In this episode Josh speaks with Giuseppe Grammatico, Franchise Consultant & Coach with FranChoice. The talk about why purchasing a franchise may be a great option for some business owners.
Giuseppe is a franchise veteran who simplifies the process of franchising and excels at guiding his candidates to the model that best suits them. His greatest joy is helping people realize the American dream and sharing the freedom that comes from franchising.
Franchising has allowed Giuseppe to enjoy the freedom so many hope for. Sharing his expertise with his candidates, learning about their goals and their lives, and guiding them towards their dreams are what lights him up the most.
In today’s episode you will learn:
- Why are franchises good and not good?
- Who is it the right fit for?
- How much money do you need to go into the franchise business world?
- How to choose the right business to buy?
- How to ask the right questions during your due diligence process?
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick, and you’re at The Sustainable Business. Today we’re going to be talking with Giuseppe
Grammatico and we’re going to be talking about the wonderful world of franchising. He’s a franchising expert, he helps people figure out whether they should be a franchise or not. I have mixed feelings personally about franchises. But that’s because I’ve been doing my own thing for so long, that I really do respect how franchises bring non business owners into the world of business in probably the easiest and most cost effective way. So instead of me wandering around about my opinion about franchises, let’s bring the expert on.
Hey to Giuseppe, how are you today?
Giuseppe: Great, Josh, thanks for having me.
Josh: My pleasure. So franchises, why are they good? Or why are they not good?
Giuseppe: Why are they good and not good? Well, it’s a business structure. It’s a proven system. So I tell everyone, it’s not always the right fit for them depending on exactly what they are looking for. So a lot of people just want to run with a proven system. Whereas other candidates that give me a call up looking to start a business, they’re looking more to kind of create and offer various products and services that may not match perfectly up with a franchise. So it’s a great way to quickly grow your business, but it’s not always the right fit, depending on what that entrepreneurs looking for.
Josh: So who is it the right fit for?
Giuseppe: The person, quite frankly, that’s able to follow a system. That’s really what it comes down to, for example, you’ll have people taking a look at a food franchise and say, “This is great, but how else can I add additional revenue streams” and then they start kind of going away from the franchise model and getting into while the customers here we can all do car washes, and we can also offer this service and that service. And that’s not really what a franchise is about the franchise, is that proven system. They offer that product or service really well, it’s a great experience. And the candidate who’s a good fit for that franchise is going to follow that system. No reason investing in a franchise company, if you just won’t follow exactly what they’re offering and their training and system.
Josh: My understanding is you don’t follow the system and use them they’re going to un-franchise you. You’ll lose your franchise.
Giuseppe: Correct, especially if you’re not following the system using the product and just deviating completely the potential Yes, down the road. Obviously, that would be a conversation. But yes, it could be the possibility of the franchise closing.
Josh: Depending on who the franchisor is it might be sooner than later.
Josh: For example, McDonald’s doesn’t have a big sense of humor about the franchises not following systems.
Giuseppe: Yeah, fair enough, you know, they’ll actually inspect, they’ll make sure that the franchisees are following the system using the right products, because at the end of the day, it’s their reputation at stake. But for my experience, the franchisees have, on occasion maybe deviated a little bit, not realizing it, maybe weren’t too sure. And typically, it’s taken care of right away, or maybe the franchisor says, “Hey, you’re offering this product, which actually something that we’re currently not offering today, we’re just going to ask you to discontinue it.” And from my experience, it’s been a quick fix and its silver and done in 24 hours.
Josh: That makes sense. So my understanding is there’s thousands and thousands of franchise opportunities. How many franchise opportunities are there in the United States right now?
Giuseppe: It changes believe it or not, we typically say over 3000. So that covers anything over that amount. It’s overwhelming for the individual, including myself going back 15 years ago, looking to purchase a franchise, it’s extremely overwhelming. You take a look at every industry, well over 3000 franchises, how do you sift through all this information. And that’s when I stumbled upon a franchise consultant, which, ironically, is what I’m doing today. And that person was able to sift through everything. Basically, our back office here at FranChoice will vet and actually meet with the franchise companies. They’ll have certain criteria that they want them to hit including financials, how many units and territories have been sold. So they’re taking a look at growth factors and things like that. And after meeting certain criteria, they will accept them into our portfolio.
Right now we represent about 165 franchise companies that have been vetted by FranChoice covering all different industries. So we’re not limited as to our offerings. But we’re able to represent these franchise companies, we get to meet with them in person at our national meetings at least twice a year, and get to speak with their CEOs, VP of franchise development, just picking up the phone and giving them a call. So we have some really good access. And as far as the service we provide, I always say jokingly, you hear knowledge is power. And at this stage of the game, I don’t really believe in that I believe in applied knowledge. There’s way too much knowledge and information online. And our candidates come to us saying, “Okay, I’ve done my research, but I’m more confused now than when I first started my search.”
Josh: So you guys have 130 different franchises that you represent, how many industries would that be?
Giuseppe: It’s about 165. And that’s good question. Its 22 Industries, I believe.
Josh: What’s the range of the cost of a franchise and what I hear your costs are as high as three to four or $5 million for some food franchises? But with the group that you represent, I’m going to go into the franchise business world how much money do I need?
Giuseppe: All in investment and I know there’s some confusion with a franchise fee and all an investment. Franchise fee is basically just a right to purchase the franchise, and then there’s build out and computers and advertising. So I don’t like to use that number. So we are looking at minimum about 60,000-70,000 75,000 to start on the low end all in that’s with your first month marketing budget, if there’s any new computer systems and things like that, to where you have some of the larger retail where there’s an actual build out of a location of a couple thousand square feet or more. And you can get into, as you mentioned in the millions 2 3 4 million dollars. So there’s a definite big range.
Josh: We all know about food franchises, because everyone knows we got also a franchise.
Giuseppe: Oh, yes.
Josh: In a whole bunch of others our franchise operations besides McDonald’s include sort of complex businesses periods of run no matter what you do, even if you have a system, what other franchise type businesses are there out there for people, there’s no frankly $60,000 $70,000 basically, anybody can afford that.
Giuseppe: First off, we go back to funding. A lot of people will say, “Well, I only have $10,000 or $20,000 in the bank, I don’t have enough.” So sometimes they don’t even inquire about the franchise, because they don’t feel like they have the funding. And I tell them, we partner up with a couple funding companies so that they can look at A to Z all their financials, because just because you only have X amount in the bank, they also take a look at retirement assets, your equity in the home and things like that. There are plans one being called the Rob’s plan, where you can utilize penalty free your retirement assets to fund your franchise. So we work with funding partners, it’s a free service. They’ll do A to Z. And then if you decide to move forward, obviously there are fees depending on the type of loan. So we’d like to put them in front of the funding partners just to get them started.
Josh: What type of businesses? What type of franchise businesses could I do for $60,000 to $100,000?
Giuseppe: Yes, that’s a great question. So there are various categories to franchises, I kind of split it up and just say they’re service based. And then there’s more retail based just to simplify things. And I get into more detail on a consultation with any of our candidates. So the services based are no retail. So obviously, there’s no physical location, you can work from home. You can work from an executive suite, or a kind of a combination, where you have an executive suite, and maybe a little office and an industrial section where maybe you’re getting some inventory, maybe part of its warehouse. So types of businesses would be painting services where the franchise company is providing you lead and essentially filling up your calendar for the day you’re going out. And you’re providing a service where you’re going in home, giving them a painting quotes showing them physically, this is what your home will look like with the exact color paint you have chosen.
There’s also franchises that will provide concrete coverings where they’ll go over your existing driveway with a concrete go over your countertops and your kitchen with a kind of so we call it almost kind of similar to an Amazon business where people like to shop from home, they like to point and click and have their packages shipped to them. And this is the same type of service where the franchisees are physically going out meeting with the customers directly showing them exactly the product or service in their home.
They’re not going back and forth from the stores saying, “Okay, I think this paint color will work.” Why not take pictures and video the entire home and then show them the before and after. So those are businesses were not much money to get started, not any inventory, because a lot of these services, you’re ordering the product or the supplies as you get the job. So those are the types of services.
Josh: Let me ask you a question. Because I think this might be an interesting thing for some of our listeners. Let’s say I’m a builder. And I actually am a subcontractor and I do drywall. That’s my business. I’m in the drywall business. But I’m looking at saying, Gee. I know expanding into painting would be an interesting thing, because I have to paint the drywall after it gets up. Would they be eligible to be a franchisor of the painting company with that sort of [00:10:19]?
Giuseppe: Yes, absolutely. So to your point, it’s an add on service. So you have the option, obviously, of just going out and doing it on your own or investing in the franchise. As I mentioned, some of the franchises they’ll do all the advertising. They have a national advertising campaign. And you wake up every morning, and your Google calendar is full of appointments for that day. So you’re working with warm leads all day long. So you can use that along with all the customers that you’ve done drywall for.
Josh: So in other words, you could go to your painting customers. And you can say we also do interior building, you find out that they are painting the living room, but they’re going to be redoing their kitchen, for example.
Giuseppe: Correct, so you can up sell them. Yeah. So essentially, if you had the painting franchise, you would advertise and build through the painting. But if there was an up sell, because you did have a handyman or construction business, yes, you can just say this is through my other business. And you would build to that business accordingly so, absolutely. But one point I want to make because I get this question, literally every single day is, for the most part, I would say probably about 90 to 95% of the franchises we represent, you do not need experience in that franchise. That is why a lot of people have expressed interest in food because food is easy to understand. At some point, either you’ve worked at a restaurant and or have cooked at home. So a lot of people will have a comfort level there. And I tell them, you don’t need the experience in painting because in that particular business, you can paint on your own, absolutely. But you utilize subcontractors, concrete overlays, same thing, you could do the work on your own, you can use employees, a combination of employees and subcontractors depending on the type of work. So that’s one of the biggest myths in our businesses, you need the experience the FranChoice wants nothing more than to have you succeed. You know, that’s how they make their money. And they want to keep that reputation going. So they will train you from A to Z. So I tell them, that’s definitely not a concern. Let’s figure out the business that matches specifically the characteristics you’re looking for.
Josh: The thing I find interesting is many of our listeners are looking at ways of expanding the business. And instead of trying to expand it to a different market area from scratch, doing a franchise might make a lot of sense and be a more cost effective way to expand your business.
Giuseppe: Absolutely. The FranChoice Company is a proven system. They’ve already spent their money trying to figure it all out, what’s the best way to market? What’s the best way to approach the business? So when people say, “Well, the franchise is a lot of money, you are paying for that license that franchise fee to get into the system for the actual training, and then trademarks and things like that.” But what would it cost you to make those same mistakes. It could be a heck of a lot more. But you’re also getting the benefits of top notch training and support going forward. Going back, for example, in that painting business, not only are you getting the support and the training, but you’re also getting national pricing, because a lot of the companies are national. They’re threat to US going into Canada. So you’re getting preferential pricing from some of the painting company. So you’re making higher margins just right off the bat, because of the economies of scale.
Josh: It makes perfectly good sense. So let’s talk about the dark side of franchising for a while, because there are plenty of franchises that have formed. They’ve gone through all the paperwork, they filed all the paperwork, but the end of the day, it’s a lousy business model, the business model doesn’t work. And the franchisees lose their money and the franchisor goes out of business. What can I do in due diligence besides hiring for like years, to make sure that I’m getting into bed with a franchisor who is above board and will be around 10 years from now?
Giuseppe: At FranChoice as I’ve mentioned, we vet the companies coming into our portfolio, as much as the vetting as we do we always recommend to the actual franchisee because number one, you have a lot of franchisees that have gone on there or lost money. So we always ask that they follow a system and that’s a whole another conversation. But when looking at a franchise validation is key, I think that’s key in our business where, okay, just say someone comes to me, we take a look at what they’re looking for, we recommend a franchise, they speak with the franchise company, that’s number one. I always recommend just say we’re here in New Jersey, go out and visit some of the franchise companies don’t bring any attention to yourself, go to— if it’s a food based, if it’s a restaurant, go have a meal there, hang out there for a week, maybe have breakfast, one day lunch, and then dinner, just check it out, see how things go speak with some customers, but more importantly, speak with existing franchisees when we put you in touch with a franchise company, they’re going to give you a list of all the franchisees in the system via their Franchise Disclosure Document, talk to them, ask them knowing what you know, now, would you do it all over again? What are you making after your first year, your third year, your fifth year? Is the company offering the support that they promise in the meeting? So as much the due diligence and vetting that we do we always tell them, “Speak with the franchisees make sure they’re happy.” And if you’re getting quite a few franchisees saying, “No, they didn’t follow through, or lately, they’ve just kind of dropped the ball.” We want that information back because now we can possibly stop the due diligence process on that particular franchise company. But ultimately, those are some of the key factors speaking with the franchisees. The franchisor is going to provide you with all their financials as well. So just say it’s someone not working with us, they’re doing their own due diligence, they can look and if they’re seeing pages and pages of litigation, if they’re seeing financials sliding, or number of unit franchises and territories declining on an annual basis. Those are some red flags that you can bring up on the call and or meeting. And if you don’t like those answers, move on. There are plenty of other franchises out there.
Josh: Is it appropriate to ask the franchisor when you’re doing due diligence for people who were ex franchisees who either got thrown out of the system? Or went out of business? Because what you find is that if you ask me for a referral, I’m not going to give you the person that fails.
Josh: But it’s pretty probably more important to talk to the person that failed and the person who succeeded with the franchise.
Giuseppe: So to your question is not inappropriate, it’s completely appropriate as far as their willingness, because they have to provide all contact information. And I believe there’s a section on there that says previous franchise owners and their contact information. So it’s, it’s completely appropriate. You have that right as an investor in the franchise to know why. And in some cases, maybe it was a health issue, maybe it was a sale because of a move or what have you. So it’s great to have all the information so you can make a well informed decision.
Josh: That makes sense to me. So I’m going to put you on the spot here. What’s your favorite franchise type business?
Giuseppe: Favorite franchise type, I like business to business, I like service based business personally, those types of businesses are you’re going directly to the business. Very little build out offices may or may not be required. So I just see that with business, you tend to have more of an annuity business. So for example, you have businesses like executive recruiting, things like that, where you’re working with businesses across whatever territory that you own, and it becomes somewhat of an annuity, because there are always job openings, you can hire as needed, and relatively quickly, so you can hire additional recruiters. And at the end of the day, you can work from home or with a small executive suite. So I like those businesses, because you don’t have a lot of risk at stake, you can ramp them up pretty quickly. There’s no inventory, there’s no spoilage. And it can be operated with very few employees.
Josh: So I’m assuming there are franchises for bookkeeping services, there’s franchises for executive recruiters going to be all sorts of you know for coaching for whatever it is that you might have as a service to other businesses, there’s probably a franchise behind that.
Giuseppe: Correct there are. So you look at a business, the business, just say you have a building and you have a large company, you have to decide who’s cleaning and maintaining my building, there’s franchises for that, how am I going to hire my people, you have executive recruiting franchises, etc, etc. Even if I want to do some personal development for my managers and myself, we have business coaches and things like that. So there is a franchise for just about anything you’re looking for. So the question is, do you want to hire a franchise for that business or do you want to bring those people in house and do it yourself? So there are definitely advantages to the franchise and they assume a lot of the risk, especially with bringing on talent and on the recruiting end. So there’s a major advantage in using that and when with many of the franchises when the need is no longer there, you can put the service on hold and pick it back up possibly when the need is there again such as with recruiting.
Josh: Cool, so Giuseppe we are unfortunately out of time. And people who are listening that may want to grow their business or somebody that’s not in business that wants to get business or wants to change their career. Franchises is a really good thing to look at Oh, by the way, for folks who are listening, if you happen to read the book, “The E myth”, and you say that’s for me, I love that you are a great candidate to become a franchisee even in my opinion is way too complicated to put together by yourself. But when you buy a franchise you get all the [inaudible 00:19:59] stuff it’s priority package because that’s what it is you’re buying the business in the box.
Josh: So Giuseppe, how do people find you get more information? If they want to engage your services how do they do that?
Giuseppe: You can contact me direct our numbers 908-873-6134. We’re redoing our website as we speak. So and the other way is just via email. So it’s G my last name. So it’s GGrammatico@FranChoice.com. You can contact me and I cover the entire country going into Canada. If you have any basic questions on franchising, taking a look at a specific franchise, you name it any anything franchise or small business related. I’ll be more than glad to assist in any way possible.
Josh: I also have an offer for you. You know, one of the biggest issues for all private businesses, whether you’re a franchisor a franchisee, or just someone running a private businesses, having enough cash in your business operate day to day. So I’ve been thinking about this for a long time I developed a program called Cracking the Cash Flow Code. And as part of the development process, I said okay, what does it take for someone to become successful to go from having not enough cash to have the excess cash. And I call that the Success Path for creating excess cash in the business. I did a one page info graphic on it. It’s easy to get, just go to our website, www.sustainablebusiness.co/cashflow that’s www.sustainablebusiness.co/cashflow. Put in your email address, you’ll get a free info graphic and you’ll learn where you are on the road to cash flow freedom.
So this is Josh Patrick with Giuseppe Grammatico. You’re at The Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.