Growing Your Wealth through Owning Franchises - Interview With Erik Van Horn

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and and interview successful investors. Welcome back to the Invest Like a Billionaire podcast. Uh, guys, we got a really fun interview coming up here. This is with, uh, a guy we've known for actually a long time. His name is Eric Van Horn, and he is one of the top franchise consultants in the country. And this is kind of an interesting angle, you know. We talk about Invest Like a Billionaire, you know, how do billionaires grow, protect and deploy their wealth. And one of the key ways that a lot of billionaires and the ultra-wealthy have made their money, including Warren Buffett, has been by buying businesses and scaling those businesses, right?

So on our continuum, you know, we start at stocks and bonds, and then you go to real estate, private equity, venture capital, hedge funds, and businesses. And you can actually earn great returns in businesses. It's not uncommon to have a business that is producing a 20%, uh, annual cash flow and IRR. Yeah. And even more than that. So it's very doable. So, so here we have the expert and he has a, he basically started as a very successful franchisee, then became an area developer for a franchise, then became involved with franchisors, then began to sell franchises as a consultant. Today runs the top masterminds and, and, and consulting for—

He's had several successful exits on several of his franchise portfolios that he's owned. So he's, he's the guy you want to hear from. He's done all angles, and, uh, we talk both about actively investing and passively investing, you know, kind of depending where you fall on that spectrum. So hope you enjoy. Welcome to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by co-host Bob Fraser, and today we're joined with an awesome guest, Eric Van Horn. and we're really excited to have Eric on the podcast today, and we're going to be talking about a very unique topic, which is franchising and buying businesses.

Did you say french fries?

I might have stumbled. Franchising. And this is a really cool area that I actually have a little bit of background in when I was a commercial banker and had lent to a lot of franchises with SBA financing. It's something I wanted to highlight on this podcast because it's kind of a wide world with a lot of ways you can dive into it. as an investor and as an operator. And so we've brought on what I consider one of the, the top experts in this world. And, uh, Eric, thanks so much for joining us and, uh, coming on the podcast.

Ben and Bob, it's my pleasure, man. Good to see you guys.

So one of the things that's super interesting here, and this is why this is really important, so people might automatically tune out, but don't tune out. So this whole— our, our theme is Invest Like a Billionaire. And one of the premier investors in our age is Warren Buffett. And Warren Buffett built most of his wealth through investing in businesses. He invested in businesses. So alternative asset continuum, it begins with, right, just stocks and bonds, you know, as the mom and pop. But, but the higher up you go in the, in the food chain and the more wealthy, the more people have actually invested in operating businesses. So franchises are a great way to get into operating businesses at a smaller scale. So here is really one of the premier experts, as you said, in talking about, hey, how can we— how can we make money in businesses? So, so it's very typical for a business to have operating earnings in the 20% range, right? That's kind of normal. In fact, that's kind of expected. And you can get businesses that operate in the 35% or 40% range. Well, that's equivalent to IRR.

Yep.

And so, they can really be better investments, but they're more risky because there's a lot of operational risk. But great investments. And so, they definitely fit. They have a place in your portfolio. And we're going to talk about active and passive kind of versions of this.

Yeah. So, Eric, give us a little background on your story. How did you get into franchising? I know you've been in the space for a long time. And give us just a little sense of how you got to where you are now.

And start with Liberty Tax.

Yeah, that's always my favorite.

Because you were the guy that bought the Liberty Tax. Tax franchise, right? And you put on the suit and you were out on the street waving—

waving the sign—

waving the signs and bringing people in, right? So, you were—

I wore it with pride and I hated every minute of it. Oh my goodness. Also, like, as we talk about franchises, you know, the multiples on an exit on a franchisor are incredible. When I tell people what kind of multiples franchisors get— What are they? 20 up to 20x, 20x.

So if you have million-dollar earnings, you can get a $20 million exit. So, so they're super valuable once you figure out a franchise. So what—

why is that, Eric? I mean, that, that those are multiples you see in real estate, you know, passive stabilized commercial real estate or something like that.

I mean, it's— that's when I tell people I'm around a lot of wealthy people in the, in the SaaS world and, and they're like, franchising? Are you serious? And, and yeah, it's— well, one of it, because they go, they put them into conglomerates of, you know, a portfolio of other franchises. So they have some economies.

They're really considered high, high growth. And, and it's, it's maybe not as high growth as a high tech, but it is considered high growth because you can— you're not capital limited. You're really, you know, if you've got a great franchise, you know, then how many, how many units can you start?

How quickly?

Where they can ramp up pretty massively and very rapidly. So they're really considered high growth businesses. Even though they're traditional, perhaps.

And you think about monthly recurring revenue. I mean, they pay royalties every month, so there's stability in it. And the buyers of it can— once you get past a certain point of franchisees, they— it's pretty predictable at that point and easy ways to add value as a large—

So you got started with Liberty Tax. You just bought a franchise, right? And it was— No.

So here's the deal. So I was in Virginia Beach, Virginia, just quit law school. I was ready to go to law school. I was a straight C student. And so that would have been a graduation for me. So I did what any straight C student would do. That just— I was registered and I went to orientation. I'm like, this is— there's no way I'm doing this. So I bought a lawn mower and a truck and I started planting flowers and mowing lawns. And I was outside of a lady's— old lady's house, her and her husband. Came out and gave me some water that day and said, what are you going to do when you grow up? Basically, I said, I'm going to be a real estate investor because I was taking real estate classes and, and I had a broker that was going to help me. And she said, oh, we did that 20 years ago. So long story short, I walked away with an option contract, $100. I gave her option contract that says I have the right to assume your mortgage and I will pay closing costs on this mortgage that you paid 20 years on. And it's appreciated in value over the last 20 years. So I'd left with that option contract because she said, we just don't want to deal with the renter anymore. And our land and our leasing agent's a real estate broker and he makes money every month versus selling it. He's going to be so mad at us, Eric, but you seem like a nice guy. So I'm like, I'm a really nice guy. So I called up my parents and I said, hey, here's the deal. Do you want in? And they're like, Eric, no, sounds, sounds like it's too good to be true. I said, if you don't want in, my future broker Gary will happily do it. And he said, I don't know how you got this deal, Eric, but you did. And if your parents don't do it, I will. So I bought the house. The lady was happy. I wanted to make sure she was happy and she knew she was helping me out. Um, but I was also, I helped her out as well. So I walked away with my seed money, you guys. So I sold that to my parents in about 3 months and I'd made more money than I had in my entire life up to that point was made in 3 months, just because I put 2 and 2 together. I found the deal. I found the investor. I wasn't greedy with anything. We split things 50/50 all the way through it because I didn't have credit or money to be able to pay the $5,000 closing costs. And I walked away with my seed money. I went to a Liberty Tax, uh, uh, like a discovery day, a convention. And I'm like, I'm going to buy that because there are young people involved and they were buying this franchise and it was local.

And I'm like, that's just a little tax prep service, right? It's kind of a pop-up, pop-up tax prep. I mean, it's kind of a very seasonal business, right? It only operates for a few months. And, and so how much did you pay for that?

It was like $20,000 for the franchise fee back then. And, and everything else is pretty inexpensive. We were in it for less than $100 grand that first year.

Okay.

Well, for besides $20,000, what else do you pay? What do you pay for?

Then you get rent. You have to do rent and labor to get everybody trained. You had to train people before and pay them really on payroll before money started coming in.

And then how much did you make in that first deal?

You hardly anything, or we lost money that first year and we worked like crazy. And then we, we went and bought an area development in Austin, Texas, which means we bought a region.

So even though you were losing money in the franchise, you were losing money in the franchise, but you bought a regional.

Yeah, we bought a region. And, and there the goal is to bring on new franchisees, sell them, support them, and help them become profitable and you and coach them and train them. And so that's— I bought that region with my parents 50/50 when— and that was a few hundred thousand dollars. And I got a loan on my side. They paid cash for their side, and we took that region from 4 stores to 42 stores in a 10-year period and sold that back to the corporate office. So we did really, really well with that one. And I got good at flipping these stores in the meantime. So a bad owner would take— would buy it, start it, and then I would flip it to a new owner or I would take it over and improve it.

So you got— you figured out how to make them profitable.

I figured out how to make money.

Okay.

Yes.

I didn't lose money for 10 years. No. Okay.

So, so you basically developed 42 stores and you became a kind of a flipper of Liberty Tax franchises. So, so an owner would buy— what, what would— what made an owner fail? So the guys who failed, why did they fail?

It's a marketing business. So a lot of people get into the tax business thinking it was a tax business, and it's not the tax business. It's a marketing business. You had to go out and get customers in the door. If you think you're so good at plugging some simple numbers into a computer because you're good at taxes or bookkeeping, those guys fail and ladies fail because you need to get customers in the door. So it was absolutely a marketing business, not a tax prep business.

So the guys, the guys who worked it like a marketing business, generally they were successful.

Yes, yes. But they had to, they had to hire good operational people because it had to— you had to have good operations.

You had to have two sides. You have to have the marketing focus, but then you had to have good operations people. So, so it was, it was risky. I mean, it was risky, 100%. But the, but the guys, how much money could they make?

So in just this, this early on, like $50,000 a store, and then, then it, then it just continued to grow and grow as the franchise grew and grew, as the franchisor got better and better, profit margins would get better, the support would get better, and people ended up making more and more money per location. But that's how it is in the hair care business too. They don't make a lot of money per location, but when you have multiple locations, that's when they start to make good money. So I know some that are, you know, definitely over the six-figure mark per location.

Yeah.

Some people had many locations.

So now from there, so you became kind of this the godfather of the, you know, of the region for Liberty Tax. But then you kind of— you moved into a group called Franchise. Is that right?

Yep.

And I—

and you became a consultant basically selling— these guys represent multiple franchises and you became the expert who were advising customers which franchises to buy, kind of doing a matching, helping people find the franchises to buy. Correct?

Exactly. And I've done everything in franchising. We'll kind of go step by step. So that was next for me. So 10 years of being an area development person, area rep owner and a franchisee. I— and during that time too, I took a job at Liberty Tax Corporate because I knew the founder. Was spending an hour every day at 3 o'clock with his franchise development people, which is just another way to say people that sell franchises, so salespeople. So I knew he was spending time with them at 3 o'clock every day, an hour, and I'm like, I wanna get trained by this guy who has sold more franchises than most anybody. And so I took that job and that's when I made my first 6 figures. So I took a job selling franchises and I made 6 figures And then I had the inside scoop on how to really grow and scale that business. So I learned how to sell franchises. So sold the franchise, sold the area development, had the skillset of selling franchises. And I emailed Jeff over at Franchise Choice and I said, hey, can I sell, can I become a broker? And he's like, yes. And then he backtracked. He said, sorry, you know, we're going into a recession. People need to buy their own leads. You know, you can't— you're really not going to— our program that used to work is not working anymore. So I had a ton of respect for him to say no, the timing is not right. And then a year later he said, hey, timing is right. And that's when I started to get into the franchise consulting, franchise brokering world, which is like you said, we had access to about 100 brands and we had knowledge of those different brands. And then people would come to us and say, hey, I'm thinking about buying a franchise. I have no clue what one to buy. I thought franchises were McDonald's and Subway. There's a whole other world out there that we would expose them to, and then they would end up buying one of those franchises that we would share with them. And then we would get a piece of— well, they would send us a commission check or wire.

Right. And there were some real good opportunities. I remember you were kind of talking to me about a locksmithing franchise. It was people making a lot of money. Wasn't there one like water repair or damage, something like that?

The water? Yeah, the restoration ones. They still— they do really well. They do well. Restoration businesses.

Yeah. And And again, if you, if you've got the sales mentality and the operations right, you have to have those kind of those two components. And really you have to be great at those two components, but then you can make a lot of money. And if you're, if you suck at either of those or both of them, you're pretty much not going to make any money and you're probably going to lose money, you know. Yeah.

And the other, the other thing that you need with that is to pick the right brand because most franchises never get over 100 franchisees. Like 5% of franchisors actually make it to 100 franchisees. You don't need to be a part of a brand that has 100 franchisees, but you need to pick the right brand. And some of it's luck, and some of it— some of the times it's unlucky, and some of the— some of it is just you're extremely lucky.

So what's the right brand versus the wrong brand? What do you mean by that? The one who's growing, or the one who's supporting, or the one— the one that creates a lot of customer desire, the one that creates demand?

Well, and well, let's look at Orange Theory. Oh, there's a ton of fitness brands out there. Orange Theory had some technology that they were able to track your heart and all these different types of things and kind of gamified the workout and, and, and had a sense of community. So they had something different. And but they— and so they—

so their, their franchisees did better. Yep.

Their franchise— their franchisees do fantastic. Hundreds of thousands of dollars a location.

Gotcha.

$500,000 a location.

Like, I mean, so, so it's getting something that is, that is, has, has a unique demand profile.

Basically, you demand, and then the owners need to understand franchising or have somebody advising them that understands franchising. Because even if they had a successful, let's say, the owners, meaning, meaning the franchisor, the founders of the franchisor.

Yeah.

Let's say Orange Theory had an amazing Orange Theory location in Tampa, Florida. And they said, we're going to franchise this thing, and they had no franchising experience and they franchised it with everything that they knew about Orange Theory, it probably would have been a flop because they didn't understand franchising or didn't— didn't—

because they have to know how to replicate their success in others, how to build systems and how to make their people successful versus milk, milk it.

And, and how to work with franchisees because now you're not in the business of managing a manager that's running your workout studio. You're in the business of helping other business owners become successful business owners. So it's a completely different mindset and business model.

So some of the franchises, I mean, it was— so there's food, food service, right? There's fitness, there's, you know, restoration. There's pretty much anything, right? It's drones.

There's franchises. I run a franchise Facebook group and there's always new franchisors coming in there. And someone the other day just came in with like a sports drone business that he's getting ready to launch. There's others that said, hey, I'm just getting ready to launch a pest control franchise. I've got, you know, over 100 emerging or just about emerging franchisors that reach out to me in that group saying, Eric, help me with this stuff. And so I get to see all the unique stuff and some of it's a good idea and some of it's a bad idea and some of it I might think is a bad idea and it actually might be a good idea, you know, like Crumbl Cookie. Crumbl Cookie. It's— they charge a ton of money for cookies. And they make so much money.

So what is the franchise? I haven't heard of this one.

You haven't heard of Crumbl cookie?

No, no. You should sell them some.

C-R-U-M-B-L. Crumbl. And just go there. You walk in and you go to a computer screen and you just— it's so simple. You just click all these cookies that you want. And then like a minute later, they have them for you and you've already paid with your credit card at the screen thing. And you walk out with like $6 cookies, you know, a cookie is like as much as a Subway and you walk out and you're hooked. It's like crack cocaine and then people just coming back and coming back.

That sounds completely unappealing to me. Buying a cookie at a screen, I guess.

Well, they, they, it's efficient. It's an efficient model. The folks can't, the, the founders of that, one of them I believe was at at Facebook, had a technology background, really quick to adapt in, in the pandemic and had lines out the door. And I know franchisees there, you know, they cost $600,000, $700,000 to open up one, which you probably can't believe either, but they're making $500,000 a location. Wow. Wow.

Profit.

Insane. Now, if people out there are listening to this and like, I want to go get a Crumble, well, good luck because you can't buy a Crumble. They already have franchisees everywhere. And, you know, it's kind of too late. They even have one in Rapid City, South Dakota. And so, you know, you have to, you have to pick the right brand.

And some of that is luck, right? And some of that is just kind of this guess. It's kind of a venture capital kind of guess. You have to decide whether they're going to make it or not. And then you want to get them kind of midstream where they're not just out of the gate, right? But where there's still opportunity to buy franchises. And as you pointed out, the real money is not just in a single franchise, a single location, but it's in, in buying regions. Yes. But a lot of that could be upfront money that if the franchise is poorly run or doesn't create the demand profiles that you expect, you're going to lose it. All right. Yeah. But you can also make a lot of money. Your multiples can be incredible.

Yes, 100%. And the thing that some people don't think about when they're getting ready to buy is they— the— you're not only just paying for the franchise fee, paying for labor and all this stuff, but if you're getting into retail, you're on the hook for that lease. It's called a personal guarantee that a lot of people just kind of don't think about.

Very risky, but the return profiles can be extremely attractive.

What's nice about retail, both from the franchisee's perspective and the franchisor's perspective, the downsides: personal guarantee. The upside is once you get one, then it's just, it's rinse and repeat. So you've got one, you do the second one, you do the third one, and you learn along the way, but it's just rinse and repeat. And the customers are coming to you in a retail. So you're not always going out to go hunt for customers and whatnot. They're always coming to you. So that's one of the nice things. And then you can go ahead.

I was going to say, what are the kind of pros and cons of maybe a retail business versus a service-based business where you don't have to generally have the lease, or maybe you have more of an industrial lease for equipment, but your overhead is going to be a lot lower. But I guess you have to go and hunt for the customers. Is that kind of the tradeoffs between those two different models?

Yeah, you're hunting for the customer and it's harder to scale. Like in retail, we— in example, Sola Salon Studios, me and my three other business partners own 12 of those in Orange County. We built them out in a 5-year period. Each one was about $1 million to open up. And, and so we did that in a 5-year period, which is really aggressive. But we got the first one done. We were very involved in that first one. And we were on looking at the LOI like 5 times, the lease 100 times, had the way overpaid for the attorney because they had to look at everything. And we were so nervous because we're spending $20,000 a month on a lease guaranteed for 5 years. And so we were like crazy over that one. Then we hired a district operational manager, paid him $120,000 a year, came from the real estate background, and we helped him through lease number 2 and lease number 3 through 12. We never really talked to the leasing agents, the attorneys, because he did all of that. And that's how much more comfortable we got 3 through 12 versus 1 through 2. So, and then we had 12 spread out over Orange County because we could just pick and choose the locations. We could see where customer demand was coming from. We could pick our second location or third or fourth or fifth based on that. If you're in a service-based business, then you just have to buy more and more trucks and you can't scale across Orange County as quickly.

Okay. But so you did well with the Solar, right? And you're doing well with the Solar.

Yeah, we had private equity bought us, bought us out on that. And so that was a, that was an interesting one. But yeah, we're the only ones that up to that point that private equity bought out.

So you had a great multiple on that too.

Yeah, we had a great, we had a great exit on that.

So, so let's, let's talk about active investing and, and where you actually, and, and, you know, go and buy franchises. And, um, you know, so talk about that. Is there, you know, what kind of profile? So there's people listening that are going to want to do that. They're either going to want to, and probably they should be thinking about quitting their, quitting their day job, right, if they're going to do that. And some people are ready to do that and say you know, hey, I've been in the corporate world for, you know, 20 years. I'm going to take my 401, I'm going to cash out, I'm going to buy, you know, a bunch of franchises and go do this. And for a certain type of people, that makes sense. So who would you advise that that would make sense to do something like that?

If they are— if they want to work in the business or they don't want completely passive, like right now at my stage, they got to be active.

They got to be active.

And especially if that nest egg's significant to you that you're putting into it, you should plan to be pretty active in that business. When I think about passive ownership in a franchise for the— or first-time business owner, then you should probably at least put in 20 hours a week and have flexibility in your schedule. That would be considered semi-absentee or semi-passive to me. Other than that, just go in 40 hours, 40 hours a week and work the business and then start hiring management underneath you. But if you've never owned a business before, I'm going to my absentee is risky. It's— that's the—

well, you know, even if you've never owned a business before, even active is risky. So, I've actually, you know, mentored a lot of entrepreneurs and being in the corporate world is not good training for being an entrepreneur, actually. And, you know, to be an entrepreneur, you have to be kind of a jack of all trades. You don't, you don't need to be great at anything really, but you need to be pretty, pretty good at almost everything, you know. And if there's anything you need to be great at, it would be sales, right? You know, you've got to be able to sell and market. You've got to be able to recruit, you know, you've— and you've got to be able to manage. And if you're—

if people—

if your co-workers don't like working for you, your employees don't like working for you, you know, in your corporate job, you should probably not do this. If you've got that caustic personality, you just don't have a, you know, whatever the gift to manage people, manage processes and build, you know, it's a mistake. But, but you can make, if you do, if you are able to do this, you can make a lot of money doing this and picking the right franchise as, as you've demonstrated multiple times, right? With multiple brands.

Yeah. I've had like 6 or 7 different brands and most of them have been successful. Not all of them have been successful. But most of them have. And that's why I'm very clear on there's luck involved with some of this stuff, especially early on. You can make— well, even at Sola, we had our first location at Sola, it was average. Our first location that we opened up was average. We'd already signed our second lease. So first one was in Mission Viejo.

Can you explain what Sola is for those that may not have heard of that?

And you are a good podcast host. That was a good Good stop right there. Sola Salon Studios is— we would go in and take 7,000 square feet of retail space and we would divide it into 40 individual suites for about 100 square feet for salon professionals. Think estheticians, hairstylists, massage therapists. And they would rent from us by the week. They'd pay us weekly and they were under 1 to 2 year contracts doing that. So it was really that— that was the real estate business. We weren't in the—

yeah, in the real estate business.

Business. So, so what we did is we opened up our first one in Mission Viejo. We already had our second location lease signed. Everybody at the corporate office, we thought Huntington Beach was going to crush it. We thought that was going to be the best one, and we were already locked and loaded, and we were, we were building that out. We signed our lease on our third location in Irvine, and we're dealing with the Irvine company, which when you deal with the Irvine company, you're paying a lot more for rent and whatnot. So that was going to be our most expensive location. So here we go. We got 3 leases signed, 1 open, 1 under construction, and, and, and the 3rd lease signed. First one was average. We're like, okay, we're average. This, this is fine. This is what we predicted. Second one was a dog. We lost money day 1, lost money for the first, like, I think 2 years we lost money. And the 3rd one opened up a few months after our second one did, and we were making money the day we opened and couldn't help but make a lot of money out of that one. So same ownership group, same management team, different location and different results.

Wow. So the lesson there is location matters.

Location matters. And we've all of us had a ton of business experience, real estate experience. The franchisor said this one's going to be the best one and it wasn't. It was the worst one. So sometimes you just get unlucky. And, you know, I think I'm so thankful that we had the lease.

Diversification is the key there, right? You want to make sure you diversify, you know, in case you stick the fork in in the wrong place, you know, to make sure that that isn't everything. Let's take a second and talk about the financing. So very few people understand that you can leverage even a startup out of the gate. So Ben, as a banker, and you are actually one of the top SBA lenders in our, in our area as a banker. And so talk about leveraging and how the kind of deals that you can get.

Yeah. One of the things I want to bring you on is because I saw so many of these investors basically go and buy these franchises and the leverage terms were very, very generous. So if you're not familiar with SBA, it's the Small Business Administration and they have a whole loan program, government-backed loans basically.

So banks do government-backed loans.

Yep, government-backed loans, which reduces the risk to the bank. And whenever there's a franchise involved, uh, banks love that because the idea and, and the concept is, hey, there's going to be a lower risk of the thing failing because, hey, there's already kind of a roadmap and a playbook for these operators to go in and operate the deal. Um, and a lot of times, you know, if you structure a deal right with, you know, some seller carryback financing and some bank financing, you can buy a business with as little as 10% down.

What?

Yeah. And what kind of interest rates?

They're going to be higher than a general commercial loan. And I'd have to see what it is right now. I've been in the business for a while, but they're going to be higher, probably, you know, you know, mid-single digits, probably in the 6-7% range.

Eric, you probably— and what kind of terms? How long? What kind of payment terms?

Yeah. I mean, the great thing is they're usually 10-year loans. Wow.

And 10% down, 10 years. So a million dollar solo salon, you can get for 100 grand and you pay it, and it's principal and interest payments, right? Over 10 years. So it's 10-year payback. That's really great. And this is for a business that's a startup that literally is not, doesn't have any history, no track record?

Yeah, for a startup, you're not probably going to be able to get it for 10% down. They're going to want more skin in the game. But, you know, if you buy an existing franchise or existing business, you can usually get less in. But even still, I mean, those are leverage terms that you normally only see reserved for real estate.

So how would somebody get an SBA loan? Because I know it's a little bit tricky because certain banks love SBA and certain banks hate SBA. And it really depends on, it's not just the bank, but it's, so it could be a certain lender loves them. He moves from bank to bank and he takes this SBA kind of with him. Is that true? Or how do you find, if somebody's really wanting to do this, how do they find an SBA lender?

Yeah, I mean, Eric, I'm putting that question to you because I haven't been in a while, but from my experience, there's, you know, certain banks and national lenders, even non-bank lenders that love franchising. That's pretty much all that they do is franchise lending, I should say. And they will get very aggressive, especially on kind of big name franchises. But what— yeah, I mean, that's probably kind of part of the whole package that you did when you're a consultant for people.

But there's— I mean, you could go to the local bank or you could go to a broker. That, that will help you get an SBA.

Like FranChoice, like FranChoice.

No, no, no, no, no. Like FranFund or Benetrends. So FranFund and Benetrends, you go to them. Let's say you're looking at a franchise. You say, I want to, I want to buy this particular franchise. And they, let's say they have done 10 or 20 loans of that particular franchise. What I like about working with a, with a brokerage group like Benetrends or FranFund is they know the franchisor. They know the banks that like that franchisor. Gotcha. So you can find a lender that has lent to that franchisees of that franchisor. That's a, that's a really good thing. But on the flip side, I've done loans with local banks that are small banks that you've never heard of before. And sometimes those can be the best things and sometimes they can be the worst. Places to get a loan because they might have a desire to loan. They might like franchises, they might hate franchises. They may like that industry, they may hate that industry. So you never really know, right?

And they may like SBA, may hate SBA.

Yeah.

Like, I mean, how much of the lender's personal preferences kind of go in that? Not talking about you, of course not you, but yeah, let's say other ones out there. Yeah.

And, you know, and I do want to say for people that are looking for financing, A lot of times they'll go talk to a banker and they get kind of the stiff arm and they give up and not realize that a lot of it is not you. It's the bankers. And you need to go talk to a dozen bankers. And it's a lot of work. But— and they'll all say, oh yeah, we love SBA. They'll all say the same thing. Yeah, we love to serve. And it's just BS. It's not true. They, they, you know, you have to really find out what their real appetite is. And well, you know, it's— I'm not being unfair to them.

I just, I think they have still appetite-based, and it's driven a lot by kind of the credit, you know, culture and committee that they have and where they've been burned before.

Right.

A lot of times if a bank's been burned in a particular area, they won't lend there anymore. Right. So it's a lot of based on that.

But the point is just to, just to keep, keep reaching.

We should talk a lot of banks. And one of the cool things back when I was doing it, it was there is the, the ROBS program. Is that still? Up there. So it's, I think, Rollover for Business Startups program, which is basically a way for a borrower to roll 401 qualified monies.

You're kidding.

As they're— it's for their equity contribution and not have to pay the early prepayment penalties. Right.

I had dinner in Vegas a couple of months ago with a couple of the executives at Benetrends Financial, and their founder basically invented ROBS. And yeah, that's exactly it. Here's another point too. I'm off of trashing lenders, so I'm moving on from that, Ben. So you get, you get a, you get a break. But, but it's true. I think that's really important to talk about. You know, there's challenges with different lenders and I hate dealing with lenders sometimes because I always have this expectation they're always going to tell me no at the last minute for whatever reason. So you just, you've— I think that the lesson that I've learned dealing with lenders try to understand them, ask them a ton of questions and try to understand their process, their bank and everything that's in their head. Because the more knowledgeable you are, the better off you'll be kind of dealing and trying to get a loan. Back to solar real quick. Let's say we got a 20%, 20% SBA loan. What we did on our first two locations, we got—

what's a 20% SBA loan?

100% down SBA loan.

So it's an 80% SBA loan.

Okay. 80% SBA loan, 20% down. You can tell I'm not a lender. And what we did is we had tenant improvement dollars from the, from the landlord. So let's say, say we would get $200,000 back from the landlord on, on for signing the lease because they reimburse us some of the, some of the expenses. Then we were able to roll that back into our pockets as, as franchisees versus paying out the loan. So cash out of pocket was actually less even though we got an 80% SBA loan. When I falsely said it was 20%, but, but we were able to get recoup some of our, you know, eventually our out-of-cash, out-of-cash expenses with that.

So there's a lot of different ways. Yeah.

And Eric, before we go on to kind of the passive side of this, you know, I want to hear from you what— because you're a straight shooter, who's going to be successful as an active operator, you know, and we've shared a few ideas. But from, from your experience, I'm sure you've seen both sides, right? As a consultant, when you had people come and want to get into this business, and some that were very successful, some that weren't, obviously there's a lot of luck involved. But you know, what, what, what's, what's it going to take to be a successful active operator of a franchise?

So if you're looking at any franchise, and let's just say it's in the— most service-based businesses are active owner businesses. So if you're going to be an active owner in a service-based business, what I would do is I would talk to all— if there's one tip, talk to all the franchisees. In that, or many of the franchisees. And if you come from an accounting background and you realize everybody else, you know, used to sell timeshares and Cutco knives and solar, you should probably think twice about doing that. So you want to find people that are cut from the same cloth as you or have the same background, the same, you know. So if you can do that, they've had success, you understand why they've had success, and you think you can duplicate that because you have the same skill set that they have, then that's probably the best setup for success that you have.

And before we move on to, to passive, talk about some of the— so talk about some of the best brokers. What's the best way to approach this? If I'm, I'm listening to this podcast and I'm thinking, I got to do this, what is— who should I reach out to? What are the brokers that make sense and how I find a good broker?

So I don't broker, so that you can be assured that this is just really—

yeah, you used to be one. You're not a broker right now.

Yep, I used to be one of the top, you know, 3 in the country for years. And so I know, I know what good looks like. Here's the deal, they're just like real estate agents. Sometimes you get a new one and they're just gonna feed you brands. You know, they've only been in it for a couple years, they're just gonna feed you brands or they don't have a franchising background, they don't understand franchising and they are a salesperson and they're just, you know, putting brands in front of you and they're just regurgitating what they heard what the franchise salesperson at the brand told them. So that's probably not the best. But if you just want brands introduced to you, that's one way to do it.

So what's the right way to do it?

I would go and I would— if they have content that you can listen to online, they have a book, they have a podcast, they have a following on social, and they're always giving good sound advice, or they're on a podcast as a guest and you're like, man, this person, actually knows what they're talking about and I learned a thing or two or 10 from them, that's probably a good thing. You can go to Call with Eric or just go to FranchiseSecrets.com and I can make some introductions to some, some of the top consultants.

FranchiseSecrets.com. So, so who are the, who are the big brokers out there? The big brokerage companies, big broker networks.

There's the one that I used to be with, FranChoice. They have— they've been around for a long time and they've got some great brokers involved. Got some great brokers. Look, look online and see what they are. You've got on the other side of the spectrum a lot of newer brokers and some older existing brokers are IFPG. IFPG. There's another one called Franchise Consulting Company. That's a newer one. And I know all of these guys at all these broker networks. And there's another one called FranNet. So there's 4 of them right there, probably the 4 of the bigger ones out there.

How do they differ from the, from the lending hubs you were just mentioning, the 2 lending, lending hubs?

The lending hubs, just that they just lend. They go in and they will just, they will shop your loan to banks that are— let's say the banks are used to dealing in the salon suite industry. They love it. It's easier to get a loan that way.

And who are, who are those two again?

Benetrends Financial and Fran Fund.

Fran Fund.

There's another one out there called Guidant. Again, I know the principals on, on founders of all of these, and they're all three are great.

So yourfranchisesecrets.com, tell us what is that and what do you do there?

All right. So that's a podcast that I have, Franchise Secrets Podcast. I give a lot of just free actionable advice to people that are looking at buying a franchise, franchisees that are wanting to make more money, and franchisors that want to learn things about franchising that they didn't know before. And then a merge of people that want to get into franchising, they want to turn their brand into a franchise. All 4 of those listeners love the Franchise Secrets podcast. Out of that, they come into a Facebook group, and you can find the Facebook group by going to franchisesecrets.com/facebook. And I've got over 2,000 people in this Facebook group, and they're the same, same type of person. They're all interested or might be interested in franchising at many different levels. And here's the thing, and then I have masterminds out of that. So I have franchisees that want to grow and scale more than they have— they are right now. They come into my mastermind. I have a mastermind for franchisors that is just getting ready to launch. So franchisors that are wanting to get leads, be better franchisor, I'll have instructors in there helping them in all areas that they need help with. And then I have a passive investing mastermind as well. So once you're a franchisee, you make a ton of money, you want to do it the passive way, you join my passive investing mastermind.

I think that's a good segue into the passive.

Yeah. Yeah. Talk a little bit about, you know, someone's listening to this and they automatically say, I am not going to quit my job.

No, no, I'm not looking for another gig, but hey, how do I, how do I play?

So this is the 99% of the people probably listening.

Yeah, exactly.

So I started a mastermind with my good friend, Justin Donald. He wrote a book called Lifestyle Investor. And, uh, basically we started this mastermind called Tribe of Investors, Tribe of Investors, and you just go to that.com. And we present deals to the mastermind, and usually they're cash flow, off-market cash flow, wholesale type deals. So not really retail, not really a lot of real estate.

Debt or equity?

Uh, debt and equity kickers. We like debt with equity kickers so you can kind of get the best of both worlds. So consistent, recurring payments monthly or quarterly is typically what we like. And, you know, example of one is, you know, we're getting 13% interest on a, on a company. This is a company that's in the software business and backend hub of a lot of big brands out there, 13% interest. And then we've got some equity kickers with that. And it's a 3-year note paid monthly.

So all my alarm bells are going off, right? So why would a company that's a software company, why would it make sense for them to pay 13% plus equity for a little bit of money.

They want strategic people like that. We've— people in our group have already introduced them to new partners. That's one of the reasons. So they just want to take money.

They want it.

They're looking for sharks.

They want— they want some sharks. Personal relationship with the brand. Justin has a personal relationship, has been working on this for a while. And then they know.

But why would they want to spend that much money? That's a lot of money.

Well, it's not non-dilutive if it's debt, right? So if they want to keep more of the equity, you have to pay more for it. But, you know, you can not dilute your ownership.

Yeah.

Yeah. And then they can keep coming back. I think the first one was a $10 million raise and they came back with a second $10 million raise. So people are happy they can come back and not have to go through all of the banking stuff. And there's— and they're— this company is either cash flow positive or just about cash flow positive. So it's not pre-revenue or anything like that. Like this is a company that's doing really well. So we got deals like that. And some of them are, you know, more kind of land entitlement, some cash coming in on, on, uh, on rental properties that they have. And like that one I think is 8%, uh, promissory note or 8%. And you get paid that on a quarterly basis. And then you do some profit sharing. And over the last year, the profit sharing was another 8%. And then we got some other, unique things with that. And that one also, uh, one of the little perks of that one is if you want to pull out some of your cash, you can do that with a 30-day notice. Put in $100,000, let's say you want $50,000 out, 30-day notice, and you got $50,000 out of it.

And you've also, in your kind of community, you've kind of had these deals that are, you know, popping up here and there, and there's opportunities to invest into a franchisor, right, which is someone that wants to scale their business through selling franchises and You know, and you've been involved in that. And so there's other ways to get involved by investing in a franchisor, right?

Yeah. We are going to be presenting a deal first quarter of this year on a franchisor that I've— that I'm involved with. And we're going to be bringing on some investors into that one.

And that's equity.

And that's equity.

That's an equity deal. That's not debt. So there really is a venture capital play here as well. I mean, and that's super interesting, especially, you know, I think the early, early stage is super risky because as you point out, you never know if it's going to catch. But if you find someone that has kind of an amazing traction and they're simply— and guys that do have them, it's super expensive to scale. And so guys that have amazing levels of traction are going to need capital. And so, so doing some VC investing there, you know, would, would be, you know, very nice.

Yeah.

And we want, we want sharks in that one too. We want people that know that, that are going to be able to spread the word of that brand. So That's why we don't want to just go to the bank. We want to bring, we want to bring equity investors in.

And what's a good shark there? Introduce— introducing the brand, how? To who?

Anybody that's in the service-based world that might want to own a franchise or talk about the franchise, that's great. Or anybody that's in franchising already that now they don't, they don't just own a franchise, they own part of the franchisor. And that's really hard to do. It's really unique. And so I'm excited to have people that are in the franchising world, successful franchisees, now actually be a part of a franchisor and hopefully participate in a nice exit.

Yeah, I gotcha.

Very cool, Eric. This is awesome. So eye-opening and just love your background and experience sharing with people because you've seen it all and you, you've done it all. So thanks for sharing with us on the podcast. Uh, listeners, if this is interesting to you, check out his website. We'll link to it in our show notes as well, but FranchiseSecrets.com and get connected with Eric. Um, he's, he's awesome. And so Eric, thanks so much, and maybe we'll have you back on another time and talk more about some of the stuff you got going on.

Bob and Ben, thank you. I have immense respect for both of you. I love the impact that you've had on my life. I cannot thank you enough.

So good to have you. Good to see you, buddy. Thanks.