MtoM #119 - Opening a Franchise

This is the White Coat Investor Podcast Milestones to Millionaire Celebrating stories of success along the journey to financial freedom.

This is Milestones to Millionaire podcast number 119. Opening a franchise. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat Investor community is a great place to turn. We have a thriving community across all of our social channels. Facebook, Twitter, Instagram, Reddit and our WCI Forums forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White Coat Investor. You can do this and the White Coat Investor can help. All right, welcome back to the podcast. I've been looking forward to talking to you. I spent the last two days in the error and it was fun. Took care of a lot of great patients. Usual hassles. You know, one of the CT scanners was down so we ended up being on divert for ambulances, which in some ways is a bad thing. We see fewer patients and obviously bring in less revenue. When that happens, in some ways it's a good thing. My partner let me go early and I got eight runs in with my wife at Solitude yesterday. You know, one of the great things living at the base of the Wasatch is that I don't have to jump on a plane to go skiing. I don't even really have to drive very far to go skiing. If I can work a day shift and still get eight runs in, that's an awfully cool thing to be able to do. So love living here in the Wasatch. We are having a blockbuster snow year. I think it's actually the record. I don't think in recorded history we've ever had more snow in Utah, which is fantastic because we have been in a multi year drought. My favorite lake, Lake Powell is down like 180ft. It's like 22% full, this reservoir of the Colorado river. And so this will go a long way to helping with that as well as the Great Salt Lake, which is also having some issues. So hopefully the snow comes down slowly out of the mountains and doesn't flood out too many people. But at this point I'm like, any form of precipitation in any amount at any time, we'll take it. So it's going to be a great year for rivers, great year for lakes. It's been a great year for skiing. We love it. All right, today we Got a really cool interview you guys are going to enjoy, but after that, stick around. I'm going to talk a little bit about financial advisors, and that's an important topic. I talked about it a lot when I first started the blog back in 2011. I feel like I don't talk about it as much these days, but we're going to hit it today. For those of you on the podcast, you know, these milestones, podcasts we don't even do show notes for. This is just for you. It doesn't go on the blog. You know, it's like a special little secret bit of information for you. Kind of like the monthly newsletters. You know, those don't go on the blog either. If you're not subscribed, you don't get them. If you want to subscribe, it's easy to do. It's totally free. Just go to whitecoatinvestor.com, go under the WCI plus tab, and you'll see a newsletter sign up. You can sign up there for those newsletters and obviously you know how to find these podcasts, but let's get into our interview here. Our guests today on the Milestones to Millionaire podcast are Alex and Amanda. Welcome to the show.

Thank you.

Hi. Thank you.

Alex is North Petas. Amanda is a nurse anesthetist. And that is cool and all, but the milestone they're coming on for is even cooler. Tell us what milestone we're celebrating today.

I'll let my wife take the lead since she is kind of spearheading this endeavor for us.

So we bought and started our first franchise.

That's pretty exciting. And the fact that you're using first franchise tells me you have plans to do more.

Yes, if it works out.

Okay. So, Amanda, tell us about the franchise. What have you bought? What do you own? What's this business?

So we bought a gutter company or the territory rights to open an already established gutter company in Louisville, Kentucky, where we live.

You're talking about the gutters that you hang on the edge of your roof. Those gutters.

Very important, as I've now discovered.

Cool. So tell us about the process. What did this take to become a franchisee? I guess you're a franchisee, right? What did this take to do?

Yeah, so we actually heard from your podcast you had, I guess, a franchise broker. I don't know if that's the formal term for it on your podcast. And so we kind of just looked into it and emailed and reached out to him and got in contact with him. And then he, you know, connected us with probably one of his associates and presented us with a bunch of different franchises that they were trying to kind of expand, you know, anywhere from, you know, this company that would paint the lines in parking lots to like a donut food truck to road doggy daycare is like kind of just every little thing. And they give you kind of financials or just like a general financial overview of each and just you kind of pick a couple that you're more interested, and then you take the next step and go from there and just kind of meet with more people and get deeper and deeper into a couple more, and then just kind of eliminate as you get deeper into the process and pick which ones you like the most. And we ended up on gutters.

I think going about it that way with the broker is really nice. You know, if you just try to pick an individual franchise, that franchise is going to try to sell you their business. If you go through a broker, I mean, like a real estate, they're trying to sell you a house, but not necessarily each one particular house. So it's kind of nice that I felt like we had a better chance of impartial, you know, opinion. And I mean, he's obviously incentivized to sell it something, but I felt like we might get a better match that way.

All right, well, I've got two why questions, all right, and the first one is, why did you want to open a franchise in the first place? I mean, you're an orthopedist, she is a nurse anesthetist. You guys have a good income, right? There's no doubt that you have the capability to earn a lot of money by trading time for money. Why did you decide to open a franchise?

So, I mean, I think we're both, you know, we like to pretend that we're business savvy as we kind of navigate our, you know, our early attending hood. I'm out four and a half years. She's not even out a full year. And so, you know, I, I went into private practice and we've got, you know, real estate that we own and mri, pt, all that kind of stuff. And I've enjoyed that aspect of it. I do some consulting work on the side. And as I've done that, I. I've been more interested in. In, you know, business ownership. And, and my wife actually came to our relationship having partial ownership of two houses and was in like, real estate. So we were always going to do something just because we like, we like kind of the next thing we like staying involved in new challenges, and we kind of thought it would be real estate. And then when I. When we kind of brought this idea to each other about the franchise, we didn't know where it was going to go. But here, here we are with one, and we're hoping it goes well.

Okay, second question, and I don't know, maybe this one's better for you, Amanda, why gutters instead of doggy daycare or something else? What was it about a gutter. This gutter franchise that you liked?

I think mostly off the bat, right away, we just felt really supported by that company. We literally don't know anything about business in terms of, like, fun franchising. Like, we have a little bit of knowledge, but we're pretty green going in. And they just seem like they had the most support in terms of. They basically gave you the tools and they gave you the design and layout and said, if you just follow this plan or what we've seen with other franchises that we've already done across the country, like, you should be successful and, like, we'll help you through that. And so that's kind of really what I needed. There was a couple other franchises that were just like, you know, buy this and do that and then you'll be good. And I'm just like, I'm gonna need a little more than that. Like, I don't know what I'm doing.

So what are you doing and looking at houses and putting gutters up on houses or what? What are you actually doing in the franchise?

So I hired a general manager. He is a younger guy, like, really hungry. That's kind of what I was looking for is someone that wanted to build something with us, so that was, like, really important. And they kept telling us, you know, there's semi absentee models in other franchises that they have. So, like, you know, I went to training a few weeks ago in New York and another nurse anesthetist had bought a franchise in Illinois. And, you know, other physicians had these, so they did a semi absentee model. So I hired a GM to kind of help me. And we've been working together just, you know, getting licensing and getting trucks wrapped and just little things here and there. And now he's kind of just out in the field and doing that. I went to training, so I learned how to do it and install gutters. When I picked up a hacksaw to try to cut one of the gutters, everyone kind of looked at me like, I was like, what? I got to know how to do this. You Know, like, I'm not just sitting here and watch. And so I don't know, I've just kind of been helping now with what he needs because he's kind of just taking this into his own hands, which has been awesome. And like, really, we couldn't do it any other way with our jobs.

So what is keeping him from just doing it all himself? He just didn't have the cash. And you were able to bring the cash to bear or does he also lack some of the business expertise that you've picked up along the way?

I mean, I think a little bit of both. Of both. He's fresh out of college, he's in the military and he worked with aircraft sheet metals. So he's very familiar. That's what gutters are, sheet metal. So he did that with aircrafts. And so he had a little bit of knowledge at least in sheet metal. And just, he's more of a blue collar kind of hands on, really good with his hands. And I really respected the trades more and more as I get into this, it's like, yeah, anesthesia school was hard and orthopedics training is very hard, but like numbers and angles and measurements and, you know, easy. And I'm like, I. This is like, I feel like a little bit overwhelming for like how my brain works. And I'm like, I really respect people that can do this. And so he had that, you know, that kind of thought process and was able to just kind of understand how tools work. And you know, I, I have a little bit of that. Like my dad taught me how to tile bathrooms and do stuff with my rental properties, but it's still like a lot.

Let's talk about the numbers a little bit. Can you tell us what you bought it for, how much that you used cash, how much you use debt, what kind of cash flow you're seeing back from it. Tell us what your experience has been financially with this business.

So I'm, I'm pretty debt adverse. So when we decided to do this, we decided that we weren't going to go into debt for this because if it, if it goes under, I didn't want to have to write a check or worry about it. So we, the initial purchase was for the territories. So Louisville's made up of three territories in their model and we bought two of them with the right to buy the third one at the end of the, at the end of this year if we want to. So that, that was $90,000. To buy those two territories, then we had to hire the general manager at the beginning of the year, even though we didn't open until about two weeks ago. But you know, so we had to pay his salary. We also had to buy a box truck, so that's about 70,000. We had to buy a gutter machine, it's about 15,000. We had to buy a sales truck or sales car and to get it wrapped and that's about 15,000, you know, so all in, you know, it's, it's a little, with, with salaries that we've currently paid, it's a little over.

And no, I can't flow back out of it yet. It sounds like since you just opened a couple of weeks ago, but what do you expect out of your first year and maybe second year as far as profit that's coming to you for your investment?

Profit, first year. So they always, they've told us like it's the race to three trucks. So we have one truck right now and as you scale, you need, you need three trucks to actually see like decent money. And so if we're able to do that by the end of the year, they predict like 40 to 50,000. And now that's considering an $80,000 salary of our general manager. So if we didn't have him, like we'd see it a lot quicker. But then I think once you're kind of over your first year, it scales pretty quickly.

Yeah.

So the goal would be, you know, somewhere in the, I mean their projections for not, not like their lowest producing franchise but also somewhere in the middle of, you know, 250, $300,000 profit to us eventually.

And I'm surprised what success would look like to you that would cause you to what, maybe do another one of these in a few years, Even in a different field or something?

Yeah, probably a different field. Yes.

Yeah.

What would failure look like? How would you know to pull the plug and when would you pull the plug if this wasn't making, you know, some certain amount of money?

That's a good question. I don't think a hard number. Like we've already invested probably quarter of a million dollars into this and so like you said, we haven't taken out loans for it and it's not going to be life altering for us if we lose this money. But I don't know, we haven't really talked about that yet. We're kind of just waiting to see.

I mean, I think we definitely want to get to deal with.

We'll see, I guess.

I know.

Yeah, you know, this is not the busy time for gutters, but We've already got. We. I mean, we have a similar amount of estimates right now as we had for opening day. And we had marketing going on for about six weeks at that point. So that's at least a good sign. And then watching those turn in, you know, those. Those estimates turn into leads and jobs, that's where we're still trying to figure out, hey, where are we? I mean, it's a little scary right now, and we really don't know where we are. It's just so early on. But I think we at least want to get through the summer. Cause that should be the kind of the busier time and see where things look awesome.

Yeah, I think they've said it's hard to. The hardest part is zero to from one to two trucks. And so if we're able to get from one to two, which would kind of be around summertime when that decision would kind of be made, if we're scaling appropriately, then I think from there, like, we'd be a little bit more in the. In the clear, if you will. In terms of. It's a lot easier once you get that second truck because that's showing progress and growth and the appropriate revenue stream.

Very cool. All right, so there's somebody out there that's, you know, maybe they're just out of residency. Maybe they're halfway through their career and they want to do something similar. What advice do you have for them?

I would say cash flow. It. I mean, we make enough money like to begin with, and we didn't do this until, like, we were pretty much debt free. We have a little bit still with just a piece of land that we bought to build a house on someday. But I mean, fresh out of residency, we wouldn't have even like entertained this idea because you still had debt. I was still in school. Like, I think you don't really know. Like, you have to just take a risk. So, like, you have to be comfortable with losing $250,000 potentially. Like, that was mindset. And coming out of residency, that would have been way too stressful. Where now it's kind of like, well, we can still do what we want to do. And it's not going to be that life altering. It's going to sting a little bit, but, you know, it's not going to be that life altering. So I would definitely say for fresh out of residency, like, just pay down your debts and then it makes this whole process a little bit more fun because it's not as stressful. If this is all you're Kind of.

Worrying about, come out of training, you know, like you say, you know, live like a resident as best you can, pay down the debt and learn your craft. You know, you still don't know your craft coming out of residency. You got to learn how, how medicine is going to be in your hands. And once you get to a place where you're comfortable in your job, you're comfortable in your own shoes, then some, you know, if you're, you like to tinker and you like the next challenge, sometimes you just have to take that plunge. You have to take that leap of faith and gamble on yourself.

Awesome. Well, Amanda and Alex, thank you so much for being willing to come on the Milestones to Millionaire podcast and for sharing your experience and your wisdom and hopefully inspiring somebody else to maybe take the next step in their financial journey. So thank you for your time.

Yeah, thank you.

Thank you.

All right, glad you enjoyed that interview. I thought it was pretty fun, too. I love getting new milestones we've never had before. Some of the feedback we got in our survey this year was, oh, the milestones are all the same. Well, they're not all the same. They're what you guys call in with. So if you've got a unique milestone, apply whitecoatinvestor.com milestone. What I love about this is that these two, number one, got their financial ducks in a row so they could afford to take some business risk in their life. And number two, they just went and did it. Nobody was going to tell them they couldn't. And because of that, I think they're going to be successful. Maybe not as fast as they hope to be. Maybe it takes them till fall to get their second or their third trek or whatever instead of getting it done this summer. But I'll be surprised if those two aren't very, very successful and wealthy. And we'll talk to them again in five or six years and they'll have estate tax problems probably. All right, let's talk about financial advisors. There are three issues with financial advisors when it comes to interacting with white coat investors. And it's unfortunate because I think something like 80% of doctors and other high income professionals out there want and probably need to use a good financial advisor. But there's three problems. The first one is that financial advisors are bad. Okay, they're calling themselves financial advisors, but they aren't actually financial advisors. They're salespeople in disguise most of the time. Or they're ignorant. They just don't understand finance. It's not that they're deliberately Trying to hurt you. Some of them are, but it's simply that they don't understand all the ins and outs. They don't understand not only the specific, doctor Specific stuff, but they don't understand the basics of finance. I can't believe how many financial advisors I run into that think they can pick stocks well enough to beat the market or that are using actively managed mutual funds. You know, the data on this stuff's very clear, number one. Number two, you can lower your risk as a financial advisor by using index funds. You've got a certain amount of fiduciary risk there if you're trying to beat the market. And so while there's plenty of uninformed investors out there that think the role of a financial advisor is to beat the market, it's not actually what you should be doing. You need to be talking them out of that if you're a financial advisor. So that's problem number one is that most financial advisors just suck. They don't give good advice. So most important thing from a financial advisor is that you get good advice. Problem number two is that financial advisors charge too much. And sometimes that's due to the way they're paid. You know, some are paid on commissions, which usually means you're getting bad advice because it's so conflicted even a good person can't overcome it. But the second most common method is an asset under management fee, which is fine if you have less than a million dollars. If you have more than $1 million, you got $5 million. Paying 1% of your assets under management is a ridiculous ripoff. If you're paying your financial advisor $50,000 a year, I can find you somebody that's going to charge you 25% as much or less. That's going to give you probably better advice. So that's the second problem is people just paying too much for financial advice. And I can't blame the advisors, right? They're running a business like anybody else. You charge what the market will bear, but you're the market. So don't bear too much. If you can get somebody that's going to do great investment management for you for $8,000 a year, why would you pay them $25,000 a year? You shouldn't. Same thing with the financial planning side. And often you're better off splitting those two things up. You know, if you're paying more than a few thousand dollars for a financial plan, you're probably paying too much. Typically the right price for financial advice is a four figure amount per year, it's going to be more than $1,000, right? They're not going to be able to stay in business. They're not charging you at least that. It probably ought to be less than $10,000. Unless you're in a particularly complicated situation or getting a particularly high, you know, volume of service from them. That's probably about the most you ought to be looking to pay. Certainly by the time you're in the 20, 25, 30, 40, $50,000 range, you're paying too much. And a lot of people are doing that ignorantly because their portfolio grew over time and they just kept paying 1% of assets under management every year. So problem number one is bad advice. Problem number two is paying too much even for good advice. And problem number three is that white coat investors want everything in one person. And there are very few financial advisors that offer every service you need. For example, you may need a financial planner to help you draft up your financial plan, help you even create a budget, maybe help you manage student loans. And there's specialists in that as well. You know, you've heard of student loan advice that we talk about on here all the time. Studentloan advice.com. right. That's practically a specialty in and of itself. But beyond financial planning, you probably also want someone that's going to be an investment manager. They're going to manage your assets. And those are actually two separate things. You know, financial planning and asset management, not the same thing. Often people try to do both of those. And you know, what usually happens is they give short shrift to financial planning. For some dumb reason, people are willing to pay more for investment management than they are for financial planning, even though the financial planning is probably more valuable. But people also want advice on their taxes and maybe tax preparation as well. And they're like, oh, I can't get that from my financial planner, too. No, you can't. Most of the time you can't. You're going to need somebody else. And then, you know, for example, if they own a practice, maybe they want, you know, a 401k or other retirement plan for the practice. Well, that's another type of financial advisor. It's not the same people doing all these things. So that's the other big disconnect is you got to know what services you actually want and hire somebody that's actually good at those services. And it may be that you need two, three, four different people to help you, and all of them want to be paid. You know, even if you're just paying for tax Preparation. By the time you have a complicated return, if you're filing in multiple states or you got a bunch of K1s or something, you know you're doing a corporate return as well. You know you're going to be paying thousands just for tax preparation. That doesn't even really include much tax advice. And then you add on $5,000 or $10,000 for investment management, maybe a few thousand dollars for financial planning. Right now you're going to pay somebody for your practice retirement plan. You could spend quite a bit of money on financial advice. So you can obviously see here that this is expensive stuff. We just got done doing our survey of white coat investors out there and we know most of you are making somewhere in the. You know, your household income's only 250,000 to $500,000 somewhere in that range. So if you're paying 15, 20, $25,000 for financial services every year, that's a huge chunk of your income. That's a huge chunk of your spending. Most of you are actually spending less than $200,000 a year. So this could be like an eighth of your spending if you've got all those people. So you can see the impetus to actually become financially literate. The more financially literate you are, the less you have to pay to other people to do these things for you. It's entirely possible for you to be your own financial planner. It is entirely possible for you to be your own investment manager. I have done both of these for myself my entire career. It is not undoable. Many white coat investors out there are doing it. You can file your own taxes and do your own tax strategizing. I did my own taxes for many, many years until like a couple of years ago. And I just couldn't figure out which states I had to file in for all my K1s. And you've probably got your limit too. When your return gets so complicated, you'll decide to hire somebody else for it. And that's okay. But realize that there's some money you can save there. Plus you'll learn a lot about your taxes. If you are self employed, you don't have any employees, you can even handle your own retirement accounts. Opening up a Solo 401, not that hard. Even if you add on a personal defined benefit plan, still a do it yourself project until you have employees. At that point you really do need to hire a professional to assist with that. But here's the deal, right? Financial advisors, you know, it's a little bit of a love hate relationship, right? Sometimes you do need them, but there's plenty of them out there who are just ripping you off, giving bad advice, charging too much for advice. So the more you learn how to do yourself, the better, whether you work with an advisor or whether you don't. The financial advisors on our recommended list, which you can check out and I highly Recommend you do, whitecoatinvestor.com, go to the recommended tab, go down to financial advisors, or just go directly to whitecoatinvestor.com financial advisors and you can see that list of people we recommend. But here's the deal, right? Even those people are going to charge you money and they give good advice and they charge a fair price, or we don't put them on the list. But if you can do it yourself, you can save a lot of that. Just make sure you're doing it well yourself. You're far better off paying somebody thousands of dollars a year and having it done right than not doing it right. So if there's any doubt on your ability to do it, get some help. There's people on there that offer all kinds of different services. Some of them are trying to help you be a do it yourselfer. Some, you know, kind of want to do it all. They want to be a full service person. That's the kind of client they're looking for. So you need to make sure you get a good match there. All right? Hope that's helpful to you. Hope you're enjoying these new kind of longer milestones. Podcasts send us some feedback whether you like them, whether you don't like them. We can cut them back to, you know, just the interview like they were before. But I keep getting lots of people asking, hey, we need more basics on the podcast. We need more, you know, specific topics on the podcast. So I'm trying to add some of those in to the milestone podcasts and hope you enjoy those. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat investor community is a great place to turn. We have a thriving community across all of our social, Facebook, Twitter, Instagram, Reddit and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White Coat investor. You can do this and the White Coat Investor can help. All right, our show's come to an end. Keep your head up, shoulders back. You've got this. We're here to help. We'll see you next time on the Milestones to Millionaire podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.