Opinions expressed by Entrepreneur contributors are their very own.
In most companies, the rule of thumb is that the larger you develop, the tougher you’re employed and the extra transferring items you have got — managing extra issues, workers, taxes and extra complications.
Not while you’re a franchisee. Franchising is a enterprise of methods together with methods to scale. When your purpose is to not purchase a job however to create generational wealth by increasing a franchise, over the long run, you do much less work whereas making extra money as a result of the franchise enterprise consists of the group constructing and them operating it for you. Then the second chew of this stunning apple is you have got a wholesome, priceless enterprise to promote for a life-changing sum of money.
Compounding and Blitzscaling
Let’s begin firstly. Individuals purchase franchises for long-term objectives: the chance to be your personal boss, monetary safety, to depart a legacy for youngsters and grandchildren. That is nice. Nevertheless it’s additionally numerous work — and numerous funding — at first. However with the magic of compounding and Blitzscaling, you can also make much more, and over time, work much less.
Take a theoretical instance. You make investments $250,000 in a franchise that nets about $200,000 per 12 months. Over 10 years, you have made $2 million in revenue. Since this enterprise is an asset and for those who determine to promote that franchise for, as an instance 6x revenue, you possibly can internet maybe one other $1.2 million in capital good points. So, you remodeled $3 million from that $250,000 funding. Congratulations!
I knew somebody who bought a sandwich franchise for his daughter, with the purpose of accruing earnings to cowl the price of elevating the kid, from training to varsity to marriage and her personal first residence. The funding in that specific franchise was about $50,000 out of his pocket and an SBA mortgage. That $50,000 yielded $1.5 million alongside the best way in earnings after which the acquisition value after they ultimately offered it.
A ‘snowball rolling downhill’
Nevertheless it will get higher. What for those who take that $250,000 revenue and make investments it in one other franchise, or in income-producing actual property? And you then do it once more, and once more, whereas your earnings compound. Over 10 years, that preliminary funding is sort of a snowball rolling downhill, rising and rising till you have got a multi-unit enterprise you can promote for a lot of instances your funding, incomes you life-changing cash while you promote.
You open one to 2 franchises and roll the earnings in order that they open one other location, you then take the earnings from the three places and open two extra, the earnings from these 5 items to open three extra, and so forth. That is blitzscaling. Keep in mind the second chew on the apple — you’re ultimately promoting this complete enterprise, so not solely have you ever self-funded and compounded your returns however your exit is now a a number of of that giant enterprise.
Wonderful, you say. However would not 10 instances the variety of shops or eating places be 10 instances the work? No. It truly will get simpler and extra worthwhile as you develop and, since success leaves clues, you possibly can mannequin and emulate the a whole lot of different franchisees rising giant franchise companies. Your mannequin will embrace each the assets to run the franchise companies but in addition the assets to scale new places, most of that are outsourced.
After the primary unit, you are hiring managers to supervise the employees — you are not cleansing the flooring, making the meals or ringing up a purchase order. You are obtainable to supply steerage and take care of the company headquarters, which is supplying most of your coaching supplies. You regulate issues and search for new investments.
For those who’re the franchisor, that is much more true. The upfront franchise price is only the start of a profitable long-term relationship that ought to profit each of you. And also you do much less of the work.
Associated: Need to Grow to be a Franchisee? Run Via This Guidelines First.
Work much less however usher in extra money
I interviewed two folks on our Sensible Franchising with Fransmart podcast just lately, each of whom mentioned they self-funded 10-plus places, compounding their returns. One of many two offered his enterprise (second chew on the apple) and, now semi-retired, helps new potential franchises develop into rich in franchising.
An instance we use on a regular basis is the sale of a five-unit franchise for $180,000. If that franchisee opens all 5 items, and grosses $1 million per retailer, the franchisor may obtain a 6 p.c royalty, a 2 p.c advertising and marketing price and a 1 p.c provide line vendor rebate — about $90,000 per retailer per 12 months. That is $4.5 million over 10 years to the franchisor, who’s offering the identical help and repair to these 5 shops as he would to at least one. And a lot of the help takes place within the first 12 to 24 months. (Critically, reproducing a binder of promoting supplies is not that tough.) After that, the franchisee needs to be working properly — and possibly asking to purchase extra franchises from you.
That is how 5 Guys has grown from 4 eating places to 1,500, and different franchises are persevering with to develop. You’re employed much less however usher in extra money. And when the time involves promote, you have constructed an immensely worthwhile enterprise, that has an current pipeline for growth, making it much more priceless. It is value considering long run and doing this proper.
