BiggerPockets Money Podcast - How to Buy a Franchise: What You Need to Know Before Investing

Episode Date: September 8, 2026

In this episode of the BiggerPockets Money podcast, Scott Trench is joined by Alex Smereczniak of Franzy to break down  how to buy a franchise, what franchises actually cost, who is best suited for franchise ownership, and how to evaluate the risks and rewards of buying a franchise business. They also explore real-world franchise success stories, passive income potential, and how franchising can fit into a broader financial independence strategy. This episode is brought to you in partnership with Franzy. BiggerPockets Money may receive compensation if you choose to work with Franzy. As always, do your own research and evaluate whether a franchise opportunity is right for your financial situation and goals. To go beyond the podcast: Interested in a Flat Fee Financial Planner? Go to biggerpocketsmoney.com/fipro Interested in Learning More About Buying a Franchise? Check out: biggerpocketsmoney.com/franzy Get 50% Off Your First Year of Monarch by using code ‘Pockets’: https://www.monarch.com/pockets Connect with Alex Smereczniak: https://www.instagram.com/alexfromfranzy/?hl=en We believe financial independence is attainable for anyone no matter when or where you’re starting. Let’s get your financial house in order! Learn more about your ad choices. Visit megaphone.fm/adchoices

What's going on, everybody? I'm Scott Trench, host of the Bigger Pockets Money podcast here today, which just me, it's just me today. If you're thinking about buying a franchise but have no idea where to start, today we're going to be walking through the franchise buying process from finding the right opportunity, financing the purchase, and deciding whether you should actually sign the deal. I'm trying to put on my hat of a realistic franchise buyer here, right? Somebody who makes $150,000 a year in their income, maybe their spouse makes about $100,000 a year. And our higher income owner wants to quit the job and go buy a franchise, and that's pretty terrifying. This is probably the average or the typical type of franchise buyer. I think that there's a real risk and a

opportunity, and it's, you know, a consideration. Some percentage of people will go through. So hopefully this is helpful for you. And I think we brought on one of the best possible guests we can have to talk about this in Alex Smersnack, who is the founder of Franzy and an experienced franchise operator. Franzy is a platform that makes franchise discovery easier for aspiring business owners to find, compare, and finance franchise opportunities. Quick disclosure, we are partnered with Frenzy and we're producing this episode in partnership with Alex. We chose to part with with them because we think it's a great way to connect with franchise partners and explore this if that's something you're interested in. So with that, welcome, Alex. Scott, thanks for having me. I'm

excited to get into all things, business ownership, franchising, financing them, finding the right one, you name it, excited for the conversation. Awesome. Let's kick this off by understanding the concept, you know, generally. Like, how much? How much does it take to get into an operator franchise? What's that commitment look like financially? How much do I have to bring down? How much do these things cost? And what should I expect the time commitment to look like?

Yep. So one thing I always like to anchor in is franchising, to begin with, is it's a business model. It's not an industry. So if you think about franchising, I think a lot of people think McDonald, Subway, and it kind of stops there. But what I've come to learn is it touches 6% of our country's GDP and it spans food, not just food, but also health and wellness, early childhood development, home services, you name it. And so it spans this huge buffet of options. And so the answer I'm going to give you on the range of how do you get into this and what does it cost is pretty wide because there are side hustle franchises that are 10 to 20K to get into.

And it's like card my yard or basically buying a bucket in a mop and doing commercial cleaning services franchise. And it's very, very low cost to get into. But then you have businesses that are all the way up to the four to six. million range where it's a giant swim school, you know, for kids swimming lessons or an indoor play park that is, you know, just much more infrastructure and more cost. And so the real range is anywhere from 10K to 5 million. But I would say if you have 50 to 150K, you can get into the majority of the, let's call them, you know, good income replacing or empire building even concepts where you can buy multiple territories and start to scale up and build out a meaningful portfolio of concepts and territories.

I think about the path to building wealth. The most common one, people listening to bigger pockets money will likely take is work a corporate job that has good benefits and good pay. Climate, save a good portion of their income and get to financial independence or some version of it within about 10, 15, 20 years. There's the real estate path. There's true entrepreneurship starting something or maybe joining a startup and receiving equity. Where do you think this falls in that range? Who is this best for? Yep. So I think this is perfect for the majority of the population that want to be entrepreneurs or business owners, but they're not sure where to start. So Gallup did an interesting survey a couple of years ago, and they found that, I think it was

68% of Americans indicated they wanted to be a business owner and entrepreneur, but the reality is only 12% of actually do it. And so why is there this 50 plus percent gap of those that never take action? And I think it's because they don't know where to start. A lot of people are in corporate careers or getting paid well. They get comfortable. Franchising is for that individual that's develop skills around people management, maybe sales and marketing, maybe they're really good at operations. They have some skill set, but they haven't, you know, again, come up with some next Uber or next Facebook and franchising, I think, is a really de-risk path to going and becoming an owner because you have a playbook, you have a group of peers that you can rely on and share notes with.

You have a system that's, for the most part, proven. They're not always proven in. There's risks associated with some brands. But for the most part of a proven playbook where you start on step three instead of step one of this, you know, 10-step entrepreneurial journey. Long answer short, someone who wants to be entrepreneurial that has some cash saved up and is ready to go, become an owner, maybe not just have financial independence, but also more independence of their time in the long run by owning this business. I'm going to create a fictional person here I think is the likely buyer of a franchise, right? So we have a married

couple. You know, one makes 150, one makes, you know, 100. And the $150,000 earner is fed up with work. They have a good career track. There's good prospects there, but doesn't like. and want something different. And so is seriously exploring this. It's a major risk because the household spends $125,000, which is more than the second earner makes. How close am I to your franchise buyer persona here? Almost spot on. I put him in almost three buckets. One is the side hustler person who isn't looking for a full income replacement. They might want that card my yard, you know, or random kind of 20 hour a week side hustle franchise that is cheaper to get into but might only yield 20 to 40k a year in income or cash flow. And that's fine. They're just looking for that

kind of side hustle. The second group is what you described perfectly. It's the corporate warrior, dual income household. They're not happy in their job. And they've realized I spent 40 plus hours a week doing this. I might as well find something that makes me happy. And I just don't know where to start. And so we get a lot of couples or individuals from two families that partner up and come together and kind of tag team doing this and easing into it. And then the third one is your more serial entrepreneur type. They might own some franchises already. They might own some short-term rentals in real estate. And this is just a diversification play for them. And they have their hands in all sorts of different investment buckets and franchising slash business ownership is one of them.

This conversation is dead on the water if you don't know what you're talking about, right? You're like, of course you can't do that. That would be totally irresponsible in this particular situation. Until we get into more of the details, you run Franzy. You obviously believe in this. Help me make the case for this person, the $150,000 income earner and this household we've created, to quit their safe corporate job they've been doing for the last 12 to 15 years in that industry and go buy a Jersey Mike's. What's the argument in favor of that? Yeah.

So I think happiness is one. If they are fully unfulfilled and unhappy and they know that they need to go do something else, I think franchising is one of the more de-risk options and most overlooked paths to wealth creation in America. We use an analogy of like, you want dessert. This person in this job hates their job. They want some dessert. Well, do they want ice cream, franchising? Do they want pie?

Our job is to help an individual navigate. Are their skill sets and their unique position in life properly aligned with the universe of franchise opportunities out there? Or would they be better at real estate or something, you know, independent business ownership and doing an ETA, entrepreneurship through acquisition? Our job is to start there. And what we typically look at are four things. What is Scott's risk tolerance?

Is he risk-averse, risk-seeking and where on that spectrum? do you fall? What is your financial health kind of in readiness and what can you afford and not afford? What's too much? And, you know, this example we're talking about. What are your skills? What, what have you developed over the course of your career that would transfer into a number of other businesses? And then what's your why? Is this to replace income? Is it to empire build? Is it to offset some new expenses you got? It's more of the side hustle piece again. And so once we figure that part out, the reality is, is there is a franchise for just about every archetype, unless you come in, saying, I've got 50K saved up, that's it.

And if we get this wrong, you know, it's going to materially set my whole family back. And I just couldn't stomach the risk. I'd be awake every night. It would make me unhappier than I am now in my job that I'm unhappy in. Those individuals, we say, hey, you're not ready for it. Or if it's an individual that comes to us and says, I am wildly entrepreneurial. I hate having a boss. If I had another boss, I would just be really upset about it.

And we would say franchising is probably not for you because you do have a response. to the franchisor and the parent brand to follow a playbook that again that they've proven and they want people to follow because they believe that it works that individual also shouldn't franchise they should go start something completely entrepreneurial at them on their own but they lose the benefits that come with franchising which is a five-year success rate of 85% versus 50% for independent businesses so there's a few reasons but it really depends on the archetype and the the person I'm developing franchises myself but I'm also doing this completely entrepreneurial thing with Franzy as well. And so I get the best of both worlds in some cases. Every business owner hits a point where they need more expertise than they can handle alone, but another full-time hire isn't always the answer. That's where Upwork comes in. It's where growing businesses find highly skilled freelance specialists, not just for one-off tasks, but to build an entire team, fill critical skill gaps, launch projects faster, and scale support up or down at a fraction of the cost and without the commitment of permanent headcount. Visit upwork.com right now and post your job for free.

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But when I think about buying a franchise, my fear is less the franchise. I'll buy the franchise and it'll blow up. It's more, I'll buy the franchise. I'm going to spend several years here. And it's just going to, I'm going to buy myself like kind of a mediocre job. showing up to this thing every single day. And it's just going to be worse than if I got a regular job, stayed in my executive or director career track in corporate America.

And I'm going to be trading that for kind of a lower paying, not as good situation. Is that a common fear people have when they come to you and think about buying the franchises? Yeah, they question their ability and if they'd be good at it or can they truly afford it? Because I think they're anchoring on, you know, this is a huge restaurant. Restaurants have a high failure rate. You know, McDonald's is millions of dollars to get into. I couldn't get into that.

And so there's some of that, just like lack of education and awareness of how many brands are out there and how many concepts have been franchised and and then what to look for to de-risk it. But to your point, I think some people do worry about, you know, what if I pick the wrong one, I bet the house and I get it wrong. And that's what Franzy's whole purpose is, is how do we de-risk this and help you sift through the thousands of opportunities out there? Let me rephrase even beyond that because there's like, I think that's right. There's the, there's real financial risk and there's real financial reward. I believe the, the case for this is it's more in between entrepreneurship and a safe job. It's somewhere along the

that spectrum, maybe a little closer entrepreneurship than the safe job, but much less of a risk than truly starting a new thing from scratch. I guess my fear is, like, does the franchise purchaser, they should expect to work full time on most of these on the location in the office of that like a physical location of the franchise every single day, 40 hours a week, and manage the team and process that's handed to them. This is not a part-time job that, for the most part that people are buying. And I think I would go into the world of franchising. I would think I want to do that and I understand that.

How realistic is it that I'll be able to move on from that and actually make this somewhat passive over the years? Yeah, that's where it does become similar to you buying or starting your own independent business. The first few years are going to be an absolute grind. You are the business owner, whether it's franchise or not. Remember from the beginning of the conversation, franchising is a business model, not an industry.

And so whether you're starting a gutter cleaning business from scratch or you're buying a gutter cleaning franchise, You are still a gutter cleaning business owner that's going to require all the things that come with it. Hiring employees, going out and selling jobs, quoting jobs, maybe building technology and automations and AI workflows, et cetera. Franchising allows you to start on square three instead of from square one, but you're still going to be in the business the first year, 40 plus hours, unless there's a caveat, and this is true for independent versus franchise, unless you're really well off already, have a ton of cash and go hire an operating partner, give them some equity, pay them a salary out of the gate, burn more money the first. year, but you trade that capital burn for your time. You don't want to be the one running the crew and selling the jobs. Maybe you just want to do some of the administrative stuff. So I'll give my, you know, real life example. I'm developing 10 pop-up bagels right now in the Midwest. I know nothing

about food or operating a restaurant, but I have some capital. I have another partner and we're hiring a director of operations out of the gate to effectively GM our locations. And the reason we do a franchise is I don't know bagels and menu supply chain optimization and coming up with all these partnerships that pop up is doing with celebrities and different large brands for for smears and whatnot and so that's why I would buy into that type of franchise the numbers are phenomenal it's a great investment I'll still have to work at it but the cheat code is having some extra capital to do it out of the gate if you don't have the extra capital you are going to have to run the business and there's sweat equity there and there's a framework we talk about this stage too it's I do it

we do it and then it's they do it and that's true for franchising or an independent business the first few years i'm doing it all i'm in the trenches i'm hiring the team i'm managing the team selling the jobs working probably 60 to 80 hours a week if not more i eventually get to a size where i can afford a gm and now it's you know we do it i start to train them my system my routine we build up frameworks there and then i get to enough of a scale and a size where it's they do it i can hire a senior management team or a leadership team and that's where i have a choice do i go to the beach with that time or spend more time with the kids and family, or my empire building,

and I'm freeing up my time to go acquire portfolios of six Jersey mics now and 10 Dave's Hot Chickens, and I'm now going from 10 locations to 30, 50, 60. And I have plenty of stories of those that went from zero to 100 plus units in seven years because they were that kind of mindset empire building. That's fair. Let's go back to our fake person here

who's considering trying to convince their spouse to let them buy a franchise. On one hand, if I stay at my corporate job, I'm making 150K and I'll probably make 200K, you know, in the next three to five years, or that's the hope. That's not crazy in that particular track. If I buy the franchise, you know, maybe I've got 100 to 150,000 to put down in the situation. What's good, bad, and ugly case, you know, in your experience for someone who fits that profile?

How would you help them shop? Yep. So 100 to 150K, let's say in cash, you know, a lot of people use SBA loans or what are called Rob's rollovers. It's a rollover of a business startup. You can use 401k assets, penalty-free, to invest in yourself instead of a publicly traded equity. And a lot of people don't realize you can do that. I think it's a good program, whether it's for franchising or not.

But so with 100 to 150K, you're probably only really needing to put 20% down in some cases if you want to put more. And so that 100 to 150K, including working capital for at least six months, I always tell people to have nine. The FD, the franchise disclosure document, only shows three months of working capital. So something to look out for, have at least six. at a minimum, I'd say nine. So if you have 100 to 150K with 20% down, you can realistically afford a half a million-ish or so, you know, dollar business.

Maybe 600K if you want to get aggressive, 400K if you want to be safer. And from there, to your point, good, bad, and ugly. I think a good situation is you find a concept that through your effort and through your work, you can earn a payback period on your investment of less than two years.

That would be good. Less than a year is fantastic. You know, two years to a year is great. Less than three years is good. Anything beyond that starts to get risky. You have to have everything go well. Your cash is not working as hard for you. And just the internal rate of return, the IRR,

is not as strong, I'd say, for concepts that are three plus years. So we help people identify what are the concepts that you can afford and then also fit this payback period if your goal is quickly to replace income. If your goal is to empire build and you're fine just plowing every bit of cash flow back in because you're going to live off of other investments, you might be fine with concepts

of a slightly longer payback period if there's more upside territory and territory availability. Maybe could you help us ground this in like some specific examples? Like what are some of the recent realities that you've transacted and what are what are some of the ones that are maybe two or three years old now and we can have some insight into actuals? So an individual we helped. He was a police officer or a sheriff and he had a $225,000 a year salary and a pension in Northern California. And he packed up his family, moved to Texas, to open an artificial turf business. And so they're doing installs of dog runs

and whole backyards and front yards and commercial projects. And I went to go visit him down in Texas the other week for another podcast and just to do some content with him. And in less than a year, he's already at over a million in revenue and he's well on his way. He's probably a few months away from fully replacing his income.

The thing that stuck out though was he's like, yeah, the money is part of it and it's good. And I need to have financial security. But his happiness is through the roof. He's a way more fulfilled. his thing, he's got a crew. He's working really hard at it, to your point, but his fulfillment and his happiness is much higher than it was. That's for, again, an artificial turf business got to over a million in under a year. Another business that we work with, and that, you know, I think

is interesting, is this commercial kitchen cleaning business. They do oil filtration, oil recycling. They also clean freezers and refrigerators at fast food restaurants, or just restaurants in general. And that business costs, you know, 140 to 163,000 or so to get into, but the average location is doing 1.5 million a year in revenue, you know, with just a handful of vehicles servicing these routes. And so, again, investments of less than 200K, but revenue is over one and a half million. Give me some more spectrum here. So we have, the artificial turf business sounds way more palatable, right? I mean, I'm sure it's hard work. It's an insulate you're installing basically flooring, you know, or replacing it or landscaping with

artificial turf. But that doesn't seem nearly as unpleasant as the grease removal business. What are some that sound like more pleasant? I think a. Another good one that I personally like, and I think, you know, I would probably be similar on this if we both, you know, both couldn't see ourselves doing the Greece business is a lot of services popping up around, you know, senior mobility, senior care. There's 56 million Americans, 65 plus, you know, in America, 10,000 people turning 65 every single day right now in the United States. And so this massive, massive group of people that need either in-home care or facility-based care or the business that I'm about to bring up is modifications to their home for

accessibility and safety. And so there's a handful of brands I really like that investment cost is 190-ish-000 to 412,000 franchise fees are 25 to 75K depending on the brand. But again, huge market, insurance covers a lot of it. This mobility one specifically, they install ramps, they modify bathrooms, they install those kind of like lifts that go upstairs. And, you know, their average revenue is 1.3 to 1.5 million per business and you're getting to help. People that probably look like mom and dad or grandma and grandpa have a better life and live more comfortably and age in their home versus going somewhere else. When I buy a franchise, suppose we're talking about this one here. You said, here's the revenue range. I'm assuming, I don't know, I'm asking, I guess,

that the person selling the franchise, the parent brand, has some kind of formula that they're applying to this. They carve out geographies or have reasonable projections. of what they think the business will look like in each of these locations. And you're limited, right? You cannot go across town, like, or it's going to be a pass-off at some point to the next franchise owner, depending on your geography and where those boundaries are drawn. Is that at all true? Or how does that work if I'm off on my assertion there?

Yep. So for some brands, it's true and others. It's not. And I hate that. I'm giving a lot of these, like, kind of it depends answers. But the reality is, is there's 4,000 brands. And some are way more aggressive. Like, Subway will put another location across the street from another.

subway because they just want more locations open as the parent, even if they cannibalize each other, which isn't good for the franchisee. And so I would personally avoid a brand like that. Others look at and they're like, I'm going to build 30 of these and it doesn't matter. Across the 30, it'll even out and it's diversification across the brand. So for some of these territory-based businesses, which is mostly home services or services-based business, they usually draw up a radius or a population density. So, Scott, you know, you might get 350,000 households. And like that's your polygon, you know, around those either zip codes or however they true it.

Or they're going to say, Scott, you get a 10-mile radius around this pin on the map. And that's your zone. So that is very true. Like you do get an exclusive zone. And that's part of what you're buying into and you pay the franchise fee. Other early brands, though, if Scott comes into, let's call it Charlotte and he, you know, five of these X, Y, Z concepts could exist. And you bought two of them. They'll still let you sell into the other three until someone claims them.

And at that point, if you have recurring customers, they're still yours. And that's why some people that are more risk seeking will get into an early brand because they think I'm just going to go grab as much of the market as I can. I have a say in how the system is built and I can influence it versus Chick-fil-A, you're buying a job. You have to do exactly what they say. They pay for everything and you're buying yourself a job. This is super helpful. Help me make the case. Like I'm trying to make this case for my spouse here.

I want to buy a franchise. Why is this the best thing for the family? Like what should I expect over a one, three, five year period if I move into this? this field and away from corporate, which I think is really why you do this in a lot of cases. Yeah, I think because it's one of the single highest returning asset classes to have existed, maybe outside of crypto and Bitcoin and whatnot as an anomaly. But compared to real estate, compared to starting on your own, compared to investing in the equities market, I think if you're going to financially make an investment, this has the highest

return. The caveat is you need to work for it. And I think for those that feel capped at their job and feel low, you feel low, limited, you know, salary, you know, getting 5% to 10% increases every year. This is a close to uncapped reality where you get to be your own boss, you get a system to follow, you have peers to fall back on and to learn from, and a system that lowers your OPEX and your investment into things like technology supply chain that you don't have to go worry or think about.

And so if your goal is not just financial independence, but also time back and not tied to a 9 to 5 Monday through Friday with 15 PTO days a year, I think, for you know, for you. I think franchising and just entrepreneurship, honestly, in general, is one of the clearest ways to do that. Tell me about how to value of franchise. No, you're getting a good deal on the buy side. And on the flip side of that, what you can then expect to sell them for and if there's any arbitrage, like multiple arbitrage that you can get if you're successful. So there's a ton of multiple arbitrage in franchising. It's why you're seeing a lot of private equity get into it.

I mean, there's brands that people don't realize, like Rourke that owns a swath of large. franchise brands. I mean, everything from Monta-Anne's, and Cinebun to Arby's, to Jimmy Johns to health and wellness concepts. Like, Rourke is this massive private equity group. But then below that, there's other smaller to mid-sized family offices and private equity groups

buying up individual operators portfolios. So Scott and Alex own five Jersey mics, and this other group owns 12, you know, Jersey mics. They're buying these territories up with these existing businesses. And the multiples on a franchise business compared to an independent business are typically anywhere from

a half a turn to two and a half turns higher on EBIT than the independent business. Because there's a system and a supply chain that's giving you bulk purchasing power through the franchisor, because there's more data they can look at, and banks lend to them more frequently as a result. So SBA and other lenders favor franchises more than independent businesses for these same reasons. It's just de-risk compared to Scott and Alex's sandwich shop where we don't have the same purchasing power as Jersey Mike's.

We can't run a Super Bowl ad. We can't get celebrity endorsements. We can't invest millions of dollars in technology on our own. We don't have the scale. And so that's the case, I'd say, from an investment perspective, when you're buying these things, if you're developing it from scratch and you get in early, so pop-up bagel is still an early brand. It's probably the cheapest time to be able to do it because you're getting in early, just like getting into Apple or some sort of tech stock early.

The earlier you are and the higher that ride goes, the bigger the return and the better off you were. But picking those winners and franchising early is tough. You've got to have access, understanding, know-how, data, et cetera, which again, Franzy provides a lot of. If you're buying an existing location or a resale, you would look at this similarly to how you diligence in independent business. Is it a good location or the numbers going up and down over the last few years? Is the area gentrifying or some other event in the area that's going to impact the business? And what you would pay for a franchise sandwich concept or an independent one, again, is likely going to be higher for the franchise one. And same reason private equity pays higher multiples.

The market commands a higher multiple because it's de-rest. I'd love to hear a home run and a failure, you know, story in there. And I'd love for the failure not to be a dude didn't show up and follow the playbook, so he lost. You know, I'm sure there are people, plenty of people who go into it and try their best and it doesn't work. Yes. I also will observe that even in my local town here, you can see this dynamic playing out, that I go to this new restaurant, a new franchise location for breakfast joint opens. It's awesome. It's way better than the other place. I start going there a lot. Nobody else seems to have realized this. It's been like six months. The place is completely empty. And it's like me and my wife, the only people who seem to have realized that this is like a good breakfast spot nearby. Surely that has to happen in a lot of these cases where, hey, I'm on the early train. It seems great. Everything is going right. And it is a legitimately good product and it just doesn't work for whatever reason. I would love to hear your anecdotal view on what you see as a home run outcome.

It was a guest on our podcast. Actually, we have a show. called the exit plan that shows people leaving corporate to go do this or have just built portfolios up to a certain scale and then have exited them and how they did it, how they structured the deals, et cetera. And so one of our guests, he started, he was in banking, so his background, if we think about the skill sets you need and what type of personas get into this, he was an investment banker, so he knows how to raise capital and put deals together. He knew very little about operating though.

And so his first few businesses were independent businesses. There was a few butcher shops. He did okay. I think it was more operationally difficult than he thought. And then he was at an orange theory as a customer. And he was, his brain is curious about numbers and how businesses work. And so he got a hold of the owner.

I was like, what's this whole franchising thing about or fitness franchise, like his orange theory? Is it a good thing? Is it bad? How much money do you make? And so the guy showed him his numbers. Let's call this guy Doug. Doug was like, you make that much money from two orange theories?

Because the guy owned two. And he's like, no, I make, Doug, I make that much from one orange theory. And so that's when Doug was like, I need to get into a few of these. And maybe I'll operate better because it's not a butcher shop. It's a fitness concept. How much was you making from an Orange Theory? I don't have the exact number. He just told me that anecdote of, you know, what it was. But Orange Theory at its peak was trading at a 21x multiple on EBITDA, which was too high. It's since falling off a cliff.

But at one point, Orange Theory really revolutionized, you know, this membership-based fitness and gamifying it and selling products on top of it into their guest base. I want to say the average revenue at its peak was, you know, a million five to two point two, which for a fitness concept, again, you know, better margins in food is pretty good, especially with the recurring revenue, you know, nature of it. You know, Doug gets into two of these, and now he realizes franchising is a vehicle for, you know, mass portfolio creation because I can just go buy XYZ concept and then start to do my investment banking background and put deals together, raise capital for them, and, you know, just add managers and operators and scale from there.

He, in a seven-year period, went from those two orange theories, and this was in 2019 to now 115 plus locations, and he's adding 15 to 25 a year. And what he does is he goes and raise capital from family offices or investors to finance 50 to 70% of this transaction that he puts his own equity in or debt. And he ends up owning 30 to 60% of each of these portfolios. But 115 locations in the brands that he's in.

He's in Marco's Pizza, Dave's Hot Chicken, Pop-up, restore hyper-wellness, and a few other fitness concepts. His total portfolio probably does a little over 300 million in revenue a year, and he did that in seven years. I mean, again, I'm an entrepreneur. I've seen a bunch of tech startups. I've seen a bunch of independent businesses. Very few have I seen, or the frequency of this individual's story happen that quickly. I mean, getting to that sheer size of revenue in seven years is wildly impressive.

He has 3,000 employees now, but this was done through a systematic M&A acquisition, raised capital, and go buy up portfolios of other multi-unit operators within franchise. One of the things that's interesting here is, is I, again, I have no doubt that there's plenty of success stories, you know, and folks who live incredible quality of life. I also sometimes get skeptical of those like 300 million in revenue stories in there because I know some guys in the real estate world who, you know, have put in hundreds of millions of dollars into real estate and turned it into fewer hundreds of millions of dollars over a several year period. So once you get into the raising capital and private equity side of things, it's a whole new ballgame. And I think there will be some people who are really interested in that. But I think for the most part, the folks listening to this podcast are looking for like, now I'm looking for financial freedom and I would like a better ride to that outcome than

what my job is going to give me in corporate America. And there might be something to look for here. And it seems like that is a reality that you can get to. But let's do these Jersey mics again. I'm buying a Jersey mics for, I'm assuming you can get in there for like $500 to $750,000. Yeah, with some debt too, because the buildup, I mean, most restaurant concepts with all the equipment or north of a million million to two million buildouts. Okay, how much cash and debt am I going to need to take on

to buy a Jersey Mikes in a solid suburb? 1.3 to 1.5 million. In total? Cash and debt, yep. Okay. Over the next three to five years, what happens in a solid, single, or double situation, not the outlier extreme of the good, not the disaster where I have to close down at the end?

What happens to the owner there? Yep. So the average in food, enfranchising, is about a, 33 to 34% internal rate of return on the cash that you put into the deal. And most people are financing with that. So if you are in for $750 to a million bucks, I think you can expect a 30% return on that cash year over year over that period. That's seller discretionary earnings. That includes whatever salary you pay yourself, your health insurance that I'm sure flowed through the business, whatever you're getting in there. So you're saying I'll put a million bucks in.

I'm going to get 33% IRA. How we understand what the exit, looks like at the end of that if I were to sell it. What would I sell it for once I build it from scratch and then decide I want to get out at that point? So yeah, depending on the revenue you're doing, which Jersey Mike's is over is over $2 million, you're probably going to get a six to nine X multiple on the EBIT of that business. This is a great outcome. It's not like a generational wealth outcome here. I mean, it kind of is to some degree, but I'm going to put in a million I'll probably put down $500,000, it sounds like, and borrow a million somewhere in that ballpark to get this thing going.

And then if things go well, I could sell it for $2.5 to $3 million once it is a sustainable thriving business if I get to $500 to $600,000 and seller discretionary earnings, total pool of whatever you pay yourself in salary plus profit left over from the business. Is that a fair description of a single double in the space? Yeah, I think that would be on the higher end for sure. And it depends on, you know, is Jersey Mike's a mature brain? or is it still growing and people are more excited about it? I'll give you the example that I'm working on now with pop-up.

You know, we're developing 10 locations over a five-year period. Each location is, you know, sub a million dollars to build because it's a smaller footprint. My partner and I can't come up with the, you know, full seven and a half million we need on our own. So we'll use a series of our own cash, SBA. We're taking on some outside capital and giving up a small percentage of the business for it. And then we'll use the cash flow from the first few stores to finance the buildouts of, you know, store five and beyond. let's call it. But the goal would be to sell it at the end for, you know, call it 30-ish to 50 million dollars. And I'm not one of these guys that owns 100 units or I'm sitting on, you know,

$10 million in cash. I probably would put myself in the persona of the dual-income household that, you know, is in their late 30s to the early 50s and has, you know, a couple hundred thousand to, you know, half a million to a million dollars scrolled away. There's a possibility you're going to generate $10 million plus dollars from your activity set there. That's your idea. Yeah, I think we'll be 25 to 40 million on this portfolio, just given the capital behind the brand. The average unit volumes are very high, especially for the cost of payback periods less than a year. And so this brand specifically has really good economics. And for anyone listening, they're already sold out. The whole country is sold out.

So it's not possible to get into from a de novo perspective, but resales will probably become available at some point where you can start buying up and, you know, rolling up these locations or finding another competitor or bagel concept i just meant that it sounded like your cut of this profit pool it sounds like there's some partners and and capital partners involved who's going to be personally in the 10 million dollar range was just like my very quick back in the app and that's your expectation from this particular move over 10 years or five years so we have to build 10 locations within five years and my guess is we could then sell either at that point slightly before some people like the idea of the upside of developing new locations

how they see fit and using their team to pick the real estate and buy the real estate. Maybe they have a different strategy. But typically we would probably hold for five to seven years. Awesome. I'm trying to get back to the Jersey Mike's deal, right? I put down $500,000. And I'm going to go back to real estate because that's my comfort zone. But I'm going to put down $500,000.

I'm going to borrow a million bucks. I'm going to control $1.5 million worth of Jersey mics. And then a few years later, you said it would be too high, my initial guess. It would be too high. I'm going to sell it for maybe two. million at that point in time as a more realistic assumption. After I get it to four or 500,000 dollars in SDE, is that fair? One point five to two. Yeah, yeah, that's fair. My alternative could be I would put down $500,000 on a $2.5 million piece of real estate, for example.

Like, that's what I think was weighing in people's mind or in the S&P 500. And so how do I do in each of those scenarios, I guess, relative to the franchise investment? I think that's the, you're saying a 33% IRA. And I think investor, you know, real estate. investors would be jumping up and down at a 15 cap, right? Like a 15% rate of return. I think investors would be thrilled with. Tell me if that's wrong. I don't do a ton of real estate investing. Absolutely, but they would also not expect to show up every day. Right, right, right. And that's the tradeoff. They would expect to show up sometimes, you know, but not every day. Yeah. And those are the tradeoffs. Like S&P average over the last multiple decades is like 11% or something.

But to your point, you put the money in, you go back to work, you watch it grow. You don't really touch it. Very, very little effort. Real estate, more effort, higher return. still not a ton of effort. Owning a business, probably the highest effort, but also the highest reward in return. To me, the value in operating a business, whether it's franchise or not, is yes, it's a ton of work in the first few years,

no matter how you cut it. I think you have to be involved. You've got to do hard work. You as an individual grow a lot during that phase. You learn a lot, new skills that I think you might not learn in some of these other categories or as many diverse set of skills as you might in some of the others.

But the value is the asset you're investing in over time, gets to a point or has the, high potential to get to a point of being a cash flowing machine for you that does turn into you doing as much work as the investment in the S&P or into the real estate, but still yielding that 33% over and over plus the terminal value when you go to, you know, when you go to sell it? And so are you willing to sacrifice a couple of years of very hard work for financial freedom and freedom of your time in the, you know, mid to long term? That's what I'm coming back to. I'm just trying to understand because I think that some

people will move in and say, I'm going to buy this as a replacement for my income and a way to get into something I enjoy more. And to your point, something I'm going to do the empire building. I'm still having trouble wrapping my mind around when the empire piece becomes more achievable. In my Jersey Mike's example, right, $500,000 down a million debt, selling for $1.8 to $2 million, somewhere in that range when it gets stabilized. Where do I get the multiple arbitrage that you were talking about earlier on that? Do I have to buy five of these or 10 or 20 and pull them together? it before the buyer universe appears, and then I can sell each one for two and a half million. So just on one, that's when I was saying like, hey, that was on the high end, you should go lower.

It's because it was just one location. So as you start getting more and more locations, you can have a GM probably manage three locations with assistant GMs. You save cash there. You've diversified your portfolio. And so I think you get an uptick in multiple because you've de-risted, hey, if this one location doesn't do as well, I've got two or three more over here to fall back on. You get access to better lending and financing options at that scale and that size. you have more influence with the franchise.

Your local marketing spend, let's say you own three in the same city, you know, goes further. You're spending probably the same-ish amount on ads, but you're driving volume to three or four locations instead of one. I think it's just more of a size multiple is why people start to look at it and value it more, given you've de-risted. You've got proven systems in place, a team that you can rely on that will come with the deal in most cases. Awesome. When I think about buying a rental or a business or hiring somebody, what I do is I create a fix. perfect situation, right? So I'll say, if I could right now, I'd buy a rental property for this price in this neighborhood with this many bedrooms, this many units in there. And then I look,

I just do a check. And that fictional ideal is born of experience, right? I've been doing this for 10 years in the Denver market. And, you know, we've had a lot of experience with executives and those types of things. But I'll think about that. And then I'll write that down. And I'll, I'll then see how close I can get to, you know, how close the reality of the market gets to my fictional ideal when hiring or buying property, those types of things. I'm a little oddball in that particular approach, I think, but how would I go about some version of that in the evaluation of potential franchise opportunities? How do you get started? I'll talk to this through the lens of myself, and I won't use the pop-a-beggle answer because I'm doing that. But if I had a

corporate job and I wasn't doing franzi and I hated it, I mean, that was me before I was at I was a consultant. I did it for a few years. Didn't love it. But let's say I'd stayed on that path and I was in my mid-30s to early 40s now and I had a couple hundred-k scrolled away, maybe a little bit more, but I wanted to go do something else. But I also wanted to have this success story. I would look at a home services business because I'm betting less of my household nut. I would look for something that has staying power and isn't just a trend or a cyclical thing. And so I go back to senior care. My parents, my grandparents are very important. So the mission piece is also something that drives me a little bit there. And I could see myself showing up every day happy about it and knowing that I'm doing something meaningful to all these people's lives versus, you know, hitting a bunch of numbers in a spreadsheet and making Bank of America more money or, you know, cutting costs for this, you know, this huge machine that I just don't care as much about. So the feel-good piece there is there for me. I can afford it because it's a services-based business. I don't have to deal with physical infrastructure, which, you know, I don't love necessarily personally. But the revenues are very meaningful and give me that empire building up.

upside and potential. Like I need to have something to chase. I wouldn't be happy with one or two territories, even if it more than replaced my income, I would want to get to that multi-million dollar year in cash flow and ability to sell for 10 plus million in terminal value. And senior care, home mobility and accessibility would be it for me. I like little projects. I could manage a small crew to do these installations. I'd be good at selling into this group. And I could build territories that do over a million each for an investment of less than two, 300K to get to get into it. I like that. I've done a bunch of personal research calling senior care facilities in different markets just to see what the wait lists are in every city we've done,

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reason, no, that's not in your view. For resales, they might be in some cases, but I'm talking more like de novo development. And for a services business, I would rather just start from scratch. Even if there's an existing customer base, I have enough confident that I can beat the average operator in this market. It would be better off just starting from scratch in a franchise concept for my costs probably a lot less than, you know, paying the existing operator a premium because there's established, you know, cash flow and a customer base. Well, this has been super fascinating. Have I missed anything I should have asked you about franchises so far that I haven't?

I think one thing to look at is just like red flags, like what to look out for. You know, I was very skeptical of franchising when I, you know, when I started, my background is in technology startups and kind of accidentally stumbled into franchising. I think a lot of the things that people might think when they hear franchising is, you know, It's McDonald's or it's these like snake oil salesmen selling unproven concepts. And there is both, but there's also this world of everything in between. And I think finding the right brands and knowing what to look for. And so the one last thing I'd leave people with is, you know,

whether you're using a platform like Franzy or you're using a business broker or you're looking at FD's franchise disclosure documents on your own, the one thing that you can't ignore in your diligence process is just go talk to other franchisees, both current and those that failed or exited the system. you can find their contact information in these FDs and these franchise disclosure documents that, you know, past franchisees are listed. You can go find FDs from 2017 and go see who is there then. That isn't now in the 2026 one if you want. And just go call the message them on LinkedIn. You'll be surprised how many people want to help you and ask them if they would ever do this again or not and why and how they financed it.

And was it successful for them or not? That is the single best way to learn. We, again, as a platform, have compiled a lot of this in feedback and data and information. and it's free for you, but nothing beats, even our platform at franzi.com, doesn't beat face-to-face human conversation with those that have done it before you and if they do it again or not. Awesome. Can you tell us about what Franzy does and how that can help on this journey? Yeah, so we're trying to solve for what I think's been missing the last few years is that typically for franchising, it's this unknown black box. You talk to brokers. You don't realize

they're paid 60% commissions on the back end, which is, one, it's way too high, but two, it also creates a misaligned incentive. And so similar to what Zillow did, for, I would just say like the top of funnel, diligence, discovery for a retail buyer. It allows you to go look at things, visualize it, see the square footage, see what the rough, you know, rough zest meter price would be, what the taxes are, what the school district is, etc. Franzy has done that for buying franchise businesses. We've taken all this data across 20,000 of FDs and have made it easy for you to say, hey, I'm in Denver, I've got 300K, here's what I'm good at, here's my risk tolerance.

We start to use AI to filter and distill down which brands you should at least consider or explore. And then we still give you all that coaching and access to lending and franchise CPAs and franchise attorneys that can help you navigate this process. Because again, I think going back to the number of 67% of Americans want to own a business, but 12% actually do it, I think the gap is just a lack of education and understanding on what's available and what would I be good at. And the fear sets in and I'll just stick to what I was doing.

Our goal is to help unlock some of that fear, give you the data you need and the connections and resources you need to get comfortable if this is ultimately something you do want to do and would make you fulfilled and happy and financially independent. I describe it as like Zillow and a real estate broker for franchise. A lot of people are like, oh, you can buy rental properties without an agent. And I got my license and buy rental properties without an agent. I certainly didn't buy my first one without an agent or even my second. And I think it would be great to hear from, you know, a couple of people over the next couple of months or next year.

that have bought a franchise using your help and kind of see what their thought process was and how it's going. So it would be great to be talking to some of the folks that have used Franzy and every couple once and just kind of see how things are going. Yeah, no, we'd love to do it. There's a few, from both sides, too, success stories

and some of those that they got into a brand and they're like, I don't know if this is for me anymore, not because the brand was bad or anything, but the feedback I'll share is the wrong person in the right brand is still the wrong. brand. And so situations like that can happen. And I think that would be a fun exercise to have some of the folks that we've had come through, both success and others that, you know, aren't as happy about the decision come through and share their experience. I, for example, would probably

not thrive at core power yoga, even though I do go there occasionally with my wife. I kind of trashed it a little earlier, but I actually think I would be more suited for the grease trap, cleaning one, because you're sticking some headphones, you get dirty, and then you clean it all off at the end of the day and it's probably a lot of solo time and that would suit me a little better. I think personally, personality-wise, even though that's not one I would consider right now. But I don't know. I think that's interesting. So there's a personality component to it. A thousand percent. Some people, like I mentioned, they come in and they're like, I'm good at, you know, this and I need to do something like this. Others are like, I'll learn new skills or I'll

hire someone, you know, that's better at it than me and I'll figure it out. As similar as we all are as human beings, there are a lot of underlying, you know, kind of minute, small differences that add up and compound and do factor a lot into whether you'll be successful, both financially, but also from a happiness measurement perspective, too. You can make all the money in the world, but if you hate it again, all you did was take this other thing you didn't like doing your job and replace it with this other thing you now don't like doing, which is your business. And so the fit part is really important.

Well, thank you very much, Alex, for coming on the show. The website is franzi.com, or you could find it over at biggerpocketsmoney.com slash franzi. I'm willing to all that in the show notes. and look forward to hearing from some success stories here. And let us know if you're a Bigger Pockets Money listener, if you are one of the, I think it's a relatively small portion of the current listenership who owns a franchise, but let us know if you do.

And we'd love to hear a story from you as well, potentially, in this world and see if this is something that other people should be considering as part of their journey to financial independence. Thank you, Alex. Thanks, Scott. All right, that was Alex Smersnak. What did you think, Scott?

I thought it was a great guest. I think he had a great discussion today. And like I said in the beginning, I think that buying a franchise is something a very small percentage of people listening to bigger pockets will actually do, and a very small percentage of people listening to Bigger Pockets money should do. I think it's a niche opportunity and a real one that deserves conversation in the spectrum of possible things to invest your money in, right?

There's true entrepreneurship, there's side hustles, there's real estate, there's passively managed index funds, there's commodities and alternatives, and I think this is one additional opportunity along that spectrum that has real estate. appeal, I think, for some people and for good reason. There's real risk, there's real reward, and there's real work that goes into making this happen. And so I think, you know, I'd be really interested, again, to hear if anybody listening to this does own franchises or has had a positive or negative experience. If you have, please reach out to me at Scott at at BiggerPocketsmoney.com. We'd love to hear your story. And we'll probably cover one to three

franchise stories every year or two. I think it deserves its place in the discussion. So, yes, if you're interested in learning more about buying a franchise, you can go to BiggerPocketsmoney.com slash Franzy, F-R-A-N-Z-Y. We'll also link to that in the show notes, and it will be in our navigation bar over at biggerpocketsmoney.com. Biggerpocketsmoney.com. We also have a whole network of Phi Professionals, Financial Planners, those types of folks, accountants over there at BiggerPocketsmoney.com slash Phi Pro.

Also, something you can find in the nav bar over there. So go check those out, along with the resources we're building over at BiggerPocketsmoney. and thank you so much for listening and being a part of our community. Until next time, I'm Scott Trench saying we're out like trout fishing franchises. When you're ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one, a business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the U.S. with over 1,500 corporate guides.

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