Jerry Levey 👨‍💼 How to turn your small business into a profitable franchise (#3).

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9×90 Episode 3

Jerry Levey's interview with 90x9, the female founders knowledgebase

Jerry Levey is a retired business attorney whose Manhattan law practice included – in addition to business formation, financing, purchase and sale – real estate development, construction, management, purchase and sale; also stock brokerage, factoring, publishing, international trade and commercial transactions.

For the past ten years, he has been actively working, as a franchise consultant, helping successful, ambitious business savvy people to use franchising to finance business expansion. Through his work as a franchising consultant he has also had the opportunity to help aspiring business owners find the best franchise to fit their lifestyle and leverage their natural strengths.

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Jerry Levey 👨‍💼 How to turn your small business into a profitable franchise (#3).

IN THIS EPISODE, HE SHARES:

The steps you should take now, if you want to turn your business into a franchise.
Key factors to consider before making the plunge
When and what you should expect from your legal franchising advisors.

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Listen to this podcast on your favorite platform:

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Full transcript

Introduction

Welcome to the 9×9 podcast, A conversational showcase of high performing professionals, investors, athletes and thought leaders from around the globe. I’m your host Adi, Fast Growth Executive at MD9. Thanks to you lovely people, we are officially playing on 9 platforms in more than 10 countries! So thank you for tuning in and sharing with your friends.

A quick note about our main sponsor, MD9: if your startup is ready for explosive growth, then you want to checkout MD9 the only Marketing Agency to specialize in growing startups to $1MM in revenue within 2 years. If your startup is ready for this type of growth then go to MD9.co I will include this link in the show notes & now for today’s episode.

Adi 🍍

Today ladies and gents, we have, Jerry from,

Jerry 👨‍💼

Normandy Franchise Consulting Specialists.

Adi 🍍

… joining us and telling us what you need to do if you have an idea for a startup, and you want it to turn into the next McDonald’s.

Jerry 👨‍💼

Well, the first thing you need is a business that has a track record.

Adi 🍍

And what do you mean by a track record

Jerry 👨‍💼

A business that’s been in existence for at least three to five years and has been making money for several years, franchisees don’t like businesses that don’t make money.

Adi 🍍

I don’t know anybody who would want to buy a business that can’t make them money. But do you have numbers that prospective franchisors should aim to hit when looking to make their business appealing to future prospective franchisees.

Jerry 👨‍💼

It has to make enough so that you can collect royalties from it, which usually run in the 6-8% range, and the franchisee (or the prospective franchisee) can look at it and see himself, making a sufficient amount from the business, to maintain the lifestyle that he wants to maintain.

Adi 🍍

So the profit margin has to be high enough that when the franchisor takes their 6-8%. The franchisee still has a comfortable margin to live on.

—

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So, I have an idea. And I want it to become a franchise, what are some things I should look for right now? I need to have clear clean books for the first three years. What are a few other things I should put on my checklist for day one week one of my startup, if I want to be a franchise as fast as humanly possible.

Jerry 👨‍💼

It wouldn’t be be nice if you are concept was distinguishable from others in the field, a reason why a franchisee should buy your franchise, rather than somebody else’s. You should be able to show him that you a franchise has a profit potential which is attractive to him.

Adi 🍍

What’s the sweet spot for the profit potential?

Jerry 👨‍💼

Well I think it varies from franchise to franchise.

Adi 🍍

Could you just give some examples based on like two or three industries.

Jerry 👨‍💼

Well, with some franchises your profit potential can be in the six figures, even seven. Sometimes you need more than one unit to achieve that, not always, but sometimes. There are some franchises in which franchisees, in a sense, collect franchise units, and as they go along, and make money with the ones they have, they reinvest them buying more units. So eventually they can become very wealthy with franchises, that seem to have a very modest potential in the beginning.

Adi 🍍

So a real life example of that would be the one man who is running for congress in Ohio, who owns 17 car dealerships? Is that most likely what he did is he bought one, and then another?

Jerry 👨‍💼

Sure. A famous example of that is a Dunkin Donuts franchises.

Adi 🍍

Really?

Jerry 👨‍💼

Yeah. Some Cuban immigrants, years ago, started buying some of the first Dunkin Donut franchises. And over the years they’ve collected more and more and some of them are multi millionaires now.

Adi 🍍

Oh my gosh, that’s incredible. And then how much did it cost them to purchase their first Dunkin Donuts franchise?

Jerry 👨‍💼

Well, they bought them for relatively little money in today’s terms, I can’t tell you exactly what they paid for them. That was before my time, which is a long time ago, you know, I’m not a youngster anymore.

But nowadays, to buy a Dunkin Donuts franchise, would cost you and seven figures.

Adi 🍍

Because of the brand equity that they have?

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Jerry 👨‍💼

Yeah.

Adi 🍍

Alright so that’s realistically what you’re paying for. You’re not just paying for the shop that has already been proven as an effective business model, you’re also paying for the brand equity.

Jerry 👨‍💼

Yes, because that brand equity translates into potential income.

Adi 🍍

So, for a startup, if they’re looking to become a franchisor within the next few years, it would be beneficial for them to, by year two, start national campaigns; even if they’re not meeting the national market? Just so they can get the franchisee interest and start building their brand equity.

Jerry 👨‍💼

Well, that would, of course, require an investment from them. And I would suggest that they talk to us at the beginning.

Adi 🍍

Okay

Jerry 👨‍💼

So that we can help groom them for the eventuality that they’re looking for. There are a lot of things to look at. And if we start from the beginning, we can start to develop their businesses from the get go.

Adi 🍍

That makes sense.

—

What is something that a lot of first time franchisors are surprised by when, when they start their first franchise?

Jerry 👨‍💼

You need to understand that franchising is a relationship between a franchisor and franchisees. It’s an ongoing relationship, and you have to be willing to participate in that kind of relationship with somebody.

Adi 🍍

Roughly how much would a business need to budget out for turning their model into a franchise?

Jerry 👨‍💼

We have at our disposal, a group of experts who specialize in putting together, what’s really a package deal for aspiring franchisors. And you can buy into that package. The price for that package now is $39,000 and I’ll tell you a little bit about what that includes. I would suggest that a an aspiring franchisor have a little more than $39,000 because there’ll be some miscellaneous expenses, inevitably there always are.

The package includes all of the necessary legal documents:

(1) the Franchise Disclosure Document (required by the Federal Trade Commission has to be filed every year), and a copy of it has to be given to every serious franchise candidate.

Adi 🍍

Well, there’s such a legal web with all the changes that keep going on Washington, they would obviously, once they’re with you, they would stay with you.

Jerry 👨‍💼

Yeah.

Adi 🍍

So, basically, the $39,000 will help you to get them through that legal mess of obstacle courses.

Jerry 👨‍💼

Yeah. It also includes (2) the contract with the franchisee, you need a contract for that, obviously.

Adi 🍍

… and you vet franchisees for them, don’t you?

Jerry 👨‍💼

Well I help them do that. Yeah,

Adi 🍍

I think that’s huge. Do you help them find franchisees as well?

Jerry 👨‍💼

Part of that package that $39,000 package is (3) somewhere between 100 and 200 leads, to people who have the “first-franchisee” potential. (4) The operations manual is in there too. The operations manual will run 300-350 pages and be broken down into 15 chapters, and the table of contents for that goes in the FDD, the Franchise Disclosure Document.

Adi 🍍

That’s incredible.

Jerry 👨‍💼

It also includes (5) state filings where they’re required and (6) compliance with state regulations which vary from state to state.

Adi 🍍

So they’re basically getting a legal team of advisors, that are going to walk them through this process and hand hold them from startup stage to “the future founder of McDonald’s”, the next Dunkin Donuts.

Jerry 👨‍💼

They also get sales and marketing specialists.

Adi 🍍

That’s huge.

Jerry 👨‍💼

Yeah, and more.

Adi 🍍

As you already mentioned, in order to become a franchisor, you need to have: a very healthy profit margin, you need to identify and build relationships with people who are going to run other locations for you, and you need to pay 30 – 40,000, to have your business restructured to run like a franchise. What is the benefit of turning your company into a franchise, instead of just self funding the opening of multiple locations across the country on your own?

Jerry 👨‍💼

The great advantage that I see to franchising, as a means of expanding a business, is that the major part of the capital of the expansion comes from the franchisees. So what happens even with just a six to 8% royalty, your return on investment continues to increase with every franchise unit and that’s why why franchisors become wealthy. Because the amount that it costs to continue expanding their franchise is only a minor part of the investment necessary in order to build additional franchisee units.

Adi 🍍

Jerry, I don’t want to take up too much of your time but thank you so much for coming on and sharing all that information with us, I know a few people are really interested to learn more about the topic.

Jerry 👨‍💼

Good, I’d be very happy to talk with them.

Adi 🍍

Yeah, I’ll have them reach out to you.

Jerry 👨‍💼

So, if you want to talk more about franchising contact, Adi, and she will get you in touch with me.

Adi 🍍

I actually am going to add a link to Jerry’s email on the executive team page. It will forward to our virtual assistant, so don’t think you can spam him, and from there it will pass to Jerry’s real email address.

Outro

Hi All, thanks so much for joining us for another episode of 9×90, which is sponsored by MD9 if you enjoy this content and would like to hear more, don’t forget to subscribe, rate & review this podcast. It helps us to get more amazing guests on here to share their knowledge and experience. After you rate & review we have a special gift for you. Visit 9apple.co to join our exclusive slack community.

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This interview was conducted by Adi Soozin of Molo9.com. If you enjoyed this interview and would like to see more like this: follow Adi on LinkedIn or drop your email in below to receive regular updates.