Acquisitions Anonymous - #1 for business buying, selling and operating - This Garage Business Made $590K… Then Everything Changed

Episode Date: July 24, 2026

In this episode, the hosts analyze a premium garage makeover franchise with volatile earnings and use it as a masterclass on how to diligence, value, and acquire franchise businesses versus independent companies.Business Listing – https://drive.google.com/file/d/1TkqQjU9VGGgqpbGaxRSsmAuBYXeu0sY7/view?usp=drive_linkWelcome to Acquisitions Anonymous – the #1 podcast for small business M&A. Every week, we break down businesses for sale and talk about buying, operating, and growing them.Looking to build a professional website in minutes? Try Wix: https://wix.pxf.io/c/6898629/3115214/25616?trafcat=templateHubSpot is the backbone for how businesses scale without chaos. Try them out here: https://go.try-hubspot.com/OeG9VrSubscribe for more episodes: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1Subscribe to our Newsletter: https://www.acquanon.com/newsletter💰 Sponsored by:Acquisition Lab, the leading community, platform, and fund backing serious acquisition entrepreneurs. The education and deal-search tools are free, and a real board of advisors will talk you out of a bad deal as fast as into a good one. There's no clock and no pressure. See what it's like: sit in on a free live roundtable at acquisitionlab.com/roundtables, and mention Acquisitions Anonymous!Viso Business Capital — Get the right SBA loan tailored to your acquisition needs with Heather Endresen’s firm. Sign up for a free live Q&A on SBA loans at https://www.visocap.net and click “Zoom Sign Up” in the top-right corner.This week the Acquisitions Anonymous crew is joined by Alex Smereczniak of Franzi, a franchise acquisitions expert, to review a premium garage makeover franchise that installs epoxy floors, custom cabinetry, storage systems, and garage accessories for affluent homeowners. The business generated as much as $3.5M in annual revenue during its peak but experienced a significant slowdown in 2024, sparking a debate over whether buyers should value the company based on historical averages or today's softer market.Key Highlights:- Premium garage renovation franchise serving affluent homeowners with $10K–$30K average project sizes.- Revenue ranged from $2.0M to $3.5M, demonstrating significant operating leverage but also substantial cyclicality.- Discussion of why franchise acquisitions require diligence on both the seller and the franchisor.- Hidden upside includes expansion rights into additional protected territories included with the acquisition.- The hosts debate whether buyers should purchase this franchise or simply develop a brand-new territory instead.Subscribe to  weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking hereDo you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.Do you enjoy our content? Rate our show!Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.For inquiries or suggestions, email us at [e-mail]

Hello, everyone. Welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. And today we have a great episode. I loved recording this one. We have a guest, my friend Alex Smersniak from Franzy. He is the smartest person I know when it comes to franchising. He has run a franchisor, sold 150 units in laundromats, and now he helps people buy franchises. So we have a franchisee today that's in the garage reno space. So the put those cool floors on your garage. They put cool cabinets, you know, lights in the ceiling, a car lift in there if you're a car guy. They make your garage kind of Instagram ready. This business has some really interesting dynamics, really high operating leverage. So some years, they really struggle and some years they crush it. But what I really loved about this episode was it turned in sort of a meta analysis of how the heck do you diligence and buy a franchisee? Like if you're trying to buy a business and it happens to be a part of a franchise system, what makes that different? What are the unique dynamics there? So this kind of became.

him a tutorial on how to diligence and bid on and acquire a franchise business as opposed to just kind of your typical business. So without further ado, I hope you really enjoy this episode on franchising of Acquisitions Anonymous. Well, said Acquisitions Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% beers anymore. And thumbs downing on just the plus inventory line. Buying a business might be the biggest financial decision of your life, and most people try to

make it alone. emailing brokers, reading financials at midnight, and guessing what are the numbers actually hold up. Acquisition Lab exists so you don't have to. It's the leading community, platform, and fun backing, serious, vetted acquisitions entrepreneurs with a standing board of advisors who've actually done this. People who will talk you out of a bad deal as fast as into a good one. The education and the deal search tools are free and open to everyone before anyone asks you for a dime. The easiest way to feel that is a roundtable. It's a free live conversation where you talk through what you're actually stuck on with other buyers and advisors who've been exactly there.

Nothing recorded so it always stays in the room. Sit in on the next one for free at AcquisitionLab.com slash roundtables and tell them that Acquisitions Anonymous sent you. All right, we are figuring it out on the air. How are you guys doing? Happy Friday. Happy Friday. All right, we've got, as I mentioned in the intro, we've got my friend Alex Smersniak from Franzy, who is our resident franchise pro because we're doing a franchise deal today.

So we tap Alex in when we want to talk about franchises on the pod. So Alex, we've been buddies for a while, but why do you know about franchising? What the heck is Franzy? Yes, my background before Franzy was scaling a national laundromat franchise to, you ended up selling over 115 locations, 40 open today and still opening laundromats and got a crash course on the good, the bad and the ugly of the franchise business model. I used to be a skeptic of it and have grown to become a fanboy, I guess, if you will, of the franchise model because there really is something for everyone,

if that's the path you want to take to business ownership. So we ended up building a marketplace that's franzi. Think of it as like Zillow for buying and selling franchise businesses so that you can go sift through all the noise and figure out what's the right fit for me from a risk perspective, a cash perspective, a operational experience perspective, et cetera. So that's what we're working on, making franchise acquisition more transparent and accessible.

Okay, that's awesome. So Alex has seen it all. So if you listen to this pod, you know, I think you like to listen this pod because your co-hosts have seen a lot, done a lot of deals, and that's why we tapped Alex in

and thought he was a good fit because he's seen a lot of deals in franchising. So we asked Alex and his crew to bring us a franchise business that is for sale. That's why he gets guest of the day award. Yes of the day. He brought a deal.

We appreciate it. And sent it ahead of time. We usually, most people don't know this, but we usually decide what we're talking about 30 seconds before we hit record. Or we're like, oh, maybe we should do this one. And Michael just hits record mid-discussion. So we got it like 30 minutes early, which was amazing. Yes, but I thought it would be a violation of our principles for me to prepare. So we're still going to do it on.

I looked at it. and got excited and closed it. Yeah. I want to preserve my real reactions, right? Which I think is part of the vibe on the pod. So that's why we have a Google Doc to screen share today with you guys. But there is also, and I'll put it on the screen for just a second, if you go to franzy.com, this deal is live. You can go to Fransy and see this lander right here, which is now on the YouTube, and click

unlock the full listing and kind of same way as you would on Biz Buy Sell or something else you were interested in. So this is live on Franzy. It's a real deal you can buy, but we are going to review the Google Doc instead because the Franzy crew kind of compiled it for us, so it's easier to go through. Okay. You guys ready to hear about this one? This is cool because I was a customer of a business like this not too long ago. Oh, nice. I'm on your house. So, okay, so this is a premium garage interiors franchisee business. So this is not the franchisor. this is the franchisee. This is a, basically they make your garage nice.

So if your garage is crappy concrete floors and like wire shelves and just like junk everywhere, they come in and do the floors, put up racking, paint it, you know, hang your bikes from the ceiling, make it all Instagram ready, like tool cabinets, like all that stuff, right? They make your garage sweet. So it says the global garage market is projected to hit 36 billion by 2028. which is not that far from now, so it can't be that far off, 36 billion right now.

70% of new U.S. construction units include a garage. That's kind of a cool set. Yeah, I didn't know that. I thought there would be a lot of condo and stuff, but I guess this is America. We have a lot of open-in-hand with a lot of garages and single-family houses. So it says,

which is also interesting when talk more about, EV charging is driving a refresh cycle of garages, which kind of makes sense. You're spending, you know, you got a gas station metaphorically in your garage now. It says the customer's affluent homeowners, which are families wanting organization or empty nesters with disposable income. The medium household income for this franchisee and their territory is $86,000,

and the median net worth is $150K of their customers. The product, what do they do? They have six adjacent lines, all of which they can sell into the same customer. They have floor coatings, so polyspartic floor coatings like those cool epoxy, you know, colors with the flakes instead of raw concrete. They have modular cabinet. they have slat wall racks. Slat wall, they have racks.

They have car lifts. That's like enthusiast, you know, car guy garage. Now I'm jealous. Now I want one. Yeah. And then makeovers. I assume this for your garage, not your wife. Average makeover ticket.

Average total ticket here, $10,000 to $30,000. Any potential headwinds here, it's definitely discretionary, it's interest rate sensitive, it's project-based, it's not really recurring. This is kind of the category that's going to get hit before your HVAC,

your plumbing, you know, in a recession if sales slow. And we're going to get in the numbers on this franchise, which the Franzy Crew was happy to provide, that you can see there's a little bit of slowing going on right now in 2024. So the brand, because this is Acquisitions Anonymous, we don't sign NDAs, so we don't know the name of the brand on the show. But it is a premium garage interior franchise founded in 2005. They've been franchising since 2015.

They have 50 U.S. outlets, 7,500 projects a year system-wide. They say they have a proprietary polyospartic floor clothing. Okay, I mean, I'm not sure how proprietary that. It's basically. It's basically like they got their own brand of paint, basically. proprietary but indistinguishable from the other proprietary. That's right. That's right. Still has flakes in it. That's right.

An in-house cabinet system and branded slat wall, real switching costs for the franchisee. I'm not sure if. this is good if I'm a franchisee, emphasizing that they really lock you into their system. Their format is they've got about a 3,000 square foot showroom in a light industrial bay somewhere in town. Customers walk in to see kind of example setups. 3D render renderings of what your garage is going to look like and how awesome it's going to be. Drive the close rate and then skilled installers handle the build. So the average SD, here's the financials, here's what you want to know.

Average SD is about $168,000. And this is average for, this specific group of franchise units, not the FDD average across all units. That's right. Correct. That's right. This is this franchisee. Over the last three years, has averaged about $168,000 of SDE.

They have $220,000 of inventory, which is, it seems like a lot to me. I'm interested in digging into that. And then they've also got 250K of furniture's fixtures and equipment. So, like, that's a lot of capital in, and on top of. of what I assume it was a franchise fee that this person paid. So I want to go back to that. Vive employees, reason for selling, seller is retiring. It says a very lean staff results in strong earnings,

but also limits their capacity to grow. Beautiful showroom that a new operator could leverage to double the business. Okay, here's their financials. 2022, two million in sales. 2023, three and a half million in sales, 2024, 1.7 million in sales, significant step back in 24. EbitDAO, 145 in 2022, 337 in

2023 minus 19,000 in 2024. But SDE, this is like a real EBITDA. They are clearly burdened, which applause to them for really burdening their EBITDA

with what the owner pays himself. Because SDE is 107 and 22, 252 in 2022 in 2023, 142 in 2024. So SDE, materially different than EBITDA. Looks like the owner's paying himself, you know,

fluctuating amount about 120 to 150 a year. It's a little bit weird to me to add EBITDA and STE. Typically, SDE is the EBIT dot plus the owner's comp to give you like a total SDE number. Like, and you could say, I'm going to pay some of this out in dividends, I'm going to pay some of it in salary, I'm going to get some of it in like my auto, you know, expense being covered. Right.

So it may just be some antics here, but I don't, I would not want to base it on even dot plus SDE, without having to be it. more info. Yeah, I got to understand what this means. Alex, is this a way that you guys typically look at? Does this mean something to you, this template? Or we got a question we got to ask? Yeah, it depends sometimes on how the individual or the brand is doing their financials.

But in this case, the individual, you know, was summing all of the forms of payment to themselves, you know, before EBITDA. And so we wanted to show it in the lens of here's the total potential earning if you were to pay yourself less or take less additional. seller type of earnings out. This is what EBITDA would be if they paid themselves zero or didn't have a manager salary for themselves.

That actually makes this significantly more attractive. So what's labeled in this spreadsheet as EBITDA plus SDE is what would traditionally just be called SDE. EBITDABDA plus SDE, this is everything you can take out of the business if you own it. Correct. So this makes it much better. So walking kind of through what we would call traditional SDE

2022, 252,000, 2023, 590,000, $224,000. So significant variability here. You kind of find the line of break even, and then their fixed cost is like, you know, covered well at a certain level of revenue. But like, if you look at the difference between 2 million

and 2.3 million top line, almost all of it. falls to the bottom line. Yeah, this is like 80% incremental contribution margin. Yeah. I mean, incredible operating leverage in this business. I was going to say, I know I make this point every time we do some business like this, but this is like the most beautiful thing about America. Like somebody's making 600 grand a year, like organizing people's garages. Like, come on, guys. Like, that's freaking awesome. All right, go back to where you were at, Bill. I'm sorry. And you know what's cool, too, is like, this guy probably did his. garage and just thought it was awesome. So like if you love doing these projects, like,

and you own this business, like, you're just coming to work every day. You're like, this is awesome. I'm doing another sweet garage this week for somebody. You know, that's the cool thing about business ownership is if you can find a business you love doing, you never work a day in your life. Okay. So let's let's take a pause. Like, I want to, I want to ask Alex. So like, this business has been around for a while. I assume they paid a franchise fee to start. Now this. guy is retiring, he wants to sell his franchise right now. He's a franchisee. Yes. What are some sort of unique dynamics, you know, because a lot of our listeners are used to just like going on business by sale. They buy a business. Them and the seller are the only ones

involved in the deal. Maybe they're bank, but that's it. This is a little different, right? Because there's going to be a franchisor involved in the deal. Like, what are some unique dynamics when you buy an operating franchise versus when you just buy a regular business? Yeah. So I think the difference between, you know, an indie ETA opportunity and a reset. is you've got a built in clarify that what is india yeah sorry so indie independent you know buying just Alex's garage renovations or you know versus doing a franchise name brand that has a system in place a set of you know peers that you can rely on for feedback and leverage and shared learnings etc so doing a franchise resale versus an independent you know acquisition of a standalone business i think

the two main levers or differences is that with a franchise system, if you're doing this to scale more aggressively and start to roll things up within that franchise system, there's a target list, right? You can go after other operators. In this specific example, the revenue that we're seeing is just for the state of Washington. This individual also has the rights to Oregon and Idaho, but hasn't expanded there yet. So that comes with this transaction. So we're looking at, you know, the seller wants, I think, three-ish times SD, SDE, so half a million dollars or so. And you're getting all of the other things that this individual is invested in, those rights to other states to expand into that territory.

So there's built-in, I think, growth from that perspective that you might not get with, you know, an independent acquisition or is targeted of a list, again, to go after other operators in the surrounding area. You see that a lot in food. You know, we work a lot of folks that own 30 Dave's Hot Chickens, and they're going to go roll up another 15 of them or bolt on another QSR brand because they have the operating leverage

already in place and the team to go do site selection and openings, et cetera, and they're just going to bolt on other complementary brands. Because that's an interesting dynamic. So this is just one unit, this one. Correct. And I think what I hear you're saying in restaurants, but it's probably got to scale,

is the second unit is more profitable than the first. And the third is more profitable than the second, right? because you start to have these shared resources across all your restaurants or, you know, you got one office manager, you got one accounts payable person, et cetera. And when you only have one unit, that one unit is burdened with all the corporate overhead. But when you get to 30, they only need one 30th of the head. So it sounds like, I mean, roll up as in anything is attractive in franchising too.

It's so good. I mean, this is one of the things that I started, you know, one of the reasons I started to fall in love with franchising was we've had guests. on our podcast. It's called The Exit Plan, where we interview folks that left corporate to go buy a business, whether it was franchise or not. And some of them have wild stories. And this one guy, Cal, was in investment banking, started looking at franchise acquisitions in 2018. He is now up to 124 locations in, what is that, seven or eight years. And I hear that story a lot. Honestly, a lot more than you think you would. I mean, 100 plus unit portfolios. probably a $300 to $500 million a year business. I mean, massive, massive scale in less than 10 years. And I think franchising uniquely gives you that playbook and structure to go do these more systematized roll-ups and, you know, playbooks with, to your point, Bill, the fifth, sixth, seventh, eighth starts to spread out a lot of your operating costs.

You're using the same point of sales, the same trainings, and a lot of instances, the same marketing playbooks. it's just much more repeatable in scale blood, say, than buying up Alex's gym and then Bill's gym and trying to Frankenstein these things together. The other thing I think it's interesting that the franchisor does is they assess the size of the market by geography in a much more systematic way than like I probably would on my own. Like, you know, okay, how, where's the next logical place to put a garage, you know, business like this? I may not size it correctly.

I may put it too close by or think that the market could be larger in a certain geography. And they're like, well, actually, because of all this data and what we've seen across many markets, you know, Charlotte can have two locations. Columbia can have one. You know, Greenville can have one.

And I might have gotten that out of proportion. And the Zor, I think, Alex, correct me wrong, like a good Zor like won't let you screw up. Like they won't let you put a second location in Columbia, South Carolina if it's not going to work, right? I mean, does the Zor push back or are they like screw it? We just want to sell the franchise. The key word you said there was a good Zor.

They don't want closures or people doing transfers because they legally have to put that. They're regulated by the FTC. They have to put that in what's called an FD, a franchise disclosure document. And a brand that has a ton of closures is a major red flag as to the system health. And is this business sustainable. Is it good or not? So most, again, good brands do not want that. Now there's Subway who got to a size and said,

forget it, we're going to open stores a block away and let them cannibalize each other and let the best franchisee win because we just want our 6% revenue royalty and we'll just let them duke it out. It doesn't matter to us, but look what's happening to Subway now. I mean, they're getting their lunch eaten by all these other concepts, Jersey Mikes, Jimmy Johns, et cetera, because they treated their franchisees poorly for so long.

But at one point, they were the king of the castle. and that strategy is now catching up to them. Okay, interesting. So in some ways, like, this important point, so like in SMB ETA circles, like the HVAC roll-up, like the trades roll-ups have been really big for the past couple years.

But one of the number one challenges when you're doing a roll-up is, you know, it's called strip and standardize. Like if you're buying, like how do we get everybody on the same POS? How do we get everybody using the same iPad system? All the SOP has got to be simplified. every little mom-pop business thinks they're doing something different and they're special and

their ways the best, et cetera. When you're doing a roll-up strip and standardize is the whole ballgame. And you essentially don't have to do that if you're rolling up franchises in the same system at all because they're already standardized. And once you're in, what I've realized too is you're part of the quote-unquote good old boys club now. Once you are a franchisee of something, honestly anything, every other franchisor or other existing franchisees start to view you differently. You're in the arena with them now. They know that you've been through it, both one as an operator and an entrepreneur, but also one within the world of franchising. They understand that you get the relationship between your location and the franchisor

and the good and the bad that comes with that. And so you start to get access to deals that most people don't because you're part of that club now. You're seen as a peer. And Cal, the individual I mentioned shared exactly that. He's getting people coming to him all the time with new concepts that he can get in early on like Papa Bagels or Mike's Red Taco is a very popular taco franchise concept that's starting to blow up, seven brew, et cetera, and coffee. He's getting access to develop de novo units of

these new concepts because of his track record and background now. But also when he goes to do resales, the operators want to sell to him and the franchisors want him to be the buyer because they know that they're plugging a proven, you know, seasoned operator into their system versus an outsider. And so my advice to people always that are looking to take this approach is get in the game. You know, like get one unit doesn't really matter necessarily what brand it is. It does to a degree. But once you're in, the access you now have to other deals is tremendously, you know, advantageous to you. I heard this described to me once.

So back in the day, I worked in investment banking and we sold a couple multi-unit z's. And these businesses, I mean, this one guy started as a fry cook at KFC. And he ended up with like 200 young brands, uh, franchise locations. I mean, we sold his business for just hundreds of millions of dollars. I mean, he just murdered it. Um, but what was interesting is like, you can't judge, you're like, oh, I want to be a franchisee. I know, I want to open McDonald's. Like, you know, you just can't do that, right?

Like McDonald's like, get the hell out of here. Like, you got to open, you know, some crappy franchise no one's ever heard of, like, succeed in that. And then like, move up to Wendy's and then like move up to Burrush. King and then like eventually McDonald's might talk to you. Like there's like a tiering of how the best the best zores vet disease, right? Correct. I mean, but to your point, once you're in, you're in, and the speed at which that happens

in Cal's story, he was a zero, right? He had a good background. He had an investment banking background, so you know how to raise capital and put deals together. He's a smart guy. But he had nothing in 2018. And again, now he's in the hottest brands. Dave's Hot Chicken is very hard to get into.

brew, pop-up, et cetera. And so, yes, that's very true, but it's also shocking how fast it can happen if you just get that one or two years even and brands of operating experience under your belt, how much of a difference that short period of time can make. Okay, so at the same time, though, isn't this sort of a red flag for this deal, right? So, like, for me, knowing this dynamic is totally true. This is, I mean, one more anecdote about this, like, we've looked at FedEx routes on the pod before. And, and, you know, and, the FedEx, the whole dynamic on FedEx routes, and this is actually the whole dynamic for any deal, you should always ask yourself, why am I the lucky person that gets to see this deal? And the dynamic of FedEx routes, they all operate out of the same terminal. So if you are selling your routes, the obvious buyer is like the guys at the same terminal, right? Who see you every day and like know all your guys and you're definitely just going to ask all the other operators at your terminal, like if they want to buy your FedEx route. So your trucks are crappy. I'm not buying yours, you know. And so they've all passed. And so they've all passed.

on it, right? By the time it makes it to biz buy sell in the FedEx context, like everybody at the terminal has passed on it. Now, it might be because FedEx has concentration limitations at that terminal that they won't let one operator get too big or whatever. But still, you got to ask yourself, why has no one in the system, you know, in the adjacent territories wanted to bolt this one on? So, like, you have to ask that kind of first and foremost. Like, are there, Alex, like structural reasons, or is it just sort of like definitionally your first one is probably not the best unit, but you've got to eat it anyway to get into the system so you can buy two, three, and four. That's a great question.

And I think some of it is structural. We're trying to navigate solving this now within Fransy. And part of it is you think from the seller's point of view, you know, we all collectively own, you know, Jimmy Johns or whatever it is together. We want to sell for the best price, probably. I mean, we care a little bit about who's buying it and who's going to take care of it. but at the end of the day, we want to get the best multiple on our business. But the franchisor, now look at their seat, they're getting paid their six-ish percent on revenue regardless of what happens.

Switching operators is a pain in the ass for them, right? Like it's an event that now has to happen. They have to retrain potentially. They, of course, want someone else from within the system. So they're very much incentivizing that. They're going to help you share your deal with the rest of the system. They want that to happen. But you as a seller, you're better off if both people in the system

and outside the system we're looking at it because it creates competition. And when there's competition, I'm getting paid more, likely a better outcome. And so at Franzy, one of the things we've started to do with resales is we go to these sellers of these popular brands and all of them want the ability to get it marketed to other private equity guys, other multi-unit operators and other brands. So still good operators just might not be in the Jimmy John system. And so I think historically there just hasn't been as much liquidity or access.

And I think platforms like Fransy and other tools now, especially with AI, are making these deals more available. But structurally, it's been this kind of good old boys club again behind closed doors. And the seller hasn't really tried to challenge the status quo because that's such a large structural change you'd have to make to go shop it at that level and really get it out. It's just easy to take the bird in the hand when the operator down the street wants to buy it. And it's a decent multiple. And I just want to be done with it and move on.

Right. I think this is probably also, like, it reflects where the franchisor is in their maturity. And I think we've talked about this with you before, Alex, like, there's only 50 territories. And this is one in one state and two, like, rights in adjacent states. So it may just be that there's not other territories close by. Like when you look at these numbers. So back, but back to Alex's point, like, like the owner would love lots of bids from inside and outside the system, right, to drive the price up. Of course, the challenge is the best buyer. who can pay the most is the buyer with synergies, right?

Is the buyer inside the system who already has an accounting manager and an area manager and all that stuff, right? So if I'm, you know, listening to this podcast and I like this garage franchisee and I want a bid, I mean, the most likely scenario is I am the stalking horse bid to drive the bid of the buyer, the interior buyer up, right? Like the way this works out, sort of the most efficient way this works out, is that someone from inside the system buys it, but you have an outside stalking horse to drive the price up to force them to pay the synergized multiple.

I actually, I agree with what you're saying in the logic bill, but what I've seen, and Alex, you can correct me if I'm wrong on this inside the franchisee network, I feel like other franchisees typically undervalue the existing and buying an adjacent territory because they have much more realistic picture of what it's worth. And typically in an acquisition, I'm not going to pay somebody for the synergies I bring. I'm going to pay them for what they've got and I'm going to realize my synergies. Unless I have to, because I need to in order to win it. Yes, unless it's that competitive. But what I typically see is that the new person who's very green and is like, I've never bought, you know, a smash burger before or whatever, they're like, how hard could it be? And they'll kind of

overpay naively relative to what known operators will. Interesting. So it could cut both ways. I think it does. My question for Alex, though, is like, it is a real risk that they kind of already know who the best buyers are. It's the adjacent Zs inside the same system, right? Those are the best buyers, for sure. They can pay the most, whether they will pay the most, to your point, Mills, who knows? But they certainly can because they have the most synergy. But let's say I'm not an existing Z. I want to get into this system. How do I differentiate myself as an offer? Because what you don't want to do is spend a bunch of cycles, come in with a fair offer, and get top-ticked by 5% and they go with the guy they're going to go with anyway. How can I differentiate myself as a buyer? I mean, I've got some thoughts, but I wonder if there's any kind of franchise-specific ways.

And also, Alex, like, who decides? Does the seller just pick the high offer? Or do you need to convince the Zor also that they should sell to you? So the Zor does have to give sign-off, but typically, you know, nine times out of 10, they're going to do that. If they have an operator who's checked out, even look at this exact example, the revenue is declining. Part of that's macro things. Everyone during COVID was doing home renovations and garage, you know, outfits, etc. And so part of this decline, I think, is just the macro environment that we're in. Part of it's the owner is starting to be checked out, has made enough money, you know, throughout their career and is not. not as aggressively involved day to day as they used to be.

And so as that revenue declines, the brand is losing more and more money. They'd rather get someone who's got new energy, new blood, new capital, coming in to get excited and grow and build that business. So more often than not, they approve it, again, especially if their partner, the franchisee is checked out. But they do have to approve it. So you really just need to convince the existing seller. Yeah, they're the gatekeeper.

They ultimately are the one kind of dictating where this goes. ultimately their business at the end of the day. The franchisor, it would be a very bad look on the franchisor if they just kept declining franchisees from selling their business because now all these investors and franchisees are coming in and not having liquidity, which is part of what makes the whole franchise model work. I had this instance come up this week that clarified something for me where franchisors have a kind of a right of first offer or, you know, like, you know, a last look. And it was a situation where the franchisee, it was multiple territories, it was kind of underperforming. And I looked at it and I thought the pile of assets was

like the most valuable thing, separate and distinct from the, you know, the franchise network. Like I just wanted to take them, kind of scrape the branding off and, you know, run it as a standalone or, you know, kind of like a tuck into something else. And I was talking to the franchisee about it because I was like, hey, man, this might be the best way for you to achieve maximum value on this. And he was like, I hear you, but I need to check my franchise documents. But I'm pretty sure the franchisor would never let it go for that because somebody else would probably, would probably pay slightly more. And if not, then the franchisor would just, they don't usually like to take back a store and make it corporate. But they would probably preserve the market value by not letting it just go, you know, kind of and dissolve.

So on this particular deal, do we think this is one where you can be passive in it or is this one where you have to be an owner operator? Because it for sure looks like this owner is doing the owner operator model. But is this one where you could be a multi-unit franchisee in it or is it one C2Zs? What do you think, Alex? I think eventually you can. I think you need to get to a larger scale than this individual is. I was talking to, I don't know if you guys know Brian Beers at all. He puts out a lot of really good.

content around, you know, acquisition. I mean, all of the acquisitions he's done over, you know, 30 or 40 acquisitions out of minekees. So he's in a, he's an automotive franchisee, have almost all been seller financed. And he's found his lane and he's got his playbook now. And he's done a, he's built a really big business. But he has this mantra that I love. And it's, you know, first I do it, then it's we do it where he's got GMs or in this case, maybe a local sales manager driving, you know, these projects and managing some of the team. And then it's they do it. And he didn't get to the, you know, they do it phase until he was 20 plus minor key locations.

And so he was very, you know, not fixing vehicles or anything on a day-to-day basis, but very much involved in, you know, the day-to-day operations of a portfolio of these businesses. And so I think a lot of franchises follow a similar path. I think for this one, you've got to get to, you know, probably 10-ish million plus in revenue before you can start to think about removing yourself

from a pretty involved position in the business and definitely beyond one territory. What I like about this in terms of like it's technically in the construction, you know, industry is that this is fairly formulaic construction. It's not like you're doing one off home renovations where the person's like, well, you take down this wall in my house and like you have to constantly like do discovery from like zero to 60 every time. This is we're not moving walls. We're bolting these these things to existing walls. It's a it's a slab. Like it's kind of a nice blank palette. It's a. It's kind of a nice blank palette. It's. It's not gut my kitchen and put it back, which is a lot more variables, which is why their gross margins are what they are. It's so systematic. It's a rectangle. Yeah. So, like, I had this done.

I didn't go, like, totally ham with all the cabinets and stuff because I had some of that stuff already. But it was, I had the floor is done when we moved in. And it's basically like the guy shows up. He measures your space because the quotes per square foot. So he's got to measure the space. And then they show you like a book of here's what all the floor coatings look like. and there's slightly different prices per square foot because there's a premium level, a basic level, et cetera.

And then you just show them a catalog of like what cabinets do you want. And those are skews. I mean, those are functionally drop shipped. You know, it's not like you're manufacturing all that stuff. You're typically assembling it on site, but like it's not rocket science.

So the variability here is not a lot, even though it feels very custom. It's not like a custom home. So I, it feels to me like you could standardize this. You know, the problem is with just, one unit, you don't have a lot of room for a GM. I mean, like his SDE and the bad year was

120K and a good year was 600, but like still, you hire a good GM for 150 plus. Like, that's a material chunk of your operating profit, which again comes back to the first unit's the worst, right? If you had three of these, I definitely think you could SOP this and probably start to get out of the day to day. Yeah. That's the other thing I've been shocked by too. And I think home services is a little bit different. But the average price for a GM, and this is food again, but the average price of a GM in a McDonald's, in a Taco Bell, et cetera, is a lot lower than I thought it was. It was 70 to 90K. For district managers who are managing multiple locations, it's in that 1, 125 to 150 range. But I was shocked at the quality of, you know, person that could

manage 20, 30 hourly employees and, you know, what their wage was. in some of these brands that are doing two, three million dollars in average unit volume in food, it's not too too dissimilar here, I think, where you could find a pretty talented person under six figures to run the location, but to Bill's point,

you still absolutely need to be beyond one territory or a revenue number that justifies and supports doing that. Yeah, wow, that's surprising to me in a good way. So we have a whole bunch more data here I'm kind of comparing this franchise to their FDD to a competitive brand, which is cool.

I think this is like one of those things you get when you use someone like Franzy is instead of just looking at this deal in a vacuum, you can say, hey, how is this doing against comp franchises? Which I think is going to give you a case for can I actually run this better? Because every seller is going to go,

oh, you can run this better. But, you know, I think if I were to look at this and go, oh, all of his metrics are garbage against even the Zs in the same system and against Zs in the comp system, then I have a lot more belief that maybe I can make this better. But if he's saying, oh, you can do this so much better and he's like average for his system and average for the competitive systems, you're like, well, probably not. I'm not, I'm just new to this and you already know what you're doing and you're kind of suck

at it. So this is some, we won't go through all this data, but it's helpful to use, you know, a broker. like we always talk about Heather's not here today, but we talk about like the advantages using an SBA loan broker because you can compare data across lenders. I think it's kind of the same thing with franchises. There's just so much more data that you have in a franchise than in a kind of a one-off business.

I was just going to say when people come to us, I mean, they have a mixed bag of they're doing some, you know, traditional kind of independent ETA searches. Sometimes they're dead set on franchising. And one of the interesting takes that I keep hearing is they'll use Franzy or other data sets in franchising, the FDs, to basically underwrite a sector or subsector because there's just all this data across hundreds of locations.

Let's say it's roofing you're looking at, or HVAC or Pilates Studios. I mean, anything you can possibly dream up, there's probably a franchise brand for it or multiple that have dozens and dozens of locations with publicly available data that's audited financials on how much revenue are they doing, sometimes by region. and what's the cost to build one of these locations. And so you get all this pretty interesting information, whether you're going to do franchising or not or resale or not or develop a new area or buy an independent business,

that data is still so helpful in helping you underwrite. Where is this market at? And what are people on average doing and which direction should I be headed? And it helps validate or disprove some of the convictions or gut feelings that an individual might have as they start this journey. Yeah, yeah. More data, always better. So let's kind of try to land the plane here,

but I want to talk about what the heck is this business worth? So there's an interesting case here. You know, it's presented a little bit as here's the average of the past three years. But the average does not tell the whole story. I mean, there's a significant dive in 2024 where you, so the variation here is from 124,000 of SD on the low end to almost 600,000 of SDE on the high end. I want to know, you know, I'll start with you, Mills, and then I ask you Girdley, and then I'll ask Alex, and I'll go. But, like, how do you guys value this thing? Like, what are you going to

bit? The thing that concerns me about this one is just how discretionary the purchase is. And I think there's even some mention of that, like, in this, or what's on frenzy. I just think this is, like, one of the first expenses to go, you know, in terms of what a homeowner is considering, which is why we see this revenue volatility and maybe even more revenue volatility in this space. So I would be, I would be kind of very conservative in the way that I, I would think, like I think Alex, you said they were looking for somewhere around like three times, the EBIT dot plus SD number, right, in that category. I at least like that they are realistic in thinking about it as an average versus trying to top tick, you know, the most recent year or something like that.

I would have a lot more questions before I could like really pin that down in terms of like, what's the quality of the operation? Yeah. So are you, you can't bid yet. Yeah. I mean, I think roughly three times seems doable, but you could get under the surface of this and realize like it definitely doesn't work in the all years, right? Yeah.

Three times average, yeah. And in the off years, you probably can't cover your debt service with an acquisition like this. So, yeah, yeah. And Heather's not here to say, hey, it's going to get hard to get, you know, real bank financing for this, which I think I forgot who said it. Like, many of these are seller financed. You know, so I'm probably coming in with a seller financing structure because it's going to be tough to get bank debt on a project-based thing. And thankfully, they've been around long enough that it's not like somebody tried to do this as a new, you know, franchise, you know, territory developer or something like that.

And they've only been doing it two years and didn't work. They have SBA debt hanging over their head. Like you see that a lot where, you know, they really can't sell for a lower price, like the price of my mortgage bill. Like your term is like my floor, you know. Yeah. I don't think that's the case here because this person's been doing it for 10 years, I think, or something like that.

Guards, what do you think? I think I would really value this based on what 2025 and the first half of 2026 looks like. to me that feels like it'll be the new normal for this business and a post-COVID environment. But yeah, I think I'm kind of where Mills is, you know, two and a half to three times seems pretty reasonable and a good margin of safety. Yep. Yeah, the thing that for me, and I'll keep my mouth shut, what do you think, Alex? I'm in the same category.

I think two and a half to three times is fair for a services business like this. And I would have a lot of questions about the upside potential. like why did this individual not expand into Idaho or Oregon? They bought the rights at some point. What was the reason for not doing it? Is it because you need another showroom? And there's all this fixed cost that I wasn't anticipating having to build in another state. Or can you leverage the same showroom in Seattle or outside of Seattle and Washington

to reach this other market that effectively is paid for and I can go pretty significantly grow the business without two. too much additional investment. I'd want to understand more about that because that could really make this incredibly valuable and super interesting. That's a great point. You get two extra territories kind of for free when you buy this that you could expand into. For me, the thing that I am laser focused on here is kind of this buy versus build idea, because if you want to be in this, and this is the case for any system, I mean, most systems that are taking new operators, not all them are, but you can just approach the Zor and go, I want a greenfield. Like I want to open a new unit in a place where you don't have one. And that's why I thought it was interesting to look

at kind of the replacement cost. So the initial investment on this brand from the FDD is about 300 grand. So you can start one of these for 300 grand. Now you have zero revenue, right? So you have 300 grand of kind of startup. But then for me, on top of that, I'm looking here at the more information about the deal. They've got $220,000 of inventory and 250 of FF&E. So, that looks like it's on the high end. That's about $470,000 of working capital plus whatever the franchise fee is. It looks like that's about 60 grand. So this person's got north of half a million in it, right, of kind of working capital and franchise fee. Well, actually, they've probably paid a couple franchise fees because they have two secondary markets. So they've paid 120K of franchise fees. So like they're pushing 600 like capital. in. Now, in a good year, you take 600 of capital out. You know, that's amazing in one year. So, like, it's not that the ROI isn't there. I mean, they took out 32 of SD is a 50% return your capital. Like, that's pretty good. But I'm asking myself, what am I going to pay for this

versus what could I just open up? I think it's more, it's worth more than just opening up, but maybe not a lot, considering it's not recurring at all. Like, you do this once. It's kind of unlikely you're going to do it again. Like this is about a brand and a Google placement and like some reviews. So like I don't know how much moat there is to an existing Z versus just Greenfield and one in my area. So I would, like if I like this, I would diligence this opportunity. But as I learned about it, I would always be comparing to Greenfield.

Like if I'm going to pay this guy, if it's three times last year, that's 450K. If it's three times his average, it's a million bucks. Yeah. You know, so it's kind of right in there at parody from buy versus build. It's in the ballpark. So I'm always going to be looking at build versus buy on this one. This is a good one. I like this.

Yeah, it's a cool business. I mean, it's got to be fun to own, right? You're just every, and also you turn these in like a week. So like every week you're cranking out like a really cool case study, beautiful pictures, great for social media. You know, it's, this is a fun business to own, I would think. I love this category. When people ask me, like, which category should I look at?

I say, you know, senior care, certain subsectors just because it's the largest aging population, and I think humanity has ever seen. And, you know, so there's tons of demand. We do calls into various markets just to kind of see one of the wait lists on certain senior care facilities and whatnot. Every market is, you know, 12 months out. It's just like, there's clearly demand there. And so there's tons of opportunity. And garage as the subsector of home services is one of my favorite categories because

I think more and more people are wanting this secondary space, this kind of other third space in their home, if you will. And it's super easy. It's a small crew to do. You don't need a ton of heavy equipment or machinery. And the ticket is super high. So if you're good at sales and you're good at, you're kind of beating the local mom and pop person at marketing,

which the bar is pretty low, I like it for just the affordability to get into the high ticket size and the upside potential. Again, I love this category and this type of business. Yeah, it's kind of home office adjacent, right? Like if you're working from home, spending more time in your space, you know, this is something you're paying attention to. They don't show us the COVID year, 2020 and 2021,

but I would bet this business crushed in 2021. Yeah. Crushed. All right. Well, let's wrap it up. That was a fun episode. Alex, thank you for coming on and being our franchise expert. I always learn a ton.

Franchise is such a big world. It's fascinating to me. So it's cool. Thank you for being here. Yeah, thanks for having me. Alex, where can people find you and Franzy on the internet? Yeah, so go to www.franzy.com. It's like, again, like Zilla, free to go check out and explore.

We don't charge you anything for all the data that we've put together. And then if you want more content about franchising, I am Alex from Franzy on all the social platforms, Instagram, TikTok, et cetera. And then we have a podcast called The Exit Plan where we break down stories of people who have actually gone and done this from zero to either, or zero to 101.

We tell how they financed it, how they've betted the brands, how they talked to existing operators, et cetera. And you know, you can check that out to learn more there as well. That's awesome.

Thanks for being here. If you guys like this episode, obviously you can check out Franzy's podcast, but you can also check out 550 episodes of acquisitions anonymous, which are on our website, ACQU, anon.com.

You can also get on our email list. We will email you the new episodes if you're not an audio person and you just want to read, skim, We'll drop them in your inbox. So lots of ways to find us. You can also find the pod and all the hosts on X with a simple search.

Thank you for joining and listening this week. And we'll see you on the next episode of Acquisitions Anonymous. Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need, or a little of all of those things.

That's why my company, Vizzo Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q&A session on SBA loans at Vizoccap.net. Then click Zoom sign up in the top right corner. That's V-I-S-O-C-A-P.net and click Zoom sign up. Okay. So at the same time, though, isn't this sort of a red flag for this deal? Right?

So, like, for me, knowing this dynamic is totally true. I mean, one more anecdote about this, like, we've looked at FedEx routes on the pod before. And the FedEx, the whole dynamic on FedEx routes, and this is actually the whole dynamic for any deal, you should always ask yourself, why am I the lucky person that gets to see this deal? And that dynamic of FedEx routes are they all operate out of the same terminal. So if you are selling your routes, the obvious buyer is like the guys at the same terminal, right? Who see you every day and, like, know all your guys. you're definitely just going to ask all the other operators at your terminal, like if they want to buy your FedEx wrap.

No, your trucks are crappy. I'm not buying yours, you know? And so they've all passed on it, right? By the time it makes it to biz buy sell in the FedEx context, like everybody at the terminal has passed on it. Now, it might be because FedEx has concentration limitations at that terminal, that they won't let one operator get too big or whatever. But still, you got to ask yourself,

why has no one in the system, you know, in the adjacent territories wanted to bolt this one on. So, like, you have to ask that kind of first and foremost. Like, what are, are there, Alex, like, structural reasons? Or is it just sort of like, definitionally, your first one is probably not the best unit, but you've got to eat it anyway to get into the system so you can buy two, three, and four. That's a great question. And I think some of it is structural.

We're trying to navigate solving this now within Franzy. And part of it is, is you think from the seller's point of view, We all collectively own, you know, Jimmy Johns or whatever it is together. We want to sell for the best price, probably. I mean, we care a little bit about who's buying it and who's going to take care of it. But at the end of the day, we want to get the best multiple on our business. But the franchisor, now look at their seat, they're getting paid their 6ish percent on revenue regardless of what happens. Switching operators is a pain in the ass for them, right?

Like it's an event that now has to happen. They have to retrain potentially. They, of course, want someone else from within the system. So they're very much incentivizing that. They're going to help you share your deal with the rest of the system. They want that to happen. But you as a seller, you're better off if both people in the system and outside the system are looking at it because it creates competition.

And when there's competition, I'm getting paid more, and likely a better outcome. And so at Franzy, one of the things we've started to do with resales is we go to these sellers of these popular brands and all of them want the ability to get it marketed to other private equity guys, other multi-unit operators and other brands. So still good operators just might not be in the Jimmy John system. And so I think historically there just hasn't been as much liquidity or access. And I think platforms like Fransy and other tools now, especially with AI, are making these deals more available. But structurally, it's been this kind of good old boys club again behind closed doors.

And the seller hasn't really tried to challenge the status quo because that's such a large structural change you'd have to make to go shop it at that level and really get it out. It's just easy to take the bird in the hand when the operator down the street wants to buy it, and it's a decent multiple, and I just want to be done with it and move on. I think this is probably also, like, it reflects where the franchisor is in their maturity. And I think we've talked about this with you before, Alex, like, there's only 50 territories. And this is one in one state and two, like, rights in adjacent states. So it may just be that there's not other territories close by. like when you look at these numbers.

So back, well, but back to Alex's point, like, like the owner would love lots of bids from inside and outside the system, right, to drive the price up. Of course, the challenge is the best buyer who can pay the most is the buyer with synergies, right? Is the buyer inside the system who already has an accounting manager and an area manager and all that stuff, right? So if I'm, you know, listening to this podcast and I like this garage franchisee and I want a bid, I mean, the most likely scenario is I am the stalking horse bid to drive the bid of the buyer, the interior buyer up, right? Like the way this works out, sort of the most efficient way this works out is that someone from inside the system buys it, but you have an outside stalking horse to drive the price up to force them to pay the synergized multiple. I agree with what you're saying in the logic bill, but what I've seen, and Alex, you can correct me if I'm wrong on this inside the franchisee network, I feel like other franchisees typically undervalue the existing and buying an adjacent territory because they have a much more realistic picture of what it's worth. And typically in an acquisition, I'm not going to pay somebody for the synergies I bring. I'm going to pay them for what they've got and I'm going to realize my synergies. Unless I have to because I need to in order to win it. Yes, unless it's that competitive. But what I typically see is that the new person who's very green and is like, I've never bought, you know, a smash burger before or whatever, they're like, how hard could it be?

And they'll kind of overpay naively relative to what known operators will. Interesting. So it could cut both ways. I think it does. My question for Alex, though, is like, it is a real risk that they kind of already know who the best buyers are. it's the adjacent Zs inside the same system, right? Those are the best buyers for sure. They can pay the most, whether they will pay the most, to your point mills, who knows?

But they certainly can because they have the most synergy. But let's say I'm not an existing Z. I want to get into this system. How do I differentiate myself as an offer, right? Because what you don't want to do is spend a bunch of cycles, come in with a fair offer, and get top ticked by 5%, and they go with the guy they're going to go with anyway. Like, how can I differentiate myself? as a buyer. I mean, I've got some thoughts, but I wonder if there's any kind of franchise

specific ways. And also, Alex, like, who decides? Does the seller just pick the high offer? Or do you need to convince the Zor also that they should sell to you? So the Zor does have to give sign-off, but typically, you know, nine times out of 10, they're going to do that. If they have an operator who's checked out, even look at this exact example, the revenue is declining. Part of that's macro things. Everyone during COVID was doing, home renovations and garage you know, outfits, etc. And so part of this decline, I think, is just

the macro environment that we're in. Part of it's the owner is starting to be checked out, has made enough money throughout their career and is not as aggressively involved day to day as they used to be. And so as that revenue declines, the brand is losing more and more money.

They'd rather get someone who's got new energy, new blood, new capital, coming in to get excited and grow and build that business. So more often than not, they approve it again, especially if their partner, the franchisee is checked out. But they do have to approve it. So you really just need to convince the existing seller. Yeah, they're the gatekeeper.

They ultimately are the one kind of dictating where this goes. It's ultimately their business at the end of the day. The franchisor, you know, it would be a very bad look on the franchisor if they just kept declining franchisees from selling their business because now all these investors and franchisees are coming in and not having liquidity, which is part of what makes the whole franchise model work. I had this instance come up this week that clarified something for me, where franchisors have a kind of a right of first offer or like, you know, a last look. And it was a situation where the franchisee, it was multiple territories, it was kind of underperforming.

And I looked at it, and I thought the pile of assets was like the most valuable things. thing separate and distinct from the, you know, the franchise network. Like, I just wanted to take them, kind of scrape the branding off and, you know, run it as a standalone or, you know, kind of like a tuck into something else. And I was talking to the franchisee about it because I was like, hey, man, this might be the best way for you to achieve maximum value on this. And he was like, I hear you, but I need to check my franchise documents. But I'm pretty sure the franchisor would never let it go for that because somebody else would

probably, would probably pay slightly more. And if not, then the franchisor would just, they don't usually like to take back a store and make it corporate, but they would probably preserve the market value by not letting it just go, you know, kind of and dissolve. So on this particular deal, do we think this is one where you can be passive in it or is this one where you have to be an owner operator? Because it for sure looks like this owner is doing the owner operator model,

but is this one where you could be a multi-unit franchisee in it? or is it one C-D-2sies? What do you think, Alex? I think eventually you can. I think you need to get to a larger scale than this individual is. I was talking to, I don't know if you guys know Brian Beers at all.

He puts out a lot of really good content around, you know, acquisition. I mean, all of the acquisitions he's done over 30 or 40 acquisitions out of minekees. So he's an automotive franchisee. Have almost all been seller financed. And he's found his lane and he's got his playbook now.

And he's built a really big business, But he has this mantra that I love. And it's, you know, first I do it, then it's we do it, where he's got GMs, or in this case, maybe a local sales manager driving, you know, these projects and managing some of the team. And then it's they do it. And he didn't get to the, you know, they do it phase until he was at 20 plus minor key locations.

And so he was very, you know, not fixing vehicles or anything on a day-to-day basis, but very much involved in, you know, the day-to-day operations of a portfolio of these businesses. And so I think a lot of franchises follow a similar path. I think for this one, you've got to get to probably 10-ish million plus in revenue before you can start to think about removing yourself from a pretty involved position in the business and definitely be on one territory. What I like about this in terms of like it's technically in the construction industry is that this is fairly formulaic construction.

It's not like you're doing one-off home renovations where the person's like, well, you take down this wall in my house and like you have to constantly like do discovery from like zero to 60 every time. This is we're not moving walls. We're bolting these things to existing walls. It's a it's a slab. Like it's kind of a nice blank palette. It's not gut my kitchen and put it back, which is a lot more variables.

Which is why their gross margins are what they are. It's so systematic. It's a rectangle. Yeah. So like I had this done. I didn't go like totally ham with all. cabinets and stuff because I had some of that stuff already, but I had the floor's done when we moved in. And it's basically like the guy shows up, he measures your space because the quotes per square foot.

So he's got to measure the space. And then they show you like a book of here's what all the floor coatings look like. And there's slightly different prices per square foot because it's a premium level, a basic level, et cetera. And then you just show them a catalog of like what cabinets do you want. And those are skews. I mean, those are functionally drop shipped. You know, it's not like you're manufacturing all that stuff. You're typically assembling it on site, but like it's not rocket science. So the variability here is not a lot, even though it feels very custom.

It's not like a custom home. So I, it feels to me like you could standardize this. You know, the problem is with just one unit, you don't have a lot of room for a GM. I mean, like his SDE in the bad year was 120K.

And a good year was 600. But like still, you hire a good GM for 150 plus. Like that's a material chunk of your operating profit. which again comes back to the first unit's the worst, right? If you had three of these, I definitely think you could SOP this and probably start to get out of the day to day. Yep.

That's the other thing I've been shocked by too. I think home services is a little bit different. But the average price for a GM, and this is food again, but the average price of a GM in a McDonald's, in a Taco Bell, et cetera, is a lot lower than I thought it was. It was 70 to 90K for district managers who are managing multiple locations, it's in that 1, 125 to 150 range. But I was shocked at the quality of, you know, person that could manage 20, 30 hourly employees and, you know, what their, their wage was in

some of these brands that are doing $2, $3 million in average unit volume in food. It's not too, too dissimilar here, I think, where you could find a pretty talented person under six figures to run the location. But to Bill's point, you still absolutely need to be beyond one territory or a revenue number that justifies and supports doing that. Yeah. Wow. That's surprising to me in a good way. So we have a whole bunch more data here on kind of comparing this franchise, you know,

their FDD to a competitive brand, which is cool. I think this is like one of the nice things you get when you use someone like Franzy is instead of just looking at this deal in a vacuum. You can say, hey, how is this doing against comp franchises? Which I think is going to give you a case for, can I, actually run this better, you know, because every seller is going to go, oh, you can run this better. But, you know, I think if I were to look at this and go, oh, all of his metrics are garbage against even the Zs in the same system and against Zs in the comp system, then I have a lot more

belief that maybe I can make this better. But if you're, if he's saying, oh, you can do this so much better and he's like average for his system and average for the competitive systems, you're like, well, probably not. I'm not, I'm just new to this. And you're already know what you're doing and you're kind of suck at it. So this is some, we won't go through all this data, but it's helpful to use, you know,

a broker like we always talk about Heather's not here today, but we talk about like the advantages using an SBA loan broker because you can compare data across lenders. I think it's kind of the same thing with franchises. There's just so much more data that you have in a franchise than in a kind of a one-off business. I was just going to say when people come to us, I mean,

they have a mixed bag of, they're doing some, you know, traditional kind of independent ETA, searches. Sometimes they're dead set on franchising. And one of the interesting takes that I keep hearing is they'll use franzi or other data sets in franchising, the FDs, to basically underwrite a sector or subsector because there's just all this data across hundreds of locations. And let's say it's roofing you're looking at, or HVAC or Pilates Studios. I mean, anything you can possibly dream up, there's probably a franchise brand for it or multiple that have dozens and dozens

of locations with publicly available data that's audited financials on how much revenue are they doing. Sometimes by region, what's the cost to build one of these locations? And so you get all this pretty interesting information, whether you're going to do franchising or not or resale or not, or develop a new area or buy an independent business, that data is still so helpful in helping you underwrite. Where is this market at? And what are people on average doing and which direction should I be headed?

and it helps validate or disprove some of the convictions or gut feelings that an individual might have as they start this journey. Yeah, yeah, more data, always better. So let's kind of try to land the plane here, but I want to talk about what the heck is this business worth. So there's an interesting case here, you know, it's presented a little bit as here's the average of the past three years. But the average does not tell the whole story. I mean, there's a significant dive in 2024 where you, so, the variation here is from 124,000 of SD on the low end to almost 600,000 of SD on the high end. I want to know, you know, I'll start with you, Mills, and then I'll ask you Gurdley, and then I'll ask Alex, and I'll go.

But, like, how do you guys value this thing? Like, what are you going to bid? The thing that concerns me about this one is just how discretionary the purchase is. And I think there's even some mention of that, like, in this or what's on frenzy. I just think this is like one of the first expenses to go, you know, in terms of what a homeowner is considering, which is why we see this revenue volatility and maybe even more revenue volatility in this space. So I would be, I would be kind of very conservative in the way that I would think, like I think Alex, you said they were looking for somewhere around like three times the EBIT. plus SDE number right in that category. I at least like that they are realistic in thinking about it as an average

versus trying to top tick, you know, the most recent year or something like that. I would have a lot more questions before I could like really pin that down in terms of like, what's the quality of the operation? Yeah. So are you, you can't bid yet. Yeah. I mean, I think roughly three times seems doable, but you could, get under the surface of this and realize like it definitely doesn't work.

In the off years, right? Three times more. Three times average. Yeah. And in the off years, you probably can't cover your debt service with an acquisition like this. So. Yeah. Yeah.

And Heather's not here to say, hey, it's going to get hard to get, you know, real bank financing for this, which I think I forgot who said it. Like many of these are seller financed. You know, so I'm probably coming in with a seller financing structure because it's going to be tough to get bank debt on a project-based thing. And thankfully, they've been around long enough that it's not like somebody tried to do this as a new franchise, you know, territory developer or something like that. And they've only been doing it two years and didn't work.

They have SBA debt hanging over their head. Like, you see that a lot where, you know, they really can't sell for a lower price, like the price of my mortgage bill. Like your term is like my floor, you know. Yeah. I don't think that's the case here because this person's been doing it for 10 years, I think, or something like that. Gards, what do you think?

I think I would really value this based on what 2025 and the first half of 2026 looks like. To me, that feels like it'll be the new normal for this business and a post-COVID environment. But yeah, I think I'm kind of where Mills is, two and a half to three times. Seems pretty reasonable and a good margin of safety. Yep.

Yeah, the thing that for me, I'll keep my mouth shut. What do you think, Alex? I'll go. I'm in the same category. I think two and a half to three times is fair. for a services business like this and I would have a lot of questions about

the upside potential like why did this individual not expand into Idaho or Oregon they bought the rights at some point what was the reason for not doing it is it because you need another showroom and there's all this fixed cost that I wasn't anticipating having to build in another state or can you leverage the same

showroom in Seattle or outside of Seattle and Washington to reach this other market that effectively is paid for and I can go pretty significantly grow the business without too too much additional investment. I don't want to understand more about that because that could

really make this incredibly valuable and super interesting. That's a great point. You get two extra territories kind of for free when you buy this that you could expand into. For me, the thing that I am laser focused on here is kind of this buy versus build idea because if you want to be in this, and this is the case for any system, I mean, most

systems that are taking new operators, not all them are. But you can just approach the Zor and go, I want a greenfield. Like, I want to open a new unit in a place where you don't have one. And that's why I thought it was interesting to look at kind of the replacement cost. So the initial investment on this brand from the FDD is about 300 grand. So you can start one of these for 300 grand. Now you have zero revenue, right? So you have 300 grand of kind of startup.

But then for me, on top of that, I'm looking here at the more information about the deal. they've got $220,000 of inventory and $250,000 of FF&E. So that looks like it's on the high end. That's about $470,000 of working capital plus whatever the franchise fee is. It looks like that's about 60 grand. So this person's got north of half a million in it, right, of kind of working capital and franchise fee. Well, actually, they've probably paid a couple of franchise fees because they have two secondary markets. So they've paid 120k of franchise fees.

So, like, they're pushing 600, like, capital in. Now, in a good year, you take 600 of capital out. You know, that's amazing in one year. So, like, it's not that the ROI isn't there. I mean, they took out 32 of SD is a 50% return your capital. Like, that's pretty good. But I'm asking myself, what am I going to pay for this versus what could I just open up? I think it's more, it's worth more than just opening up.

but maybe not a lot, considering it's not recurring at all. Like, you do this once. It's kind of unlikely you're going to do it again. Like, this is about a brand and a Google placement and, like, some reviews. So, like, I don't know how much moat there is to an existing Z versus just Greenfield and one in my area. So I would, like, if I like this, I would diligence this opportunity. But as I learned about it, I would always be comparing to Greenfield. Like if I'm going to pay this guy, if it's three times, last year, that's 450K.

If it's three times his average, it's a million bucks. Yeah. You know, so it's kind of right in there at parity from buy versus build. It's in the ballpark. So I'm always going to be looking at build versus buy on this one. This is a good one. I like this. Yeah, it's a cool business.

I mean, it's got to be fun to own, right? You're just every, and also you turn these in like a week. So like every week, you're cranking out like a really cool case study. beautiful pictures, great for social media. You know, it's, this is a fun business to own, I would think. I love this category. When people ask me, like, which category should I look at? I'd say, you know, senior care, certain subsector is just because it's the largest

aging population, and I think humanity has ever seen. And, you know, so there's tons of demand. We do calls into various markets just to kind of see one of the wait lists on certain senior care facilities and whatnot. Every market is, you know, 12 months out. It's just like, there's clearly. demand there, and so there's tons of opportunity. And garage as the subsector of home services is one of my favorite categories because, you know, I think more and more people are wanting this

secondary space, this, you know, this kind of other third space in their home, if you will. And it's super easy. It's a small crew to do. You don't need a ton of heavy equipment or machinery. And the ticket is super high. So if you're good at sales and you're good at, you're kind of beating the local mom and pop person at marketing, which the bar is pretty low. I like it for just the, you know, affordability to get into the high ticket size and, you know, the upside potential. Again, I love this category and this type of business. Yeah, it's kind of home office adjacent, right? Like if you're working from home, spending more time in your space, you know, this is something you're paying attention to.

They don't show us the COVID year 2020 and 2021, but I would bet this business crushed in 2021. Yeah. Crushed. All right. Well, let's wrap it up. That was a fun episode. for coming on and being our franchise expert. I always learn a ton.

Fancializes is such a big world. It's fascinating to me. So it's cool. Thank you for being here. Yeah, thanks for having me. Alex, where can people find you and Franzy on the internet? Yeah, so go to www. franzi.com.

It's like, again, like Zilla, free to go check out and explore. We don't charge you anything for all the data that we've put together. And then if you want more content about franchising, I am Alex from Franzy on all the social platforms, Instagram, TikTok, etc. And then we have a podcast called The Exit Plan where we break down stories of people who have actually gone and done this from zero to either one or zero to 101. We tell how they financed it, how they vetted the brands, how they talked to existing operators, et cetera. And you can check that out to learn more there as well.

That's awesome. Thanks for being here. If you guys like this episode, obviously you can check out Franzy's podcast. But you can also check out 550 episodes of Acquisitions Anonymous, which are on our website, A, C, you anon.com. You can also get on our email list. We will email you the new episodes if you're not an audio person and you just want to read. Skim, we'll drop them in your inbox. So lots of ways to find us. You can also find the pod and all the hosts on X with a simple search. Thank you for joining and listening this week and we'll see you on the next episode of Acquisitions Anonymous.