warning here though: buying a franchise also means you’ll get a reputation. Typically that’s a good thing, however even franchises have differences based on location and ownership.

If you’re getting involved with franchises and buying one that’s already up and running, the national brand is only half the battle. Make sure to check reviews for your local franchise location. Not all management is created equal.

Last piece of advice on this topic. When the brand is important, you will be held to the brand. Most entrepreneurs are not great at being told what to do. Hell, we aren’t either. That can create issues when you want control over your new business. You may need to play “Corporate Says”. 

4. Higher Likelihood of Seller Financing the Deal Versus Getting a Bank Loan. 

This one’s just plain common sense. When you’re looking into buying a small business—any small business—one of the biggest hurdles you’ll face is securing the financing. Franchises are no different.

Except…they have a bit of a loophole.

Of course, if you’re interested in going the bank or SBA loan route, then you’ll need to show proof that the business is established, healthy, and profitable. Franchises are great for this because they also show that the brand itself is already established. 

Lenders also love franchises because they also know that there are certain internal measures (think elevated marketing and industry knowledge sharing) that also set up a franchise owner for success.

But the real reason we love franchises? Seller financing

When you get into seller financing, you’re essentially paying back the previous owner for the business purchase using the revenue from the business. There’s no need to put your house up for collateral or secure a huge wad of cash to use as a down payment.

Instead, you’ll work with the previous owner on your loan terms with no need to get a bank involved. Typically you’ll still put up some form of a down payment, although it’s significantly less than what you’d expect from a bank or SBA loan. 

You’ll also get to choose your loan terms. The most common ways to go about this are…

  • Set amounts every month—you’ll work with the previous owner to decide how much money you’ll pay them back each month, and for how long
  • Amounts based on the business performance—you’ll determine a specific percentage of the month’s profit that you’ll send to the previous owner. Usually less common, but still an option. 

We love this approach to funding a deal because you also have a lot more negotiating power and control of the finances.

Instead of being at the mercy of high-interest rates that feel ambiguous and totally out of control, you’ll be able to agree on an option with the owner that makes sense for you, the business, and the previous owner. 

Even if you’re reading this and thinking “eh, franchises aren’t for me,” we can pretty much guarantee that seller financing is. It’s one of the smartest ways to buy a boring business without using up your cash reserve or signing your life away as collateral damage. 

Still feeling a little in the dark about what kind of small business you should buy? We’ll walk you through the pros + cons of each business model (plus share the exact step-by-step process to acquiring a business in our online course for small business buyers). . 

…or if you’re really serious about getting started and want our exact playbooks, plus somewhere to ask all of your questions to the experts (that’s us!) in a weekly call, our mastermind is for you. 

Yours Unconventionally,

Codie & Ryan

Co-founders – Unconventional Acquisitions

If you want to learn more about how to find and buy businesses, check out these articles👇

How to Buy a Small Business

You can also register for the course here OR if you are serious about buying a small business, join our mastermind.

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