Is a franchise business a good investment opportunity for you?

Hey, it's Mark Pudulski at Land Geek with your favorite niche real estate website, thelandgeek.com and on this week's Roundtable podcast interview, we have almost all the usual suspects. But because we're just going to go straight into our interview, our guest today is Matt Frenthewell. And I'm really excited about this podcast because Matt is a successful franchisee and entrepreneur, and he has helped save people hours of time, tens of thousands of dollars by finding for them the right franchise. And he uses a proven process as a franchise consultant based on your goals and helping you narrow the fields and selecting the best franchisor for you to achieve financial freedom. And he does it completely free of charge. I'm so excited. Matt Fantaway, welcome.

Thanks. I'm really excited to be here, Mark.

So, Matt, let's just rewind the tape a little bit. And how did you become a franchisee? And more importantly, why a franchisee? Like, why not something else?

Well, that's a great question. I will tell you. I've invested and have been an advisor in almost all investment types. I started out as a financial advisor back in the early 2000s, a stockbroker with Payne Weber now called UBS. And my job was to help people out with their finance, their stocks and bonds portfolio so they could retire at a certain age with their retirement plans and things. But 911 happened. I was out in New York City when 911 happened. I saw that with my own eyes, and that changed my life forever. And what I felt I needed to pivot in my life because I felt bad. The stock market was dropping at that time, and I just didn't have any control really about, you know, what was going to happen other than getting people out of stocks or telling them they're in there for the long haul. I just felt didn't have enough control with my candidate or my clients. So then I moved on to real estate and became a real estate appraiser. Did that for several years, doing real estate appraisals, doing real estate investments myself. And then eventually I sold that and became a franchisee. But during that time, I also became a franchisor. So as a real estate appraiser, I became a franchisor and founded a national franchise company and then sold my partnership with that and remained as a franchisee and became a franchise consultant. So my point being is that I've experienced a lot of different investment types. Franchising has been the one that's resonated with me the most as far as business Goes after experiencing all of them.

Awesome. Awesome. So I love it when you call me Big Papa. Tate Litchfield, I'm going to have you tee up the first question for Matt.

Matt, I'm excited. This is an interesting idea and it's not something I've spent a lot of time researching or even really knew about. So, out of curiosity, what does the process look like for helping somebody identify what type of franchise be looking into? I mean, you're taking into consideration, I'm sure, time, money, capital, those kind of things. But I mean, what makes a good franchise or franchisee? What makes a good participant for this?

Yeah, no, that's a great question, Tate. So, you know, I get asked a lot of times, Matt, what is the hot franchise out there? It's kind of like people asking, what's the hot stock out there? And they're really. I mean, there's a lot of popular franchises out there, but the truth of the matter is the hot franchise is the one that matches up to you. And so what's important for people to understand is they want a business that matches the characteristics of what they want. So characteristics being like, you know, what hours of operation do they want their business to work in? Do they want it to be open 24, 7 or during banking hours, or they want it to work on weekends? Just simple things like that. How many employees would a person want to have? Do they want to have a lot of employees? A few employees? What kind of employees do they want to have? Ones that have a high turnaround, like, like in the food service, like Subway, McDonald's, where employees are there for a little while and then they move on. Or do they want to have employees that are going to be with the company for a long time and have some longevity? Of course, you mentioned what's their budget, what's their income expectations to make it worth their time and money investing in it? All these things are characteristics that a person should consider in buying their ideal business. And then the point being is they should not look at the business name or brand first. They should decide what their characteristics are and then find a business or brand that matches those characteristics so that they're super happy with it at the end of the day.

Perfect. That makes a lot of sense. I have a lot of other follow up questions, but I don't want to steal the technician Eric Peterson's thunder. Eric, what question do you have for Matt?

All right, so Matt, it's good to have you today. I want to kind of frame my question around a little bit of this. The the idea in general of outsourcing. So in franchising, I know you could obviously be an owner operator and be working in that business, you know, day to day or whatever the hours are. And you know, essentially trying to build that business into what, whatever your goal was. Right. But another way to do it is I think a lot of times maybe referred to as turnkey, where you know, there's a team put in place and they, they kind of run that franchise and maybe the, the investor oversees just a manager or something like that. But so focusing on those that, that might outsource it, if you will, how do you work with people that maybe push up against that? And I guess I'm making the assumption that that's a better way to do it and maybe it isn't. But when someone is like, well, you know, the cheapest person I can hire is myself, I'm going to operate this business, I'm going to run it. How do you work with someone like that?

I like that question. So comes down to two basic business ownership models. And this just isn't in franchising, this is just business in general. And I know this show, your show is about passive income, which franchising can be. But two basic business ownership models are this. The first one is the owner operator. That's basically when you buy your own job. That's what most people think of when they think about being a business owner. They're working in the business, you know, full time. So they are paying themselves a manager salary and they're saving some money because they're not paying a manager. But at the same time they don't have freedom of time. They can have freedom to call the shots, freedom to direct where the business goes, but they don't have the time freedom either. And there is a place for that. A lot of people want to do that, which is okay. But the other option is called semi absentee ownership. Some people call it an executive model. And that's when the owner hires a manager to run the day to day affairs of the business. And then the owner just manages the manager looking at the numbers or KPIs and just make sure that the business is going in the right direction and the manager is doing a good job. That frees up the owner's time to spend about five to 15 hours a week in the business so that they can hold down a full or part time job on the side, or they have time to go open up more locations or other businesses, or they have time to pursue the passions that they want in Life. But it all comes down to hiring a capable manager. When somebody says, how do you do that? You just have to find a good manager that can do it. And you manage the manager. This is done all the time. Like, you look at a major corporation, for example, Chase bank, you know, it's a huge corporation. The CEO isn't at the teller line every day. He's got people managing every branch and every region, things like that. Same thing people can do in just franchise and business in general. All right, thanks.

I'm learning so much. I love this. But as much as I have more questions, let's go to Scott Todd from scotttodd.net landmoto.com learn anything about anything. Investorninjas.com the brain, the professor, your fight school Sherpa. Scott Todd, what questions you have for Matt?

That's a lot of titles right there, Mark. A lot of titles.

You've heard all of them. Scott.

Well, maybe.

Enjoy it. Embrace it.

Thank you. It's like listing all the degrees after someone's name, right? They just keep going on forever and ever and ever. All right, Matt, again, thanks for being here. One of the things that I think, you know, okay, from my own perspective, like, there's been times where I've looked at a franchise in the past, right? Like, I'm like, okay, let me go. Maybe I just want to do a franchise. And, you know, I think it's been brought up, like, how do you not end up with Subway, which you kind of like where I have this job and you kind of approach that piece. But the one thing that always came back to me is, man, it seems like these franchises, if I'm going to go buy them, there's some money involved with it, right? Like, there's a lot of money. So as an example, okay, like, you don't know me too well, but I, every morning for breakfast, I eat a donut, okay? Like, I treat myself to one donut a day. And whether you want to consider me a donut aficionado or not, that's up to you. But here's the deal. There is a company that I think makes the best doughnut on this planet. It's a place called Duck Donut. And I'm not compensated for them. I'm just saying I love their donuts. And there's not one near me. There's one near Eric. Not too far from Eric, I should say, but there's one in California. I know where these things are, but they're not near me. Nonetheless, to open up a donut store, a donut store, because I looked at it, they want me to have like $150,000 and I don't know, a net worth of or liquid assets of $350,000 for a donut shop. And then I go and I do the math and yes, I'm not buying their systems and their name, but the equipment and the leasehold improvements are nowhere near that kind of cash that they want me to have. How do you close the gap between a donut place needing half a million dollars or $350,000 and like I could just go buy the machine for $1,000, I kid you not, $1,000 machines and some equipment, maybe $50,000 into it. But to live up to their standards, I would need all this other capital. How do you close the gap with that? Is that something I should just accept and go, I want that brand? Or you know, do you venture out on your own? How do you decide?

Yeah, no, that's a great question too, Scott. To franchise or just go independent. Oftentimes in the beginning the startup costs for a franchise, you're going to be more expensive than doing it independently or bootstrapping yourself up, so to speak. So let's talk about all in numbers. Let's say you're going to open up this donut shop. They say it's going to cost 350,000. Well, you're going to pay a franchise fee, which you don't have to if you're going to do an independent business. And you know that's probably between 30 and $60,000 between depend on the franchise that you would save yourself if you did it by yourself. But that buys you the systems and the support and everything to be successful. That's what you're paying for with a franchise. And then what happens is you do the build out costs, you rent the real estate, negotiate, you pay your down payment, your security deposit, and then you have to hire contractors to come in and build the location out to the franchise's specs, where if you're an independent business owner, you can build out to your own specs. You can, you know, you can do a lot of costumes if you want to, but is it going to be as attractive as the franchises specs they've got? A good franchise is going to know exactly where to put the pictures, what pictures to put on there, what, where to put the equipment, what equipment to buy, things like that. And it may be more expensive than doing it independently, but you also know it works too. It's rare that a franchise marks up the cost of the build out because you're paying the, the contractor directly. It's just more expensive because. Because you might have more stuff to put in the build out. What's also put into that cost is marketing dollars. That may not be apparent to a person opening up independent businesses. You got to spend some money on marketing as you're opening the business so you can get customers. Some people don't consider that. So that's another cost that people will go in there and then you got your payroll. A lot of times you have to hire people before you even open the doors to get the donuts made and run the cash registers and get trained. And so you've got to put some money up for payroll before you can open the doors. And then the final part of the equation that some people don't realize is that they need to have the working capital once the doors open to pay the business bills until the business starts paying for itself. And so if you take that $300,000, $350,000 that you're looking on that franchise, all that money is going towards that and you're paying up front to have a fully scaled and running business rather than bootstrapping it yourself and paying as you go.

Cool.

That makes a lot of sense. And I was actually, while Matt, you were talking, I actually bought the domain Scott's Donuts and landmoto.com donuts and you know, Google domains, it's like 12 bucks. And why is it so cheap? Why is that available? Because people want to go to Krispy Kreme and Dunkin Donuts, not Scott's Land Moto Donuts.

Right.

Which makes sense.

Right.

So, so you're paying for that, that brand recognition. And they've already done the marketing you know, you're getting when you go to Krispy Kreme. It's, it's delicious. It might be, you know, diabetes, but it's delicious. Where with Scott's Donuts you don't know.

Necessarily what you're getting.

So Matt, my question is, what's sort of the worst advice or the worst sort of thing that you see when someone comes to you and says, you know what? I'm really interested in this Chick Fil A franchise or this Dogtopia franchise or whatever it is, and you can kind of just roll your eyes like, oh, yeah, this is a huge mistake.

Well, I think what the biggest mistake I see people getting into is they get excited about the brand. For example, Chick Fil A is a great brand, you know, super wildly successful franchise. I love the food there myself. You Got lines around the parking lot trying to get the food and stuff. And that's what people like. They like how busy Chick Fil A is, and they like the taste of Chick Fil A. And so therefore, then they want Chick Fil A. But what they don't see is for Chick Fil A, you got to be a manager for a couple of years before you can even own the franchise. And then you got to be an owner operator for several years before you can step out of that role via semi absentee. This is just Chick Fil A in specific. They don't recognize sf. So what they do want is they want the characteristics that a Chick Fil A has. They want it to have a high demand and have a good quality of food. But that doesn't mean it has to be Chick Fil A. There's many other franchises out there that have that same thing that they may not be aware of. So when people get attached to the brand rather than looking at, well, what's it really going to look like when I'm in business with that brand? That's where the biggest mistake is. And that's where those characteristics are that I talked about. It's really important to consider those characteristics before just going after a brand because you think it's super popular.

That's interesting. And then one more other question for the ambitiously lazy, like everyone on this podcast. What? You know, clearly we're not going to buy a franchise where it's any semblance of a job.

Right.

I think Tate worked at a job for two weeks and couldn't even hack it two days. So what are the category of franchise that we would want to look at as. As purely an investment? We're not going to operate. We have no interest in operating. We have no interest in buying ourselves other jobs.

Also, don't forget minimal skills, too. We're not very talented.

As categories go. We froze up a little bit, so there's a little bit of a delay.

Yeah. As far as, like the categories.

Yeah. So, all right, so I'm gonna. Hopefully, food service, restaurant businesses. I don't really work with those type of companies with my candidates for a couple reasons. They can be wildly successful, but it takes a special type of person to run those type of businesses. Lots of moving parts are. They're expensive, usually to get started in. And the profit margin on those are pretty low compared to other businesses where you can hire a manager to run. So let's just use an example of. Have you guys heard of Orange Theory before? Orange Theory Fitness all right, so fitness would be a brand. It's not the only brand, but fitness would be a brand that can easily be run as a semi absentee owner because you got a coach, it's a small amount of staff and you can have a manager easily run that for you. And you can manage the manager food service. On the other hand, if somebody quits or whatever, you got to jump in and turn those burgers if you don't have enough staff to cover that. So, you know, just, I guess the rule of thumb is for a person just getting started in business has never run a restaurant before. I stay away from restaurants and food service just because they're more risky than other concepts. Fitness, retail, when I call retail, where there's a location, real estate that your customers come to and that your employees go to, those are pretty easily scalable. Where you don't have to be the day to day operator on those. It's easy to have a manager. You can put cameras in the location so you don't have to be there. You can jump on your phone and look and see what's going on at any given time. You can train your salespeople if you want to, virtually through zoom. So I think retail is probably one category that's really scalable. So it's more passive.

Yeah, that's. You just said our favorite word, passive. So fantastic.

Well, for example, I'll give you my example real quick. I, I'm a franchisee, but you know, I live in Utah. My franchise is located down in Scottsdale, Arizona. Obviously I don't work there every day because I live in Utah. So it's a full, some, about six hours a week on that business and it's not even in my own state. So that's why I use fitness as a good example, because I'm living that myself.

Matt, do you want me to check on it for you? Because I'm in Scottsdale.

Go check on it, see if you like it, give me your review, see if we can do any better.

Yeah, not a problem. I'll check it out for you. That's awesome. So, Tate, do you have another question for Matt?

No, I'm very intrigued. What I do need is more information, but that'll come, I'm sure.

Eric, another question. Yeah.

What do you think it would. What does it take for someone to be successful as a franchisee? You know, no matter what the category is, what's. What's the ideal type of person?

I love that question. So the ideal type of person, number one, is that they are Coachable, meaning that they are willing to follow the franchise system. So where people get in trouble a lot as far as being franchisees is they'll become a franchisee. And then they think that they can do it better than the franchises and they go outside of the proven systems and oftentimes they fail or they come back and realize I just should just pay attention to the franchise system because that's what I bought into anyways. So being coachable and being willing to follow the systems the franchise has set up is the number one important thing. Now as far as looking at a person's personality and skill set running a franchise, I'd say if they have management experience, you know, even in a corporate job, managing people, knowing how to get along with people is the number one thing to, to be, to be successful in a franchise as well. Those two things probably really important.

All right, I love it, Scott. Todd, you want the last question before we get to the tip of the week?

Look, I don't really have a question per se, but Mark, I mean, you kind of missed it. And that's the fact that I do own the domain Donut Moto. Should anybody wish to acquire that from me, I'm happy to sell it, by the way, for a royalty for talking about passive income, because I don't want to start a donut shop. Really. That's all I have.

Well, I've got one more question. It might be a little bit technical, but Matt, when you get into the weeds on these franchises, you look at franchise agreements. Are there any deal killer languages or language in these agreements where you say, hey, if this isn't removed, my client's out?

Yeah, I think the biggest thing is territory protection. You know, a good franchise is going to have it written pretty clear in the franchise agreement. What a terror. What's defined as a territory. So a lot of times I'll do it geographically, sometimes by population. But let's just use geographically. For example, should say, let's say a five mile range. It should say that nobody, no other franchise of that brand is going to come in and open up a location within that five mile radius of wherever your location is so that you're not competing against your own brand. That's probably one of the biggest things. If it doesn't have a protected territory, I probably think twice about it. That's probably the biggest thing. Let's talk about royalties really quick. Some people, a lot of times people get hung up on royalties. Royalties are the, that's how the franchise makes money. They take a certain percentage of what your monthly gross revenue is, and that's their profit center. So the cool thing is, as you make more money, they make more money. So it's in their best interest to help you make money, too. But a lot of people get hung up on the number that the royalties are. Some are 5%, some are 10%. I've seen some as high as 20%, I would say. Don't necessarily get so hung up on what that royalty percentage is. Pay attention to what you're getting for that royalty. If you're paying 15% royalty, which is pretty high outside of the industry standard, then make sure that you're getting double what you would with another franchise for paying that much out. Those are the things that I would watch out for in the franchise agreement.

Well, this has been fascinating, and I think we can all agree none of us are going to buy a franchise unless we're working with you as our consultant. So it's. It's a wonderful service. But we are now at that point, Matt, of the podcast, where we're going to ask you for your tip of the week. A website, a resource, a book, something else actionable for the art of passing listeners to go improve their businesses, improve their lives. But before you do that, I have to mention our sponsor today, which is Flight School. Learn how the next 16 weeks can transform your life. Go up that mountain of land, investing quickly, safely and efficiently with Scott Todd as your Sherpa. He's done it thousands of times. Start making passive income without renters, rehabs, renovations, roads. Oh, yeah, and that flight school tuition, it's not going to cost you anything. Guaranteed. You're going to make money back 180 days or less. Just learn more at thelandgeek.com training and thelandgeek.com training. Matt Renthaway, what is your tip of the week?

All right, guys, my tip of the week is to read or listen to this book. It's called the Happiness Advantage. I don't know if you've heard of it before, but it's a book about a person that did an actual scientific study on why people are happy in life. The point of the book being, I'll give you the Cliffs Notes, is that most people in life, they say they're going to be happy when they achieve a certain thing, and then when they achieve that certain thing, they might be happy for an hour, for a day, for a week, but now they have another thing to achieve, and they say they're not going to be happy until they achieve this next thing. The point Is being happy with where you are right now in life, then you're always happy. Kind of flip the switch. What makes you happy right now? Not things or achievements. It really changed my life. I read it about seven years ago. I promise. I became a lot happier person after reading this too. And it's all scientifically based too, so the happiness advantage.

I love it. I love it. I wish I was included in that book because I would just say, hey, start a podcast with these guys. You'll be happy. Doesn't matter what goes on externally in the world. As long as you. You have this, you know, this group, this core group, you'll. You'll be happy. That being said, however, I will say that you don't want to be attached because, you know, it's very Buddhist, right? With attachment comes suffering. So, Eric Peterson, you're off the hook. You know, I just love that you show up. I'm not attached to it, therefore, I won't suffer. Anyways, I thought this was great. My tip of the week is learn more about franchising. And if you are really serious about creating a passive income with the franchise model, don't. Don't do it and go in there blind. You know, don't spend hours googling and trying to figure this stuff out yourself. Learn from somebody who's done it a bunch of times, knows all the ins and outs, what to look for, what to look out for, and go to learn. And then the number two franchise dot com. Learn the number two franchise dot com. We'll have a link to Matt's site and you can learn more. Matt Brentway, are we good?

Yeah. Thank you. I do want to give. Give one giveaway if that's okay. I have a free ebook that anybody can get. It's the five best industries to invest in the franchises. Just go to learn2franchebook.com learn2franchebook.com awesome.

Awesome. All right, Tate, are we good? We're good. Eric.

We're great.

Donut, Moto.

All good, man.

All right, let's do this. One, two, three, let's freedom ring. All right, thanks, everybody.

Thank you.

Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations, or rodents? Schedule a free consultation@thelandgeek.com forward slash training. Let freedom ring.