0:00:00.0 Kurt Baker: Do you want a better understanding of franchising? Do you want to learn everything there is to know about franchising business opportunities? Lisa Linkowsky, the founder of Milestone Franchising, has 10 years of experience in the franchising industry, training and mentoring franchisees to help them build their business and adapt a realistic approach to business ownership. Today she will help you feel informed and educated as she introduces a website where you can obtain monthly articles and view a TV show that interviews franchisees and franchisors. Additionally, you can take a free business assessment called Zorakle Business Profile.
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0:00:46.9 Kurt Baker: Thanks, Lisa. I appreciate you coming in. Franchising is, I guess, huge, ’cause I know… I’ll just tell you a quick story back when my… I was very, very young and my father was involved in the space program and back in the ’60’s and ’70s, the space program was like we went to the moon and then all of a sudden, we didn’t go to the moon. So guess what happens when you don’t go to the moon, after going to the moon, you have less jobs. So the whole industry had a contraction and so he was like researching opportunity just in case he had to go out on his own. Never happened. So we never owned a… In fact, I remember this. He was like, “Oh my gosh, look at this franchise, McDonald’s $25,000. Can you believe they want $25,000 for a McDonald’s franchise?” Now, you might be able to quote us today, but I’ll bet you a dollar it’s more than 25,000 right now.
0:01:29.6 Lisa Linkowsky: It’s a bit more, Kurt. Thank you so much for having me.
0:01:32.3 Kurt Baker: Anyway, so franchising has been in a long time, but now it’s much more organized. There weren’t company… He was doing all this research on his own, but it’s a very different playing field now, which I think is better. So you wanna tell us a little bit what you do and why you got involved and how you got involved in all this?
0:01:47.2 Lisa Linkowsky: Sure. Well, thanks for having me, Kurt. And yeah, it can still be the Wild Wild West out there. That’s why franchise advisors like myself exist because we have this thing called Google so everyone can go around and start clicking around and believe that they are an expert in understanding this world that encompasses over 4000 franchise concepts out there. So now you’re trying to figure out which one is right for you. Well, what are you basing that upon? Okay. “Oh, well, I’ve got this amount of money.” Well, now what are you basing it upon? “I like to eat, I eat food, so therefore I’m gonna have a food franchise.” That’s not a good reason to own a food franchise, Kurt.
0:02:27.7 Kurt Baker: Oh, good. I’d rather go to a food franchise than produce…
0:02:30.4 Lisa Linkowsky: Than to own one, yeah.
0:02:30.6 Kurt Baker: The food franchise. So Google, Google is great ’cause it has a lot of information, but Google does not have a lot of wisdom.
0:02:38.6 Lisa Linkowsky: Right.
0:02:39.2 Kurt Baker: So I think that’s information applied.
0:02:42.1 Lisa Linkowsky: Wisdom.
0:02:43.0 Kurt Baker: So I think yeah, I agree with you 100%. You become very dangerous on Google if you’re not careful. Like be careful.
0:02:48.5 Lisa Linkowsky: Well, and I liken it to people. Often the candidates that I have, they’re corporate refugees or they’re on their way out either by force or on their own. And so maybe they’ve ha0d a drink or two, a cocktail or two, and they start tapping around on that internet and now it just became that much more volatile and that much more dangerous because now you’re just tapping around and people are out there and they’re like, “Oh yeah, I’ll talk to you about this. Yeah, let’s make it happen.” And before you know it, something that could be really good has turned into your worst nightmare and because you just don’t know what you don’t know.
0:03:28.1 Kurt Baker: Yeah, I agree 100% because every business is very, very different as far as how it operates and how much time, energy, what you have to know and what you have to implement. So there’s like knowledge-based industries and then there’s ones that are like, maybe you’re gonna go build stuff. I mean, you’re gonna manufacture something, you’re gonna serve food. I mean, there’s just all kinds of different ways that you can earn a living out there and they operate very different. A lot of business concepts are exactly the same, but when it comes to implementing what you’re doing as far as your day-to-day, it’s gonna be a very different experience as far as the owner goes. And I think it’s important you understand what’s it like to own this kind of business versus this kind of business versus this kind of business, right?
0:04:06.9 Lisa Linkowsky: Right. The execution and how it’s all laid out. In the franchising world, there is something called a franchise disclosure document. It’s an FDD that was put into force by the Federal Trade Commission and everyone always says, less government, less government. But you can see and understand why these things are put into place because once upon a time when franchising was literally the Wild Wild West, anyone could call themselves a franchise and you had no idea what you were expected and you had no idea what you were getting in return. There was no understanding of any of that. The FDD, that every franchise business has to have and they have to update it annually, gives you all of this ingredient, so to speak, of knowledge, of understanding what the expectations are, what this business is, what it is that they’re gonna provide for you.
0:05:00.9 Lisa Linkowsky: And I was just having this discussion with someone earlier today that I represent. I represent 500 franchises and one of them, they don’t have protected territories and so they can put someone right in your territory. And I’m like, but that’s the whole reason why you have the franchise is because you want a protected area that no one else can come into. But they’ll say there’s so much business that we know that we could have three people in there. But that gets very confusing for your community, your local community when you’re both in there and you’re both working and you think that, oh, this person that’s knocking on your door is the one that you’ve been working with all this time. And then you come to find out, oh no, you’re a different…
0:05:42.8 Kurt Baker: You’re competing against yourself basically as a company which is not really ideal.
0:05:47.6 Lisa Linkowsky: That’s correct, that’s correct. And then the other piece of this is that you’ve got this brain trust. The franchise world creates a brain trust where you get to speak to all these amazing individuals that all come from different worlds and all come from different backgrounds, and you all get to come together and work out best practices together. Well, now if you’ve got someone that’s literally down the road from you, they’re now the enemy, right? And you don’t want that. You don’t want that in a franchise. So I won’t show that franchise solely because they do not have that protected territory for my clients.
0:06:22.5 Kurt Baker: And I think you pointed out one of the big pluses of this, and this is… We talk about this a lot in just business in general, is like the mastermind concept where you bring other people together to discuss your issues and your problems and your challenges and things like that. And if you’re all in a… There’s two kinds of masterminds in my view. There’s one where you have similar businesses or almost identical, and then you have ones where you’re divergent, where you’re totally different, where you wanna make sure you’re not missing some ways that you could approach things that maybe another industry’s already attacking. When you have a franchise, you’ve got that common issue. If somebody’s running a franchise in California and I’m running one here in New Jersey, we’re gonna have a lot of interesting commonalities. We’re gonna have some differences, of course ’cause the markets are different, but we’re gonna… As far as processes and things and problem-solving and things like that, we’re gonna have a lot better ability to solve problems when they come up. Or if the economy changes or regulations change or things like that change, then we all get together and have a conversation. What’s the best approach to take based on A, B, C, right?
0:07:15.9 Lisa Linkowsky: 100% and that’s one of the greatest things. I was in a franchise myself, and it was one of the greatest things, was that you’re not in business by yourself for yourself. Like you get to sit there and work with other people, but you’re still owning your entity. You’ve still got your business that you’re running. But I’m not the smartest person in the room, Kurt, and I wanna sit there and defer to other people and look at them and go, “Wow, you know about this and you know about that.” And I’m just gonna sit quiet and I’m gonna listen and absorb. And then if I think that I can add something to that conversation where I’m helping, then yes, I’m gonna do that. And that’s the beauty. You’ve got 500 owners out there in a franchise. Think about how much, again, brain trust you’ve got there, and you get to help one another.
0:08:00.8 Kurt Baker: Yeah. No, I think it’s amazing. I think it’s great. But you also pointed something else out, which I think is really, really critical ’cause I just… One that comes to mind… A couple of them come to mind, but the one that came to mind when you started talking about franchises and some that are good, and some that are bad, I remember Boston Market when it came out, it had extremely liberal financing options. Like almost anybody could get a Boston Market franchise, and then they overbill and they overran the market and all of a sudden, they were way over-leveraged. The market changed and most of them are gone now.
0:08:30.0 Lisa Linkowsky: Yeah. There’s very few.
0:08:31.1 Kurt Baker: It’s hard to even find the Boston Market anymore.
0:08:32.3 Lisa Linkowsky: That’s correct.
0:08:32.9 Kurt Baker: So you have to be careful, and this is one of the things I think is really important from an underwriting standpoint. Sometimes people come into these situations, whether you’re just going to a bank or you’re going to a franchise or, saying, “Hey, I wanna do business with you.” And they’re like, “Well, basically you don’t qualify.” Right? And sometimes that’s a good thing because they know what it takes to get it started. If they just took everybody in, you could have the Boston Market issue where they’re just gonna lend you all the money you need. Well, at some point, you have to pay that back. So if your business model is not such that it can cover that debt service as well as all your other operating expenses and other things that are gonna happen along the way, you’re just gonna end up at a point where you just can’t do it.
0:09:08.6 Lisa Linkowsky: Correct. And listen, and you’ll love this as a wealth advisor, Kurt, one of the things that I make my candidates say out loud is I may not cash flow for a year. And if they did not fall off their chair and hit their head and have a concussion, then we can continue talking. But now the big thing that’s out there right now, the big buzzword, is passive income, passive income. Everyone wants passive income, and when you have to…
0:09:34.6 Kurt Baker: I thought you bought a CD for that.
0:09:35.9 Lisa Linkowsky: Right. When you have to hire…
[laughter]
0:09:37.9 Kurt Baker: I’m sorry.
0:09:38.2 Lisa Linkowsky: Someone now that’s gonna manage your business for you, now you just push that cash flowing that much out, that much further. Now you’re keeping your job and you get to still have your income coming in but the business itself is gonna be pushed that much further from allowing you to start seeing that income coming in. And so understanding that, and that person is not gonna be as vested in this business as you are as the owner. That’s not gonna happen. And then furthermore, what happens when that person decides to just quit overnight and they’re just gone, and now you’ve got a corporate business and a corporate responsibility, and you’re going, “Can I take a three months sabbatical please while I go try to run my other business?”
0:10:18.9 Lisa Linkowsky: Like it’s a lot and you have to think of all of these things. It’s chess, and you have to be a couple steps ahead, and if you’re not… Something that… I look at franchising as something that can be incredibly amazing, and I am a product of having an amazing franchise business, but when it can go wrong, it can go really wrong and it can take you down, bankruptcy, divorce, like the whole thing because it’s a really big undertaking. It’s not something that should be taken lightly for sure.
0:10:51.4 Kurt Baker: No, I agree. And I think people don’t realize just how much is involved. There’s really… In my opinion, as far as owning a business, regardless of what status you’re at, there’s no such thing as a passive business. You still have to oversee it, and you still have to be ready to step in in case something happens. We’re gonna take a quick break. You’re listening to Master Your Finances. We’ll be right back.
0:11:08.5 Kurt Baker: Welcome back. You’re listening to Master Your Finances. I’m here with Lisa Linkowsky of Milestone Franchising, and we’re talking about really franchising is awesome. I think it’s an awesome concept because it takes away a lot of the years of research it literally takes. If you wanna go do something on your own, one, the research of making sure something’s gonna work, and two, once you start any business, and speaking from experience, every business I’ve started, frankly, it’s not a franchise, but it’s a number of years before you really nail down the industry.
0:11:39.2 Lisa Linkowsky: Right.
0:11:39.6 Kurt Baker: And kind of get it. And there’s a lot of time and money and expense that goes into learning this. I mean, you really… You’re out there on your own really. And so having a good franchisor, I can see that being an enormous accelerant as far as getting you down the road faster. So a lot of it really just depends on, do I wanna do this all on my own and take four, five, six years to figure it out? Or do I want somebody else to kind of help me and this may take me one or two years? And then what’s the cost? So this is where it gets into like, should I franchise or should I do it on my own? ‘Cause you have a lot of businesses that are like… I’m thinking of people that pick up your garbage like 1-800-GOT-JUNK or whatever. There’s a lot of these… You think, “Well, that can’t be so hard. I’m gonna get a truck, and I’m gonna go pick people’s garbage up.” Right?
0:12:23.5 Lisa Linkowsky: Right.
0:12:24.6 Kurt Baker: Well you think… I mean, that’s pretty basic, but there’s a lot more to it. There’s a backend. So can you explain to us why some of these national franchises always seem to do better than people trying to go out on their own and really one off, ’cause there’s a couple…
0:12:40.1 Lisa Linkowsky: For every reason that you just stated.
0:12:42.1 Kurt Baker: Okay. [laughter]
0:12:44.9 Lisa Linkowsky: You’ve got the mom and pops that are out there and it’s very fragmented. Let’s say junk removal, it could be very fragmented and they’re inundated with calls, they don’t have great marketing or any marketing at all maybe. They just started kind of creating something and then it took off and they started having clients. But then people are calling them and they’re not returning the phone call because they don’t have the bandwidth, they don’t have that professionalism. So there’s just all of it from soup to nuts. When it’s a franchise, that’s all figured out. You’ve got a logo, you’ve got a branding, you’ve got the colors, you’ve got the name, you’ve got everything figured out. You have maybe a call center so your calls are being taken 24 hours a day by someone that’s professional.
0:13:32.8 Lisa Linkowsky: I’ve had contractors that… Talk about a fragmented industry, contractors where they were writing an estimate for me on literally a napkin. And I’m going, “Okay, but you were the only person that called me back so I guess I need to give you the business.” Are they bonded? You don’t even know. Do they have insurance? So many of those things where when you have something that you’ve seen around, there’s an instant familiarity and an instant… You feel more confident that they’re gonna do the job and they’re gonna do it well and you would feel confident to then recommend them to other people, right?
0:14:10.3 Kurt Baker: Absolutely.
0:14:11.2 Lisa Linkowsky: That’s really what it all happens. And then they also figure out the marketing piece and they do your SEO for you. And you start popping up in all the spiders in Google and they just… And it’s all the same and it’s all that unique familiarity where if you’re in Utah versus New Jersey versus Florida, it’s that same thing. So you go, “Oh, I know who to call because I had a great experience and I know that they’re gonna do the same thing for me in this state as well.”
0:14:40.3 Kurt Baker: Right. ‘Cause as you pointed out, they have a… They put a structure in place and they’ve got a nice flow, basically the flow of how the business is supposed to go. And it’s interesting that you pointed out a couple of things. Contractors are famous for not calling people back. Now they may be the greatest person at hammering a nail or sawing wood and putting stuff together, but they’re different skill sets.
0:15:00.5 Lisa Linkowsky: Correct.
0:15:01.0 Kurt Baker: They’re very different skill sets.
0:15:02.4 Lisa Linkowsky: That’s correct.
0:15:03.2 Kurt Baker: So you can be really good a craftsperson, but not necessarily…
0:15:07.1 Lisa Linkowsky: A good business person.
0:15:07.8 Kurt Baker: But not necessarily a good business person.
0:15:09.1 Lisa Linkowsky: Yes.
0:15:11.9 Kurt Baker: And I know. It’s interesting you brought up insurance because I always… Before anybody does any work around our house, I always require insurance obviously because of what I do. And they look at me and most of them… I would say almost everyone looks at me. Like nine outta 10, I will say look at me like, “What are you talking about?” I go, “Call your insurance agent. Here’s my name, here’s my address. Have them add me as a loss payee and have them send me over the certificate of insurance before you come out and start ripping my house apart because if you die or get hurt, worse, then I don’t… I wanna know that you’re covered and I’m protected.” And when you get into the franchise things, what they do that you point out is they have rules and requirements…
0:15:48.1 Lisa Linkowsky: That’s correct.
0:15:49.0 Kurt Baker: That they have to follow. Otherwise, they’re gonna lose their franchise.
0:15:52.6 Lisa Linkowsky: That’s correct. So you have to have…
0:15:54.5 Kurt Baker: So you have another layer of protection.
0:15:57.6 Lisa Linkowsky: Right. They’re gonna tell you exactly what type of insurance that you have to have, what the limits are. Like they tell you all of that. Everything is written out. And another point that is really important is that in the franchise world, let’s go to the contracting space because the home services space is so… It’s a very popular space to be in. They’re not expecting a corporate executive to go climb a ladder and start cleaning out gutters or painting or doing whatever it is. You’re hiring for that. And to your point, that painter or that HVAC person or whatever it is, they don’t necessarily have that business skill. So now you put the two together and now you’ve got a strong business because you’ve got the business person and now you’ve got the person actually doing the work and now you’ve put it together and now you’ve got that business and it’s working well.
0:16:46.0 Kurt Baker: And I think another thing that a lot… If people really think this through, if I’m the craftsperson and now you take all that other administrative stuff off my back, I’m gonna have a lot more time and energy to go out and actually do the projects. So I’ll probably be doing a lot more projects than I would’ve if I had to go home and do the paperwork that I probably would hate to do anyway. It would be like pulling teeth for me. I don’t really wanna do that part of the job and that’s in any business. I mean, you’re always talking about how you have to offload those tasks that aren’t your highest and best use.
0:17:17.0 Lisa Linkowsky: That you don’t like. Yep.
0:17:18.5 Kurt Baker: Well, franchising almost kind of builds that in and says, “Well, what do you like to do? And what are your skill sets?” And then somebody like yourself comes in and says, “Okay, well, based on what your skill sets are and what you like to do, here are some opportunities where I can kind of plug you into a system where all these other things have already been figured out for you.” Is that…
0:17:34.6 Lisa Linkowsky: 100%.
0:17:35.0 Kurt Baker: Is that kind of the way it works?
0:17:36.3 Lisa Linkowsky: 100%.
0:17:36.3 Kurt Baker: Okay.
0:17:37.6 Lisa Linkowsky: The same thing in the medical field. Think about dentists, think about anyone that’s in the medical field. They don’t wanna deal with the insurance, they don’t wanna deal with all that stuff. And again, they’re not business people. They went to school for medical purposes. A chiropractor, they didn’t go to business school. And so there’s chiropractor franchises, there’s medical franchises because of that exact same reason.
0:18:02.9 Kurt Baker: Yeah. I hear you bringing that up ’cause I’ve actually talked to some chiropractors that are like, they’re struggling to bring in business. They’re like, “They didn’t teach us anything. They told us how to do an adjustment.”
0:18:10.6 Lisa Linkowsky: Do an adjustment.
0:18:11.1 Kurt Baker: “But nobody told me how to get somebody in the door.”
0:18:13.8 Lisa Linkowsky: No. Correct.
0:18:14.8 Kurt Baker: And they’re like, “Well, now what I do, I open my office. Aren’t they all supposed to just come in?” That’s not the way business works guys.
0:18:22.2 Lisa Linkowsky: That’s right.
0:18:22.8 Kurt Baker: There’s a lot of marketing and a lot of networking and a lot of getting your word, the word out and making sure people understand who you are ’cause you’re not the only business in town. And people have to understand, “If I come there, what am I getting?” And if somebody already has something lined up that’s familiar with that, why do you think… I don’t know if they’re the first franchise, but the first ones I remember is the fast food restaurants. When you would travel, you would go around and you knew what you were gonna get if you were three states away from your home state. You go, “If I stop in this restaurant, it’s gonna be pretty darn close to what I had at the last one.”
0:18:54.0 Lisa Linkowsky: Same layout, same menu, same everything, and there’s comfort in that, there’s familiarity in that.
0:19:00.1 Kurt Baker: Right, right, right. So what are you seeing happening right now now that we’re a little bit out of the pandemic and people I think are still… Are starting to grow businesses even more now? I know there’s a lot of thoughts. Well, let me ask you this question. During the pandemic, I think a lot of people relooked at their lives, so to speak.
0:19:18.0 Lisa Linkowsky: Yes.
0:19:18.1 Kurt Baker: So we’ll start with that part. So what did you see happen then, and what are you now seeing happening now that we’re a little bit further away from that period of time? So what kinda changes have you seen and what similarities are you seeing between those two episodes that have occurred?
0:19:30.8 Lisa Linkowsky: So franchising typically historically does extremely well in economic upset. Every time there’s been any kind of… 2000, 2008, going back, anytime there’s been any big economic upset, franchising always does well, and the pandemic was no exception. The SBA saw a record number of business applications year after year breaking every conceivable record. It was crazy. And it was a lot of that, “I wanna take a look at my life and I wanna do things differently.” And then there was the whole, “I don’t wanna go back into an office. I wanna work remote, or I don’t wanna work remote and I wanna go into an office.” Whatever it was, it caused people to question things and think about things differently and where they were. I’m still seeing a lot of that. It’s not as much of an upset as it was, but I’m still seeing it and feeling it. And because companies then started letting go of employees, so I started seeing that earlier this year. And so then people are going, “Okay, now there’s layoffs happening and I wanna get out before that happens.” And I always counsel my candidates to get out. Be proactive. Don’t be reactive.
0:20:44.2 Kurt Baker: Right.
0:20:44.2 Lisa Linkowsky: Like that. You wanna have your job, you wanna be able to make a sound decision and not be panic-stricken. And now it’s six months later, you haven’t found a job and you’re now trying to figure out whether or not owning a business is good and your severance is running out. Now you’re panicked, right?
0:20:58.2 Kurt Baker: Oh, I agree.
0:20:58.8 Lisa Linkowsky: You don’t wanna make a decision then. You wanna make it as you’re more comfortable and you’re able to think clear and not be in that corner, pushed in that corner. But I still get from time to time, and I got it all the time during the height of the pandemic where people were like, I always ask, “Is there anything I need to know over the next couple of years that could affect your franchise?” They’re like, “Yeah, I think I’m gonna move.” And I’m like, “Well, where are you moving to?” “I don’t know.” “Well, I can’t really work with you until you know where you’re going.”
[laughter]
0:21:28.9 Kurt Baker: Right.
0:21:29.1 Lisa Linkowsky: I still am getting that from time to time, but I was getting that a lot. So people seem to be more settled now, but they’re still very jaded from the whole corporate experience, and they’re just like, “I want out. I’m done. I’m burnt out or I’m just done doing whatever this was.” Or they’re just… They’re ready for that next thing.
0:21:50.2 Kurt Baker: Well, I think that’s amazing. I know there’s a lot of opportunities out there and we’ll take another quick break here and we’ll talk about some of those great opportunities that are coming up. You’re listening to Master Your Finances. We will be right back. Welcome back. You’re listening to Master Your Finances. I’m here with Lisa Linkowsky. And before the break, we were talking a little bit about how more people like… A lot of people like rethought their work-life balance, et cetera, during the pandemic ’cause they were home with their kids, their family, whatever. And they’re like, “Hey, maybe I wanna spend more time at home. Maybe I don’t wanna go in and then commute two hours a day each way”, and this kind of stuff. So they started rethinking these things and so some people got into franchising, which is great. And I think one of the things that I would say just knowing it as a small business owner, there are a lot more tools available to small businesses now that were really exclusively available only to big businesses. So I think when you combine the franchise world, where you’ve got a large scaling operation when you’re talking about the back office aspect of things, I would suspect it makes it a lot easier to step into a new business than it used to be. Not that it’s easy, easy.
0:22:57.5 Lisa Linkowsky: Right.
0:22:57.9 Kurt Baker: But at least you feel like the structure is there to kinda help you along the way where they’re gonna… Let’s talk about the training a little bit ’cause I know when they get into this, you go to a franchise, and it’s really a two-way thing. Why don’t we talk about that a little bit? If I’m gonna do a franchise, take me through the screening process. Let’s say I’m coming… I don’t know. Let’s say I’m an IT guy as an example and I got laid off. So my skill is coding and IT, and I know how to do all this fun back-end stuff, but I’m thinking maybe I need to get into some kind of business that connects with my expertise, and maybe I wanna be a little bit more on my own and sell my own services. So what kind of process would you kind of walk me through to help me understand, well, maybe what would I do or what would I maybe stay away from?
0:23:43.6 Lisa Linkowsky: Well, that’s a big question, Kurt.
[laughter]
0:23:44.5 Lisa Linkowsky: So as a franchise consultant, what I’m gonna do is ask a whole bunch of questions to my candidates and talk to them…
0:23:50.2 Kurt Baker: You got three minutes.
0:23:51.1 Lisa Linkowsky: Yeah. And talk to them about all the different things that are helpful to me, because this is really… It’s almost like putting together a puzzle, and I’m putting together the puzzle and every single answer that they give me helps me to put that puzzle more together and more into place. And then I give them something, and you alluded to it when you introduced me called a Zorakle Assessment. And the Zorakle Assessment is specific to franchising and it is a business assessment akin to like a DISC assessment that’s out there and the Caliper, but it’s specific to franchising. And it will actually show whether or not someone has strong sales acumen, what their overall business acumen is in all different areas of finance, and marketing, and HR, and leadership, and what their values are, and their culture. And so all of that put together, then asking questions about of course, their finances. And if someone is sitting on $5 million and they only wanna part with $50,000, I need to know that because I represent concepts that run from $10,000 to $6 million, right?
0:24:55.7 Kurt Baker: Right.
0:24:55.7 Lisa Linkowsky: So I need to understand what is it that you’re looking at, and then stay within those guardrails. I’m not gonna go outside of them. Just like when you’re looking for a house, you wanna stay within what it is that your client wants because that’s what they can afford or that’s how much money that they wanna spend. So putting all of that together, then going through all of that with them starts to really formulate. Now, out of those 500 concepts, okay, now I’m down to five, six concepts that I’m gonna introduce them to. Then I go through an overview and I show them a 10,000 foot overview of each concept that I have in mind for them. And I explain to them, I’m like, “Just don’t make your decision just based upon what I’m saying to you today.”
0:25:40.0 Lisa Linkowsky: Like, you now wanna go be introduced to this concept so that they can speak to you and they can talk to you, and they can really explain what this concept is more in full. And I caution everyone. I’m like, “This is an education. All you’re on is on a journey to learn. That’s it. And if anyone is pushing you, and trying to hard sell you, run for the hills because that should not be happening at all.” This is an awarding process. It’s like an interview. You’re interviewing them, they’re interviewing you. I’m interviewing my candidates. My candidates should be interviewing me. Everyone is doing this dance to understand, is this a good fit? Does this make sense? Should they even be in franchising at all? Like you’re sitting there and trying to explore all of this and people say, “Well, I don’t wanna waste your time.”
0:26:28.7 Lisa Linkowsky: And I’m like, “No, no, no. This is my job, this is my responsibility.” And if I get you to the finish line of, “No, I’m not doing this”, I just did my job. That is my job. It’s also important to note that the Federal Trade Commission has a rule that my clients don’t pay me anything for my services, that if they’re awarded a franchise in the end, then I get compensated by the franchise system. But I walk many people away from this because I’ll come to the point in the realization that this is not meant for them. And then I explain to them all the reasons why. And then, Kurt, as you know, we’re big networkers. Then I introduce them to other people that can help them figure out what that next step should be in their path.
0:27:09.8 Kurt Baker: Well, that’s awesome. So yeah, so it sounds like… Yeah, it definitely sounds like a dance, like a dating… Almost like a dating service with a…
0:27:16.1 Lisa Linkowsky: Like a matchmaking. Yeah.
[laughter]
0:27:18.1 Kurt Baker: Right. So we go around. So once you get your high view, right? So then I’ve got whatever, half a dozen or a dozen different concepts. So then it sounds like what we do is we actually talk to somebody from the franchise or…
0:27:30.2 Lisa Linkowsky: From the system.
0:27:31.3 Kurt Baker: The company, right?
0:27:32.1 Lisa Linkowsky: Yep.
0:27:32.7 Kurt Baker: And assuming that those conversations go well, now do we go out and see their… I mean, at some point, do we go visit, do we…
0:27:40.9 Lisa Linkowsky: Yeah, they’ve got… They have Discovery Days.
0:27:43.7 Kurt Baker: To see a little bit more about how it all runs. Tell us a little bit about how that works. Yeah, it looks like it might work, but until you’re in something, do you really… Going to see… Also like colleges, right? You can read about the college all you want on the… But you gotta kind of go and get a sense of what’s this place? Like what’s the vibe? Is this kind of me or is this not me?
0:28:00.9 Lisa Linkowsky: Right. And does it fit well? Does it fit? So before the pandemic, Discovery Day is what it’s called in franchising. Everyone had their Discovery Day in person and that’s where you meet the team and maybe you go shadow with another owner, and you go out to dinner and you’re there with other prospective franchisees. And so you get to hear their backgrounds and why they’re looking at the same franchise as you. And then the pandemic happened and it all went to Zoom. And I am pleading with all the franchisors out there, I’m like, “Please put your Discovery Days back into in-person.”
0:28:34.3 Kurt Baker: Yeah, I’m an in-person guy, I’m an in-person guy.
0:28:35.7 Lisa Linkowsky: Because for something like this, you’re making such a big decision, and it is really important not to just be in a little Zoom box. Listen, I love Zoom, I use it every single day, but for something like this, it’s really important. And some of them have immediately gone back to in-person and some are still trying to hold onto that virtual aspect. And I really want everyone to just go back as much as possible because I think it is important.
0:29:01.9 Lisa Linkowsky: And so then you go to this Discovery Day. Meanwhile, by the way, they’ve already given you their franchise disclosure document. With consult from me, you are talking to an attorney, you’re gonna go through that with a fine tooth comb so you understand what the heck this document is because it’s several hundred pages long, and you wanna understand it through and through. And then you come to a point that, yeah, I think that this is it. There’s also something called validation, where you get to talk to other franchisees and you get to ask them what this is like and how it works for them, and you can talk to them about their financials. So franchising itself is very process-oriented and so is the process for getting into a franchise and exploring it. It’s very, very process and they all work the same. They all may be, this may take a little bit longer or this, but ultimately, they all offer the same exact thing, which is very nice.
0:29:52.9 Kurt Baker: Yeah, no, I agree. So they’ve kind of figured out the template for how to do things. So I know and I’ll just go to some of the ones that I know. I know that like, let’s say you were gonna open up as an example, a fast food restaurant or some kind of brick-and-mortar place, they’ll not only help you. They’ll help you locate a space, they’ll help you…
0:30:09.8 Lisa Linkowsky: Like selection.
0:30:10.5 Kurt Baker: Potentially, are you gonna lease, are you gonna buy? What are you gonna do as far to make sure it’s an ideal… Like, you don’t wanna be on the wrong corner. You’ve heard that, right? ‘Cause certain corners, people may not know that, but some corners are hard to get in and out of. You don’t want that corner. You want the corner that’s easy to get in and out, ’cause you will literally not get anywhere near the amount of business just because people can’t get in and outta the parking lot. Things like that, which most of us are like, “Ah, it’s a good spot.” But if you can’t… If it doesn’t work, it doesn’t work.
0:30:34.3 Lisa Linkowsky: Right. Your business could fail.
0:30:34.4 Kurt Baker: But these little things and just like how do you set up the office itself and how does it lay out and where is it gonna fit and all that kind of stuff. And make sure that the business model works, right? So once you’ve agreed to all that, they’re gonna help you with all these pieces, which can be very expensive mistakes if you don’t know what you’re doing.
0:30:52.1 Lisa Linkowsky: That’s right from soup to nuts.
0:30:53.7 Kurt Baker: Very expensive.
0:30:54.4 Lisa Linkowsky: Like everything, every single thing that you could think of, the franchise or is there to help you all the way, even in helping you select your first manager, they’re gonna help you to figure out who is best and how and why, and they’re gonna help you in all of that. They’re not gonna hire the person for you, but they’re gonna assist with all of that. So that’s the beauty, is getting all of that assistance and all these different directions that are very, very critical for that business getting up and running and ensuring that it’s gonna flourish.
0:31:26.1 Kurt Baker: Now, typically when somebody gets into a business… I know every business is different, but I’m assuming the franchisor is gonna help you with projections. Like you mentioned, any new business owner does definitely needs to know this. So you’re the last one to get paid, and be ready for not being paid for a while, because that’s just the way it works because it’s very unusual. And you hear about these dot-com people and in 30 days, all of a sudden, they’re having 20 million subscribers and then they’re rolling in dough, they don’t know what to do with all the money, can’t find a bank big enough to hold it all. That’s unusual. What’s mostly… What usually happens is it’s a growth model and you have to get it out and get it moving and then it hits as a critical mass and then it starts to actually make enough money to actually pay you. And a year or two is definitely a trend line that I would suspect is correct. But when you go through this, I would assume your $10,000 business is gonna run differently than a $6 million franchise, right?
0:32:12.5 Lisa Linkowsky: Absolutely. They have a proforma and they’ll have you…
0:32:16.2 Kurt Baker: So you lay that out so they have a reasonable idea of understanding, “Hey, based on your market, based on what you’re doing, your business, here’s what we’re expecting.”
0:32:24.8 Lisa Linkowsky: So the FDD has numbers. They’re called items, and they have item five through seven, which is all of your expenses. And so now you’re gonna have a proforma, you’re gonna plug in all of your expenses, then they’re gonna show you an item 19. And not all franchises are required to have an item 19, but that’s where they’re showing their financial representation for the system, and it’s not owner by owner. So what they’ll do is they’ll take it by, let’s say, the top 20%, the middle 40%, and the bottom 20%. And now they’ll show you, here’s what your top 20% is earning and what their net margin is. And what I always tell my clients is look at the middle, because not everyone’s gonna be at the top and don’t be drawn by that.
0:33:14.0 Lisa Linkowsky: And if you can put out a proforma that the numbers look very reasonable, and you can eke out a good livelihood with those middle numbers, then you know that you’re on the right track. Not everyone can be up at the top. It’s just not gonna happen. So you don’t know what your market, you don’t know the different conditions are, and for why those people got up to the top. So look at that middle. And then when you do validation, and talking to the owners and validating what their numbers are and what were the mistakes that they made and what would they suggest, and did they have to spend more on any of these areas than what was shown in item seven? The item five through seven and why? “Oh, I have to spend $1,500 more on marketing per month and I had not expected that.”
0:33:57.9 Lisa Linkowsky: Any of that kind of stuff so that you can fill in your proforma and put in those worst case scenarios. They’ll often show. We’re on the East Coast. You cannot compare what a lease is gonna be, again, in Boise, Idaho compared to the East coast. You can’t do that, so you gotta do apples to apples. So you wanna talk to someone on the coast, either west or east, so that you start to frame this and now that gets you to see a better picture and a better vision of what this business is capable of doing.
0:34:27.7 Kurt Baker: Awesome. That’s awesome. We’re gonna take another quick break. You’re listening to Master Your Finances. We’ll be right back. Welcome back. You’re listening to Master Your Finances. I’m here with Lisa Linkowsky and we’re talking about franchises. And so I like the idea they had this new FDD thing, which was not around when my father was doing this in the ’70s. So that’s cool that they actually have to have some kind of disclosure information where I think it’s really beneficial. So it’s nice to get a sense of what’s going on with some of their best franchisees as well as their average, and then maybe the ones that aren’t so good.
0:34:58.0 Kurt Baker: And again, that could be simply, like you said, location, or of course everybody manages things a little bit differently than other people. So once I start this, I know some of the people I know, especially the ones I can think of, McDonald’s, they buy one and then they’re doing really, really well. And it’s almost like they almost have professional treatment ’cause they’ve done one, or maybe it’s just that they go, “Well, maybe I should do another one.” So what do you think if somebody gets involved in a business, should they do more than one or should they just, yeah, one’s good? [laughter]
0:35:26.3 Lisa Linkowsky: So there’s something like 750,000 franchise units out there.
0:35:31.1 Kurt Baker: Wow.
0:35:32.3 Lisa Linkowsky: And 53% are multi-unit owners, meaning that they own more than one location or more than one territory. Okay. So it’s a home-based business. You’ve got one territory, now you expand to the second territory, then you might expand to that third. So over half are multi-unit business owners.
0:35:51.6 Kurt Baker: Wow.
0:35:52.9 Lisa Linkowsky: The idea behind franchising is scalability. That’s the whole idea. So when someone comes to me and they say, “I wanna own one pokey bowl concept or acai bowl concept”, I said, “Well, then you’re buying yourself a job because you’re not buying a business. That’s not what this is meant for.” And especially in the food service industry, the margins are so slim, it’s very difficult. And so in order to really get to those unit of economics that are really strong, you’re talking about now owning 10 of those suckers. You’re not talking about one. It’s 10. So your local Dunkin’ Donuts operator, they own minimum 10, and many of them own the land that it’s own. So now it’s…
0:36:33.8 Kurt Baker: That’s a lot of donuts.
0:36:34.8 Lisa Linkowsky: I know. And now it’s a real estate play, right?
0:36:36.9 Kurt Baker: Right. Absolutely.
0:36:37.3 Lisa Linkowsky: You’ve got the real estate play. And now you can move your staff around, because they’re all within a tight space. So if you need Angela to go over to that location, you can because you’ve got that capability. And then you’ve got one regional manager, a district manager, whatever. And now you’re consolidating all those services, but they all run the same, so everyone knows what to expect at all of them. So you don’t have to retrain for that location over there versus over here. It’s all the same. So the idea of franchising is that scalability. Now, having said that, I am so disgusted when a franchise system starts trying to talk to my client about a five-pack, they’re called, or a 10-pack right out of the gate.
0:37:22.8 Kurt Baker: I’m always working on a six-pack.
0:37:24.0 Lisa Linkowsky: I know, right? [laughter] Totally different.
0:37:27.0 Kurt Baker: They’re different? Okay.
0:37:27.6 Lisa Linkowsky: Different pack, but…
0:37:28.4 Kurt Baker: Okay. All right.
0:37:29.4 Lisa Linkowsky: I caution my clients about that. I’m like, “Listen, you are gonna start with one and then you wanna see how that goes. And then you want to see, “Okay, it’s going well. I’m doing well, and things are going… I’ve got my processes in place, and things are going well, and I feel confident that I could open up a second.” Now, the tricky part of that is that someone could have come along and bought that second territory right by you out from underneath you. That’s the risk that you’re gonna take. Or you go, “Okay, then I buy a different franchise.” Now, in the franchise model, they want you to stay within the same system because, what we just talked about, that it’s so much easier for you to scale because you already know what it is and you don’t have to relearn now something else. But you can also diversify just like you have your clients diversifying their portfolio. Same thing.
0:38:20.6 Lisa Linkowsky: So I always tell people, walk before you can run. Now if you’ve got someone who’s very savvy and they know what they’re doing and they’ve got the investment in place to handle this out of the gate, fine. No problem. Then they can look at multiple units because they’re gonna have the infrastructure in place. But someone who’s just leaving corporate America and they’re biting their fingernails down to the nub because they’re so terrified, they’re not looking at a three-pack or a five-pack or a-10 pack. You wanna get them in, you want them to do well, and then you want them to continue on.
0:39:00.4 Kurt Baker: I agree. As the old adage says, test small, roll out big. [laughter]
0:39:03.1 Lisa Linkowsky: Yes.
0:39:04.0 Kurt Baker: Once you’ve got the process nailed down and you figured it out yourself, then it’s easy. It’s actually really easy to just get… Well, not easy, but it’s far easier to scale it up easy once you’ve kind of got the process nailed down. And then it’s like, okay, just repeat, repeat, repeat, repeat. Just keep doing what we’ve been doing. Just do it on a larger scale and put the people in place to handle that additional volume. I couldn’t agree more. So that’s… So another thing, so you brought up the 53%. When you’re looking at the franchise thing, can you find out how many of these owners in their current system already have multiple units, or is that…
0:39:36.2 Lisa Linkowsky: Yes.
0:39:36.7 Kurt Baker: They will tell you that?
0:39:36.8 Lisa Linkowsky: Oh yeah, absolutely. And in fact, that’s one of the questions…
0:39:38.2 Kurt Baker: So if that’s a high number, then that would be a… To me, that would be a positive. If your average person owns two to three as opposed to one to two, I’m thinking the two to three one might be, oh, they must be doing pretty well if they keep adding different units, right?
0:39:52.2 Lisa Linkowsky: Absolutely. It’s one of my first questions when I talk to a franchisor, is how many units do your operators have up and running?
0:40:01.9 Kurt Baker: Up and running.
0:40:02.6 Lisa Linkowsky: ‘Cause that’s critical.
0:40:03.4 Kurt Baker: Okay.
0:40:03.7 Lisa Linkowsky: ‘Cause if they just say they own, that’s not the same thing as up and running. And so if they say 2.5, I’m like, “Oh, that’s great. That’s really good. I like that. That’s really good.” But there are some concepts that I represent where you scale within your territory. And so when we talk… Go back to that home services, where the way that you scale is now putting more vans out, you still have your territory. But that territory could be quite large, and now it could fill three… It could withstand three to five vans running around out there.
0:40:35.1 Kurt Baker: Oh, I see. Okay.
0:40:35.6 Lisa Linkowsky: So now, your scalability is defined by how many vans you have up and running and you can get that business going. So that’s also interesting as well.
0:40:44.8 Kurt Baker: Oh, I wouldn’t have thought of that. So, yeah, yeah, I’m thinking of several franchises where they drive out, they have cars or vans or units. So those are each added to that, right?
0:40:54.0 Lisa Linkowsky: Right. And instead of going into different territories, living territories, you’re just scaling within your designated area that you signed up for from the very beginning. But there’s so much business to be had that you can build within your area.
0:41:10.7 Kurt Baker: Okay. So the question I think some people are gonna ask is, all right, well, the franchise is… I’m not doing this for free. So you’re paying the fee upfront. So generally, how is the franchisor compensated in a way that’s aligned with the franchisee? ‘Cause they wanna be working together a little bit, right? So I would hope there’s an alignment where we both wanna be going in the same direction.
0:41:31.1 Lisa Linkowsky: So this is what… These are called royalties.
0:41:34.1 Kurt Baker: Okay, there you go.
0:41:34.5 Lisa Linkowsky: And you’ll have people that…
0:41:37.1 Kurt Baker: They sound like Kevin…
0:41:38.1 Lisa Linkowsky: They… Well, they…
0:41:38.6 Kurt Baker: O’Leary. [laughter]
0:41:40.3 Lisa Linkowsky: Yes, yes, Shark Tank. Yes.
0:41:43.2 Kurt Baker: Yeah, exactly.
0:41:44.2 Lisa Linkowsky: So you’ll have people that they get into their franchise and they figure everything out and they’re doing great and they’re humming along and two years later, they have to write that check. Not physically, but they see it come out of their bank account, and they cringe, and they get angry, and they start complaining, and they go, “Ugh, I can’t believe I have to pay this amount of money. I could do this myself.” Well, no, you didn’t.
0:42:06.5 Kurt Baker: Right. Exactly.
0:42:06.8 Lisa Linkowsky: And I tell my candidates this all the time. Someone else created this concept that you then stepped in. You had the privilege of coming in and helping to create your business based upon someone else’s blood, sweat, and tears. So do not sit there down the road and go, “Well, I hate that I have to pay this fee every month because I can do this with my eyes closed,” because you didn’t. And so yeah, you’re gonna pay a vig back to that franchisor.
0:42:35.2 Kurt Baker: A vig. [laughter]
0:42:36.6 Lisa Linkowsky: We’re in Jersey, Kurt, right?
0:42:37.9 Kurt Baker: Okay.
0:42:38.8 Lisa Linkowsky: So you’re gonna pay that fee back to them because that’s what they get as part of creating this business model, for sure. And then there could be something like a brand fund, and that’s all the money’s going into a pot. It could be 1% or 2% of your gross revenues. And that money then could go toward a marketing campaign for the better of the system. And sometimes they turn it on, sometimes they don’t. It all depends. So the average for a royalty is usually 7%, and then an ad fund could be about 1-2%. So you’re talking about 9-10% of your gross revenue going back to the corporate office.
0:43:17.5 Kurt Baker: Right. But as you pointed out, you knocked several years off the growth process of it too.
0:43:21.1 Lisa Linkowsky: Yes.
0:43:21.4 Kurt Baker: The other thing I’ve seen sometimes, and maybe you know about this or maybe you don’t, but every once in a while, you see… I’ll think of like a McDonald’s. Every once in… Every McDonald’s in the country all of a sudden looks different now. So you know that that came from a higher on up somewhere, because I know the guy that had the McDonald’s from the ’60’s didn’t necessarily wanna rip down the golden arches and build a brand new building. Maybe they did, maybe they didn’t. I don’t know. But I noticed that they do periodically, and I think that’s part of staying current and staying up to date and up to speed ’cause I know McDonald’s has reinvented itself many times.
0:43:52.6 Lisa Linkowsky: You have to, you have to.
0:43:54.1 Kurt Baker: Otherwise, they’d probably be gone.
0:43:55.7 Lisa Linkowsky: That’s correct. Yeah. No, you have to reinvent yourself.
0:43:57.4 Kurt Baker: So what are your thoughts about that and how to… I would assume that’s a little bit of a like the franchisor was like, “Look, we really have to do this.” Franchisee is like, “I don’t really wanna do this.” [laughter]
0:44:05.1 Lisa Linkowsky: Yeah. Well, you signed a contract, and so you don’t have a choice. And that’s a sticky wicket sometimes that happens, that you’re being told that you’ve gotta renovate. But again, when you… You are trusting that corporate office to steer the boat of the whole system in the right direction. I’ve seen prototypes for Taco Bell designs where one day, there’s a possibility that they’ll have locations that have no dine-in, and it’s like almost pulling up to like in a bank, the bank drive-through, and your food’s gonna come through a shoot almost, similar, and you drive off, and there will not be… And it’s way less labor, smaller footprint, the whole thing. I’ve seen prototypes for that already.
0:44:50.2 Kurt Baker: It sounds like the old photo mats that I used to go get my pictures taken. [laughter]
0:44:52.9 Lisa Linkowsky: Yep. And you go and they hand you your bag and off you go.
0:44:55.2 Kurt Baker: Then a little person is sitting there handing you your pictures.
0:44:58.3 Lisa Linkowsky: Yeah. So yes, that is… Subway has gone through a lot of issues with their franchisees because they keep reinventing themselves and they keep making changes. And sometimes the franchisees are like, “I don’t agree with this.”
0:45:11.2 Kurt Baker: Is there a conversation that happens? I know we’re running a… I mean, do they just say, “Hey, you have to do this?” or do they say, “Hey, franchisees, what do you think is going on at… ” I mean, do they ever… They don’t really do it that way, or they do their own research?
0:45:20.5 Lisa Linkowsky: It depend. It’s from franchise system to franchise system.
0:45:23.8 Kurt Baker: ‘Cause I would think that they’d want… I mean, I would want a little…
0:45:25.6 Lisa Linkowsky: Feedback.
0:45:27.0 Kurt Baker: I would want feedback, like what’s working and what’s not working. I know that McDonald’s will test things, like, “Let’s try this product over here and let’s see if it works. You let us know how it works. And then if it works great, we’ll roll it out everywhere.”
0:45:35.2 Lisa Linkowsky: Collaboration is critical for a successful system always.
0:45:39.9 Kurt Baker: Okay.
0:45:40.2 Lisa Linkowsky: But sometimes when you get private equity involved, and that’s a whole another conversation for another day…
0:45:44.0 Kurt Baker: Okay. Maybe another show.
0:45:46.1 Lisa Linkowsky: Yeah. It becomes less and less where they get input from those franchisees. It can be.
0:45:51.4 Kurt Baker: All right. Any final words of wisdom about franchising before we head out?
0:45:55.1 Lisa Linkowsky: I think that we have covered a lot for your audience to really dip their toe into understanding a little bit more of what can be a murky space for people, or where they just don’t understand it. You had mentioned that I host a TV show. It’s called Franchise Focus. And it is all about interviewing franchisees from lots of different concepts to hear what a regular everyday person has gone through and why they left their comfort of their corporate life. And then I’m a contributor for something called FranchiseWire, where I write articles about things that I hear about on a regular basis and then I wanna address that and dig into it. I have one about Chick-fil-A because everyone asks me about Chick-fil-A, so I had to write an article. So go to my website if you wanna read all about Chick-fil-A, and that’s at milestonefranchising.com.
0:46:44.5 Kurt Baker: Awesome. Thank you, Lisa. We really appreciate it. And don’t forget to listen to this episode and all our episodes by going to masteryourfinances.us. Have a wonderful day.
0:46:52.7 Outro: Master Your Finances on 107.7 The Bronc is underwritten by Certified Wealth Management & Investment, Princeton. In a society that runs on money, you need to know and understand what’s happening with yours. Certified Wealth Management & Investment will guide you on the path to financial well-being and show you how to make your money work for you. Kurt Baker, a certified financial planner professional, will work with you to establish a detailed goal-based plan that will accommodate your financial needs and exceed your financial expectations. Kurt will also help you navigate the often confusing world of retirement, Medicare, insurance and more. CWMI is a registered investment advisory company focused on personal financial planning as well as small business planning, estate planning and several other fee-based and non fee-based services. For more information on how to reach your financial peace of mind with Certified Wealth Management & Investment by phone, it’s 609-716-4700, or online at cwmi.us. That’s cwmi.us.
