Episode Transcript
[00:00:00] Speaker A: In this episode, we take you from soup to nuts through the process of buying a business franchise so you can decide if it might be in your future. Let's get started. Let's get some money from New Money, New Problems. It's the New Money New Problems podcast. A show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation, purchasing your first investment property. Helping your family with money. The highs and lows of, ah, entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison and this is the New Money New Problems podcast.
Hello, this is Brinson Harrison of New Money, New Problems and your host of the New Money New Problems podcast. Hope that you all have had a good week. Before we hop into this week's episode, I wanted to give you a couple of announcements for live or, uh, upcoming events that you can attend. Attend. Starting next Friday, February 28th, we are going to be joining our friend Brittany Cole for her Advancing Black Professionals Network live event at the Hilton Garden Inn West End in Nashville. So this is a live event in person. If you're in town or in the area and want to attend, we'll put the link to register for that event in the show notes. Then the following week, uh, we are going to do a joint webinar with our friend Jennifer Williams, estate planning attorney over at Cedar Council called Is your house in order? We're going to be going through the elements of an estate plan, how to establish one, why so important? And then how to make sure that you're coordinating between your estate planning attorney, your financial advisor, your CPA to make sure that once the documents are completed that you take the following steps necessary to ensure that that plan is actually carried out in the way that you want it to upon your death, your incapacity. So that will be a really good one for you. Put the link to both in the show notes. I will also tell you in the month of March, we have a bunch of events coming up where we'll either be doing keynote presentations that you'd be able to attend virtually or in person. So if you have not already signed up for our email at new money new problems.com subscribe, we'll make sure you have all that information. And now onto this week's episode. This week, I know last week, uh, I said we were going to be having our interview with Lane Rhodes of Live Oak Bank Rash push that out a week because before we talk about the financing of a business Opportunity I thought it would be better to talk about like finding the business you want to purchase or buy into beforehand. So we're going to interview Leslie Cuban. Leslie is the owner of a Friend Net franchise. Friend Net is a, ah, franchise brokerage. Leslie's going to talk about more what that means, but a really good wealth of resources and education that I think that you all will enjoy and appreciate. So after I stop talking, the next voice that you hear will be Leslie Cuban of Friend. Hope you enjoy it.
[00:02:50] Speaker B: Well Brenton, thank you for having me. I'm delighted to be here.
[00:02:54] Speaker A: Well, uh, we're appreciative. And before we even get into like the meat and potatoes, if you could, I didn't want to give your description. If you could give us the 32nd, 62nd. Here's who I am, here's what I own and what I do. Uh, so our audience will be aware.
[00:03:13] Speaker B: I'd be happy to. Thank you. Um, well, uh, the gist of my career has been in what you would call franchise brokerage or franchise consulting. And my firm assists people who usually are first time entrepreneurs. They've had a corporate career for 10, 15, 20 plus years and that typically has been good. But at some point in people's careers they're looking for a change. They're looking to spread their wings and do something new and different and something perhaps in the world of entrepreneurship. But because most folks haven't done this before, they may seek ways of getting into their own business that involve something that is already has a level of establishment to it, like a strong franchise offering that has systems and processes, um, branding, marketing, lead generation already in place. So uh, for that person who's seeking to learn about that world of franchising, that's what we help them explore. First and foremost, we assist that person or that family to assess if they're really ready to go into their own business at this point in time or not. And if so, uh, what would the best franchise opportunities and what industries, what brands in particular that would best align with their particular needs, goals, interests, priorities, talents, income, uh, goals, uh, wealth creation goals. So that's a long way of saying that we're matchmakers, Brenton. We help people figure out what type of franchise, what industry, what brand will be best matched to what they're looking to accomplish for themselves.
[00:04:48] Speaker A: That's a great summary and description. And in our industry I, uh, often even to the point of annoying people will break down some of those terms and say, even if you're aware, if you are, you know, forgive me, but Just in case you are not, there are two terms in what you said that I want to take a little more time to unpack. The first is the term broker. So in the context of how you work with a client, could you explain broker?
[00:05:17] Speaker B: I'm glad you're asking this because I use the word broker because it's how. It's a term that the industry commonly uses for my type of business, but it is different than what a business broker does. So a business broker is someone is a business that their structure is that they are soliciting listings from existing business owners who are selling their business.
In my world, when you hear franchise broker or franchise consultant, and it really means the same thing it's referring to the same type of business is that we are working. Our paying clients are franchise companies. At any given time, we're working with several hundred franchise brands that are growing. They have successful franchise owners and they want more of them. So they're employing my company to serve as kind of a third party educator, third party qualifier to talk with, educate with those people who are potential candidates to own franchises. So that we are helping the match come together to the best interests of both sides. The franchise brands, the franchisors, they are, um, getting introduced to candidates that fit their, what they're looking for in terms of talents, financial qualifications, mutual goals.
And those people may not have ever become aware of those franchise brands if it weren't for us positioning those ideas as possibilities.
So, and then on the other side of the equation, we're helping that aspiring entrepreneur to learn about and get exposed to ideas they probably would not have come across on their own.
[00:07:01] Speaker A: The second term that I'd like you to unpack, uh, for fear that someone listening may not be familiar with the difference between, like a standalone business and an actual franchise. So could you explain what a franchise is as compared to somebody just opening up a standalone business?
[00:07:20] Speaker B: Breton, to answer that, I'll, uh, break. There's two terms that are important to be aware of if we're talking about franchises. One is franchisor and one is franchisee.
So the franchisor is the parent organization. It's McDonald's corporate or Subway corporate or Dunkin Donuts corporate, um, where they are the entity that is selling franchise licenses to entrepreneurs, aspiring entrepreneurs like you or me, who are interested in finding a business. And we're purchasing a license from the franchisor to, uh, utilize their branding, their systems, their vendors, to operate our own business under the, that umbrella of, of their brand. So, and that term is a franchisee so, like, I'm, I'm a franchisee of my business friend. I was a franchisee of Mailboxes Etc, which is now the UPS store. So, so that is those what those were. When you hear franchisor, we're referring to the parent organization, and franchisee is the hundreds or thousands of people who have acquired franchise licenses from that parent.
[00:08:32] Speaker A: So there is a parent company.
I feel like if you bring this up, people my age, they're gonna say Subway. Right? So there's, there's a parent organization, and if I want to open a Subway, I can do so, but I have to, in exchange for that license, adhere to certain standards in terms of branding. I can't just say that like we're a Subway, but we serve pasta now.
[00:08:56] Speaker B: Correct? Correct. Yes. And there's a whole, there's a whole channel of discovery and communication and qualification and approval that a prospective franchisee will go through, administered by the parent brand in order for the, for the deal to happen, so to speak. So, um, I mean, an independent, standalone business is just, I mean, that's someone who goes and starts their own gig. It has nothing to do with a franchise. They're taking their idea, they're creating their own brand, they're creating their own systems, they're creating their own processes from the ground up. So I would call that a startup entrepreneur. You could buy someone's existing business that is also a standalone business, that you're buying it from that prior owner who was the startup entrepreneur, starting the brand, building the customer base, creating all the systems from scratch themselves. So it's really, it's pretty simple. It's, you've acquired a franchise license and you're operating under brand standards. You have a franchise contract that you abide by. You're paying fees to the franchise, or if you're a franchisee, and in return for that, you're getting benefits on how to learn how to run, start and run a new business that you probably have no experience in.
[00:10:18] Speaker A: Well, you, you've definitely done this before because you, in your previous answer led me into my next question. You mentioned that you have been a franchisee, both with Friend. Net and then also with mailboxes, etc. And I would love if you could tell me how that even started.
[00:10:37] Speaker B: Sure, sure. Well, you know, I, um, I have my, my father to thank. Uh, franchising has actually been a part of my existence and since I was 8 years old. And it's kind of an interesting story. He, um, like many of our clients today, he was a corporate leader Climbing the ladder. He had a executive sales position with 3M. Um, he worked at a big company and he worked in a certain division that got merged into another division within the company. And that impacted his career path at the company in a way that he didn't like. So that's what triggered him to say, well, I don't want to do this again. I don't want to get caught up in this again. So how can I own my own business? And his research led him to franchising when I was 8 and my brother was 2 and our family never looked back. So I grew up in an environment of family business in franchising. And our family was involved in several brands that were really young at the time. Um, Mailboxes, etc was one of them. So when I graduated college, you know, I kind of looked around at my friends in classes before me. They, they all went. And, you know, it was at that time, and this is in the mid-90s, Anderson Consulting, um, which has had many names since, came onto our college campus with an army of recruiters looking to recruit young grads. And several of my friends in classes before me that had gone that route, they didn't like their lives very much. And I, and I looked at that and, and of course I had my dad in my ear, you know, do your own thing, Leslie. Do your own thing. So, um, it was when I graduated school, um, I did flounder around for a little bit. I didn't quite know what I wanted to do. But then an opportunity to take over, frankly, a struggling location of mailboxes, uh, came about and, um, I was ready to do something and that was an opportunity and so I did it, and I'm glad that I did. So that's how the ball of my franchising career kind of got started.
[00:12:47] Speaker A: In your matchmaking process with franchisors and franchisees, how does your typical client come to you?
[00:12:56] Speaker B: Great question. And I would say what I described about myself, I am not a typical client. So, uh, what I would say a more typical client looks like, you know, it's often someone who's kind of mid career. They have been in, um, a corporate career for 15, 20 years, something like that, they're starting to think about a change and they're starting to ask around. Having, um, been in business as long as I've been, most of my business comes to me now through referrals from past clients and also some, um, select speaking engagements. I am invited by entrepreneurship professors to come into a handful of business school executive mba, MBA programs to teach a franchising entrepreneurship module to their classes and students from those classes, at some point in the future, they may give me a call saying that they're finished with their schooling, they have more time now, and they're, you know, ready to explore putting their freshly, um, minted business degree to work in their own business. So most of my clients come to me through referrals and through a handful of those, um, education opportunities that I'm providing in the business schools. But it really starts when people are starting to think about, I want to do something different. And they start asking colleagues, you know, asking business owners that they know just kind of about their stories, or they may go online and start doing some Internet research. So that's typically how people find my company.
[00:14:31] Speaker A: Well, if you are a person who finds yourself in that situation right now, I know that you'll be tuned in after the break, but because we don't know what the future holds, if that's not where you are now, you should still listen because you never know what will happen five years from now. We'll be back right after this.
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Welcome back from the break. We are here with Leslie Cuban of fran. Net and she is walking us through the process of becoming a franchisee. Leslie, welcome back.
[00:16:08] Speaker B: Thank you.
[00:16:09] Speaker A: Now, we, before the break, talked about how someone comes to you, what phase of life they're in, uh, what phase of thought process. Once they have come to you, how does the process begin?
[00:16:23] Speaker B: So I would say, um, there's even kind of a pre process to my process that I'll speak to for a minute. I think when someone is starting to think about maybe I want to pivot into something new and different, something entrepreneurial. I think some of the first things for that person to start thinking about is to look at your skills through a new lens. Like really think about what am I good at? What do I enjoy doing? What in my current role or past roles has really energized me and really kind of try to look at it through the lens of how might that apply in a small business setting, you know, something different than what I'm doing now. And one does need to be open to relearning those skills, especially if they've been using them in a really big corporate environment like let's say Home Depot or Delta Airlines, something like that. Your skills will work differently in a small business environment, but still, I think a good place to start is to think about, you know, what are you good at? And that is going to be a critical factor that comes in later in the search process that will start to define what kind of franchise models will present a better fit or not. Um, one's transferable skills is a big puzzle piece in that. Secondly, I think it's important to start, you know, really assessing, um, you know, your balance sheet, kind of get, get refreshed on your personal balance sheet, your assets and your liabilities and what is your cost of living, um, kind of have a check on your credit. You know, all of those things are going to come into play pretty quickly when you start exploring franchise opportunities. And I think entering into the process with a very open mind is a key ingredient of success. Most people through the process that we take people through, if they find their way into franchise ownership, they're most often pretty surprised at what they choose, they're surprised at what they get excited about. It ends up being a business that was in no way on their radar screen prior to thinking about this and starting to explore it. So I think people, um, they're cutting themselves off from potential really great opportunities if they come into the process with certain, um, notions about what or wouldn't be what or would not be a good business, what or would not be a good fit for them. So open mindedness is a key ingredient to finding something and being happy with that choice.
[00:19:05] Speaker A: You mentioned transferable skills a couple of times, but you also mentioned a financial snapshot. And franchises, um, can have varying levels of requirements in terms of the assets that you have to have on hand, your net worth. Could you speak to those?
[00:19:23] Speaker B: Sure, sure. And you're right, it's all over the board. Um, there are franchises for $10,000. There's a small number, but they do exist, you know, well into the millions.
We, we tend to work with high six figure income earning clients and they're usually looking to replace that or maybe even exceed that. So not all franchise models are going to do that. There are some in the really low cost side of things, maybe $10,000 total investment that they do tend to be more kind of on the side, pocket money kinds of things. We focus on scalable franchise models and, and they're going to have, you know, they're going to have to have some meat on the bones, which means there is a correlate investment. So this is a hard one to answer because there are really good franchise opportunities in a wide variety of cost ranges. But general guidance I give people is that to be, to be on the playing field, to look at a variety of good options that may lead to income replacement, someone needs to have a minimum of a hundred thousand that they would be able to put into the business. They may not put all of it into it right away, but I think that's a good starting point. I mean that's what most of our clients are coming in at as a starting point for their investment. Plus perhaps a business loan or a home equity line of credit. A lot of people are packaging together two or three forms of capital, but of one's own, um, assets, you know, 80 to 100 probably needs to be the starting point for most of our clients.
[00:21:00] Speaker A: So if you're trying to replace a six figure income, let's say $150,000, you're basically saying that you shouldn't come in with the expectation that One of those $10,000 franchises is going to be the replacement. Uh, which I think is good setting up expectations.
I'm also happy that you mentioned other forms of financing and made a distinction between the amount of money that the franchisee is bringing to the table as compared to the total cost. So when you talk about a franchise that may cost $500,000, it's not that the franchisee has to have all of that in cash. Correct. Could you talk about some of the options they have for making up the difference?
[00:21:41] Speaker B: Correct. And, um, and at an investment that level, there usually is some debt involved. Uh, there are various small business loans, um, the majority of them, and they have, they have different minimums, they have different kind of requirements. I'd say something that I see in common with most small business loans is there's got to be, the bank wants to get paid. So they are looking for borrowers to have good credit. They are looking for borrowers to have a certain level of liquidity. Um, and if the liquidity, the liquidity level is not there, then they may require that there be a W2 income of a certain level coming into the house in order to satisfy, um, what the bank is looking for in terms of security.
Um, so, uh, a lot of people do go the small business SBA loan route.
Alternatives are home equity lines of credit.
If people have an equities portfolio of a certain size or type, they may be a candidate for a portfolio loan or a securities back line of credit, which can actually be quite attractive.
The HELOC and the, and the portfolio loan. Actually, if someone can do that, in my opinion, that may be preferable to an SBA loan. It's faster, the interest rate is more favorable, um, it's quicker. There isn't quite as much paperwork. There's always a lot of paperwork. But those are not necessarily options for everybody. So an SBA loan is a very popular form of debt financing that people in franchising are utilizing. Some people may have certain kind of life insurance policies, whole life, cash value life insurance policies. If they have that in place, that can be an attractive, um, um, source of some capital. And then a very popular one, although people don't really know about it until they start looking at this, is there are ways that people can utilize dollars that are in a retirement plan, in a 401k or an IRA. It's called a rollover. It has to be structured in a very specific way, and it's something you really want specialists with this form of financing to help you with. It's not something you want to try on your own, but when you're doing it right, you're not triggering taxes, you're not triggering penalties, and it actually can be, um, what I like about that form of funding is there's not debt against it.
So. And that is actually quite a popular way that people will gain the liquidity to then qualify for the business loan. So most people, you know, that was kind of a handful. Um, I see most people are falling somewhere in those buckets and oftentimes might be combining two or three of them.
[00:24:36] Speaker A: I mentioned in the first half of the episode Subway as probably the thing that for anyone over the age of like, like between 30 and 45, right. When you think of franchise, I think that's what people think of, um, and the food industry, I would imagine, is even if not Subway, the thing that most people are going to think of with franchises. Could you dispel the myth that that's the only type of franchise and give us an idea of other types that are out there?
[00:25:05] Speaker B: This is probably the. When I'm asked to dispel myths, this is probably the number one that comes up all the time. And I understand why. That's a very common perception. When we here franchise, we look around and we see the subways and the Dunkin donuts and the McDonald's. They're very, very visible, very prominent examples of franchising. If you look at the North American market for franchise opportunities, there's around 3,800 different offerings at any given time. And around half of them are in some kind of restaurant, fast food, hotel and lodging kind of field, which, you know, there's often restaurants within the hotels. Right. So they're kind of one in the same in a lot of, um. Well, they're not one in the same, but they're, they're not uninterrelated, let's say. And so that makes up about half of the world of franchising. So that leaves, well, what are the other almost 2,000 offerings that people can consider m. They are largely service industry businesses. So I'll break that down into three kind of general buckets. What I mean by service industries, there is a very, uh, large world of home services franchise offerings. So if you're a homeowner, think about all the ways that you spend money to maintain things in your home, to fix things that are not working to improve or embellish your residents. There are hundreds of great franchises that appeal to these various types of home services markets. And many of them also have a commercial side to their business. And B2B business to business would be the second large kind of general category where you'll find a lot of offerings. There, uh, are hundreds of franchises that cater exclusively to commercial customers that could be in IT services, All different types of marketing services, staffing services.
Um, it could be commercial property maintenance types of services. So, um, you know, we do tend to do a lot of business in business services. We work with a lot of corporate professionals that are used to professional business environments and they can be quite attracted to business services. And then thirdly, this is a big bucket that I would term consumer services or family services. And that could be anything from pet care to elder, uh, care, education or enrichment for children, fitness, beauty, these types of services, um, that families and individual consumers are going to utilize every day. So, um, you don't have to be wired for food or be interested in food to have a lot of choices that you can consider in the world of franchising.
[00:28:01] Speaker A: Let's say that I'm leaving my job and I'm working 50, 60, 70 hour weeks. And I've built this idea in my head that I'm going to own a franchise and I'll be working 10 hours a week. How realistic or unrealistic is it and what expectations should people have in terms of the workload of owning a franchise?
[00:28:23] Speaker B: This is a really important topic. I'm glad, I'm glad you're asking about it. So the uh, 10 hours a week thing, that can happen but down the road after you have built the business, after you have a strong team and culture in place, that is not going to happen in the early years of your franchise, whether you're starting one from the ground up or you're buying somebody's existing franchise that's already up and running. Um, I, I, we do have a good number of clients who they're wanting to, they want to own their own business, they want the benefits of entrepreneurship, but they are not in a position to leave their present occupation or they don't want to, they enjoy what they do, they just want to augment their success in something in the world of entrepreneurship.
And I, I think the reality there is that even part time, it's 25, 30 hours a week for the first year, maybe two years of your ownership of that business. They don't run themselves. Franchises are very service, customer service service oriented businesses. So you're in the people business when you're in the France, when you, in a franchise, you are in the people business and people are not robots. You're, and I'm really kind of referring more to the staff, the employee side of these businesses. They need leadership, they need attention, they need coaching, they need accolades. Um, you know, you're going to have hiring misfires in the first year of your business. Everybody does. And that's, that's just normal and to be expected. So I would be doing people a, ah, disservice if I were to say to you, you can get this thing going and it's going to succeed in five or ten hours a week. So the way that working people make that work is usually it's more than one person. It's often a spousal team or it's siblings or it's an apparent an adult child. And it's more than one person pitching in for the responsibilities of the business. Or someone just has a really, really high degree of autonomy and flexibility within their day job that if they, you know, if the emergency call from their manager comes in at 2 o'clock on a Tuesday, you know, they don't have to answer to Someone immediately, in that moment, they can take the call from the manager and deal with the problem at their business. So you know, some people can handle that, some can't. So, but it's uh, a, this is a topic that comes up a lot and, and we do have a lot of kind of reality check conversations with people so they can assess if they're really in a position to be able to do this or not.
[00:31:09] Speaker A: So now we've covered kind of a, uh, false expectation that people have in a negative way. What would you say is one of the positives of uh, franchise ownership that many people are not aware of?
[00:31:23] Speaker B: Oh, there's many. How much time do we have?
Obviously I've been, I've been doing this for myself and my family for many years. So I think, you know, the way I can sum that up is that franchising provides a way for people to get into their own business and succeed often for the first time.
That if that didn't exist then there is that pretty large category of people who probably wouldn't do it because they just don't have the idea. They um, lack certain experiences that the franchise, good franchises are bringing to the equation. They're bringing a proven business model. They are bringing systems and branding and marketing, uh, that will round out some of the things that that new person or that person learning this new business. It's not entirely on their shoulders. You are running your own business. The franchisor is not running the business for you. But still there's a lot of assistance. There is intense upfront training, ongoing training.
Um, there may be national uh, accounts already in place so there can be, there can be business, low hanging fruit in terms of customers and business with the national accounts that the franchise may already have. You know, I think one of the, I, um, think this is an overlooked benefit, but I think it's a really strong one. The network of other franchise owners that you collaborate with and learn from. Some of my fellow franchisees are close friends.
Uh, they are the first ones I call when I have a new idea that I want to vet out or if there's a problem that I want some other eyes and ears on. We call each other and we help each other and we're all wearing the same jersey. We all benefit each other and each other's businesses by helping each other out. So that's a, uh, there's a lot of benefit that you get and you pay for from the franchisor. But you know, I'm going to put your network of collaborative fellow franchisees equal in that benefit. So we kind of have a. We have a phrase. It's a little cliche in franchising that you're in business for yourself but not by yourself. Um, but it's very true. And it's a significant benefit that can help new business owners be successful and enjoy their experience along the way.
[00:33:52] Speaker A: Well, Leslie, this has been phenomenal. We're very appreciative of your time. If you could tell our audience how they can find you.
[00:33:59] Speaker B: Absolutely. Um, I'm very active on LinkedIn every day, so, um, you can find me. I think I'm the only Leslie Cuban with a K out there, so please sync up with me in LinkedIn. I'm pushing a lot of educational content out every week, so. So that's a, ah, good way to connect with me and stay. Stay tuned in.
[00:34:18] Speaker A: Well, we thank you for your time. And we thank you for being a guest on the New Money, New Problems podcast.
[00:34:24] Speaker B: It is my pleasure. Thank you for inviting me.
[00:34:27] Speaker A: Let's get some money from New Money, New Problems. This was the New Money, New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
