🍟 6/20/2022 – How Much Can You Make Owning Franchises?
DEEP DIVE TOPIC
How Much Money Can You Make Owning a Franchise?
Anyone who’s ever considered buying a franchise has probably asked this question to themself.
Given the amount of money certain franchises cost to get started (ahem, a million dollars plus for some brands), naturally people want to know what kind of return on investment they can make.
While it’s a totally fair question, the answer requires a ton of nuance.
Every Brand is Different
The word franchise refers just to a business model – one where a franchisor licenses their brand, operating expertise, and more, in exchange for royalties and franchise fees.
But the scope of different businesses that will use this model is very wide, and includes companies in just about every industry imaginable, such as fitness, fast-food, home-services, real estate, B2B, pets, and more.
So as you can imagine, not only can the potential returns vary from industry to industry, but also from brand to brand. If you’ve been subscribed to this newsletter for awhile, you’ve seen me break down a lot of different franchises, and thus, you’ve seen a variety of returns on investment.
Certain brands show the potential for well over six-figures per location, while others are under $100k. Not to mention there’s upside potential if you were to ever sell your franchises, and the downside potential of your business not succeeding.
Overall, there’s no one-size fits all answer to this question. Heck, even Googling it will return a wide range of answers from $50,000/year to $300,000+.
The reality is that the brand you choose makes a big difference, but also your aspirations heading into your franchise journey.
Regardless of the franchise, owning 1 location offers a relatively low earning potential. Said another way, you’re not going to get rich owning just 1 franchise.
While there are a few exceptions to this, the vast majority of the 4,000+ franchises out there will not make you wealthy with a single location.
But owning multiple locations is how you can flip the script and generate far higher returns for yourself. By owning multiple franchises, not only should your annual EBITDA increase, but also the sale price of your businesses if you were to sell to an acquirer, as it’s typically done off of multiples of EBITDA or revenue.
Of course, not just anyone can become a multi-unit owner. It requires a talented operator who has the patience to build multiple businesses, hire key staff members, and the means to finance each location via cash on hand, lenders, partners, etc.
But in the context of multi-unit ownership, when you then ask the question “how much money can you make owning a franchise?”, the answer can change quite dramatically.
Via multi-unit ownership, Guillermo Perales has turned a single SBA loan in 1997, into a billion dollar holding company.
Here’s the quick story:
Guillermo was born in Mexico City, and graduated college in Monterrey as a CPA. He got a job at a large Mexican food producer called Grupo Maseca, now known as Gruma.
He always wanted to own his own business one day, so he lived very tight to save his money.
In the late 1980’s, Gruma transferred Perales to Dallas where he oversaw the acquisition of other food companies. This experience gave him the confidence to go off on his own.
Perales was able to negotiate with Golden Corral to open 5 locations in Dallas, where he’d eventually emigrate to live full-time. He didn’t have the money to open the first location however, so he financed it via an SBA loan.
“Once we opened the other Golden Corrals, doors began to open with other brands“
Since that first Golden Corral in 1997, Perales has expanded aggressively by building new locations and buying existing ones for many brands.
Today, Sun Holdings (the name of Guillermo’s holding company), owns and operates 1,200+ franchises in 12 states, employs over 22,000 people, and generates over $1 billion in annual revenue.
His portfolio includes:
- 206 Arby’s
- 169 Popeyes
- 131 AppleBee’s
- 166 Papa John’s
- 115 Taco Bueno’s
- 141 Burger King‘s
And far more.
As impressive as this is, remember that Guillermo hasn’t done this overnight. His journey started 25 years ago back in 1997.
And while not everyone has the chops to accomplish what he has, to me, this is the upside potential of multi-unit ownership.
This is how much you can make owning franchises.
It’s not a get rich quick scheme, and it’s not going to happen quickly. But patient and talented operators can make life changing money via franchises.
Dave’s Hot Chicken is Heading to NJ
Via two experienced operators who previously owned Moe’s in the New Jersey and New York area, Dave’s Hot Chicken will have 9 locations in NJ. Since announcing the franchise in 2019, Dave’s Hot Chicken has more than 700+ unit committed.
Planet Fitness Zee Acquired for $675 Million
M&A activity has been slow compared to the end of 2021, but not for Excel Fitness, the Texas-based Planet Fitness zee that has 90+ locations. They were acquired by Olympus partners, who wanted Planet Fitness in their portfolio due to the strength the brand has shown throughout the pandemic.
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