Ep. 220 – Should You Consider a Franchise as a Part of Your Retirement Plan?

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Jon Ostenson about the benefits of starting a franchise as part of your retirement plan. Jon is a Certified Franchise Consultant, owner/investor, author, and international speaker specializing in non-food franchising. He discusses the misunderstandings and lack of knowledge he found around franchise opportunities outside of the fast-food industry.

Listen in to learn why franchising is a proven profitability pathway compared to starting a business, plus the financials around franchising cost and revenue. You will also learn how to run a franchise successfully, even with a corporate background and zero business experience.

In this episode, find out:

• Jon shares his background and how he gained interest in franchising outside of fast food.
• The money-making franchise opportunities that exist outside of the fast food industry.
• Why franchising is a proven profitability pathway compared to starting a business.
• Non-food franchising – businesses where lots of franchise interest lies.
• How to run a franchise successfully even with a corporate background and zero business experience.
• Jon explains the franchising process and how he matches clients with the best-fitting franchise.
• Understanding the financials around franchising costs and the revenue margins.    
• Think about franchising as a giving-back opportunity where you create jobs and mentor others.

Tweetable Quotes:

• “In the market, there’s a lot of misunderstandings and lack of knowledge around the franchise opportunities that exist, especially in industries people are sometimes interested in outside of fast food.”– Jon Ostenson
• “Franchise business has been proven in other markets, so you’re able to step into and as long as you execute and follow that playbook, you know there’s a path to profitability.”– Jon Ostenson

Get in Touch with Jon:

To get a free copy of Jon’s Book use go here: https://franbridgeconsulting.com/

• LinkedIn: https://www.linkedin.com/in/jonostenson/

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:	Welcome everyone to Secure Your Retirement podcast. Today we have a special guest with us. We know our show, we try to really going to work around three different aspects. One is financial, one is legacy, the other is lifestyle. And I think today’s episode is a real mixture between lifestyle and finance. We’re excited to have Jon Ostenson with us. He is the author of Non-Food Franchising. First of all, Jon, thank you so much for coming onto the show. I think it’s going to be very beneficial for us as a host, as well as all of our listeners.
Jon Ostenson:	Yeah, no, excited to be here. Appreciate you having me on and looking forward to a great conversation.
Radon Stancil:	Well, excellent. First of all, Jon, my brain kind of goes into curiosity first. Could you tell us a little bit about, I don’t know, your situation that now you’ve written this book, Non-Food Franchising. How did that come about? What’s your background? A little bit on that.
Jon Ostenson:	Yeah, like so many of your listeners, I spent many years in the corporate world and had a great run and really appreciate everything that I was allowed to do during that time, but had that itch to build my own empire, not just someone else’s. I stepped out about seven or eight years ago and I stepped into a leadership role, had the opportunity to support franchisees for ShelfGenie franchise system all across North America. Served as their President. We were a very fast growing franchise system and that really was my light bulb moment, opened up my eyes to this world of franchising outside of just fast food. I found like so many, when you say franchise, you think fast food. And yet I saw all these different backgrounds and different stages from a career standpoint that were thriving in business ownership oftentimes for the first time.
	And fast forward, I partnered with the founder. We spun off, we’ve invested in franchisees now on the franchisee side, and I continue to add to my portfolio, just bought another one the other day and have been very blessed to have good people running these businesses for me, and allows me to spend the majority of my time helping others do the same. What I found was in the market there’s a lot of misunderstanding and a lot of just lack of knowledge around the franchise opportunities that exist, especially in industries that people oftentimes are more interested in outside of fast food. And I’ll start by saying I’ve got nothing against food as far as we need the food guys. I definitely appreciate them and however, my humble belief and that of many of our clients is there’s simply an easier path to making money that exists outside of food and some of these other industries we’ll dig into.
Radon Stancil:	So real quick, and we got multiple questions, I just got a follow up to that. Could you give us, I guess your thought process around why I would look at franchising versus just starting a business? Can you give us a little bit of an understanding of that?
Jon Ostenson:	Yeah. Not to be too cliche, but you’re starting on third base, not first base. This is a proven business that’s been proven out in other markets that you’re able to step into and as long as you execute and follow that playbook, you know there’s a path to profitability. You’re not guessing. A lot of the hard work has been done. You’ve got a franchisor on the sidelines that’s essentially a coach, and so you’re in business for yourself, but you’re really not by yourself. You’ve got a good team behind you. In most cases, not every franchisor is created equal, and that’s where we come in and help our clients find the right ones. But you also have other franchisees all around the country that you can be a support group. You’re learning best practices from them.
	Then there’s little things like maybe you’re able to buy in bulk, whether it be products or even say marketing services, bookkeeping services, that procurement piece, you’re able to start your marketing day one leveraging data that’s been used in other markets. You’re optimizing your marketing spend day one. There’s just so many little benefits and franchising’s not right for everyone. For some people they want to put their thumbprints all over the business. It may not be the best fit for them, but for so many and so many of our clients, they’ve just found it’s a better way to step into business ownership, either full-time or semi-absentee.
Murs Tariq:	Yeah, Jon, that makes perfect sense. I guess you have to have something that is either brand new or remarkable or you say, “Well, why am I trying to reinvent the wheel and let’s go with the tried and true process that is profitable” and you get to kind of tap into all that knowledge that’s taken some time to build up. That makes a lot of sense. When I think of franchising, my first thought goes to McDonald’s and all your fast food as well. Tell us and maybe give us some examples of what is Non-Food Franchising, what are some of the more, I guess, hot topic conversations of service industries and stuff like that? Who’s buying these franchises and how’s that whole process work?
Jon Ostenson:	So kind of painting the landscape, first I’d say there’s never been more interest. Our placements were up 30% last year. We doubled the business in the first half of this year. There’s overwhelming interest and I can get into the reasons why. Part of that’s because I think there’s still excess cash on the sidelines. A lot of our clients also invest in real estate. There’s not many good real estate deals to be had. I think a lot of people coming out of COVID have said, “Hey, maybe it’s time to make a change.” And of course a lot of your listeners, a lot of people are nearing that stage of retirement where they say, “Hey, I still want to be active. I still want to have a hand in things. I want to leverage some of my background.” The things that we see them getting involved in, oftentimes I classify them as boring businesses.
	Non trendy is the new trendy, non-sexy is what people want. They want boring businesses and they’re not always boring. But talking about cash flowing, Amazon resistant businesses, things like home and property services, so whether it be insulation or gutters or floor coatings or dumpsters, kind of these non-sexy spaces. We’re still doing a lot of oil changes in many states. Things like laundromats. There are areas like health and wellness that are wildly popular, and that’s a broad umbrella. A lot of different things fall within that. I’d say we’re not doing as much fitness as we used to do, but there are other pockets of health and wellness that are really popular. There’s things that people will spend on regardless of the recession. We’ve been talking about a recession for a decade as a country now. If it finally comes to pass and things do go a little bit south, people are always going to spend on their kids. They’re always going to spend on their pets. They’re always going to spend on their aging parents, their homes, their health, and so pockets like this are where we see a lot of interest.
Murs Tariq:	Just a quick sidebar, because you mentioned health and wellness and fitness franchises and stuff like that. I know during the pandemic that all got shut down and a lot of people, myself included, spent a lot of money on just trying to invest in having something at their house, right? Home gyms. And now while I loved going into a gym now I say, “Well, I’ve got this whole build out in my garage and so I got to use that.” But are you seeing the health and wellness or the fitness industry coming back a little bit with franchising and opening new shops?
Jon Ostenson:	Yeah, I think it was a healthy process in some ways. The strong franchisors were able to step up, support their franchisees during that period. I think of Exponential Fitness. They have Club Pilates and Pure Bar and all these different brands in their portfolio. I’d say the strong are surviving, we see some absolutely thriving out there. There are a couple of personal training ones that we really like, but again, by and large we’re doing less in fitness. I’d say in health and wellness, it’s more around in-home senior care, maybe some new angles on that. We’ve got this aging population, 10,000 people turning 65 every day. We all know that. It’s things like testosterone treatments, it’s things like IV drips, all these other different types of pockets. A lot of technology infusion as well. But again, I’d say the lion’s share of where we’re playing today is in those kind of non-sexy, non trendy businesses that frankly did pretty well during COVID in most states.
Radon Stancil:	So a majority of our listeners are individuals that are 55 years of age and older. Many of them have been really good savers. They worked in a corporate setting, they’ve got money saved for retirement. And we had a lot of folks come in and they’re 55 to 60 at that phase and they say, “You know what? I just want to know can I retire?” I always ask, “What does retirement mean to you?” Because what they really mean a lot of times is I’ve worked for this company or this industry, this corporate industry for 30 years, 25, 30 years, and I don’t want to deal with that anymore.
	If I say, “Well, you going to work part-time, you’re going to do something else afterwards, what are you planning?” They go, “Absolutely. I don’t know what I’m going to do yet.” That was one of the reasons why we thought it was so nice to have you on, so the question is who does buy these? I mean, is this something that I’ve got to have a background in running a business? I’ve got to have that kind of an atmosphere enough to say, “Well, I’ve been a corporate guy my whole life and now I’m going to walk into this business?” Could you say, “Well, yep, don’t even think about franchising” or, “Nope, that’s exactly why franchising exists?”
Jon Ostenson:	Yeah, I’d say about a third of our clients are existing business owners. They’ve been there, done that. Two thirds have not. We work with a lot of corporate executives. I’d say that’s probably the majority. We also work with medical professionals, with doctors, with attorneys, all different types of backgrounds where maybe they’ve never run a business. They’ve been more of a professional, let’s say, but there’s so many transferable skill sets. There really are, whether it be people management or sales or marketing. But no, that franchisor is really going to do the heavy lifting on that piece. I think what they’re looking for, they’re looking for attitude. They’re looking for people to come in that say, “Hey, we’re not going to pretend to be the smartest guy in the room. There’s a reason why we’re buying into the system.” About a third of our clients are looking to run the day-to-day operations.
	Two thirds are not. They’re looking to put a manager in place in most cases. And with franchising, you’ve got a franchisor, again, assuming it’s a good one, that will really lean in and help support that manager. They can be that technical resource taking some of that burden off of you on a day-to-day basis. Many of our clients end up building out a portfolio of franchises, of different brands, some multi-location, and they put managers in place. I won’t sugarcoat it, nothing’s ever easy to stand up a business, but if you have a good operating manager that you put in place and incentivize correctly, there’s that potential for them to run with it. That’s how I am able to do what I do is I put good managers in place, give them enough leash, support them as needed, but then I move on to the next thing.
Murs Tariq:	It’s good to know. Sometimes I kind of think of, well, franchising and you’re the first one there and you’re the last one. You’re the janitor, now it’s your baby, but it can still be your baby and still have the ability to delegate and make sure that someone else is running the business. You a bit become more of the money behind it. And also that takes a lot of stress off of it for take our clientele that’s transitioning into this retirement phase of life if they could get it into, and you always hear about passive investing and that’s the way to make money these days, which I think some of that can be a little gimmicky, but this sounds very realistic
Jon Ostenson:	Semi-absentee or semi-passive, what we call an executive model, has been around for a very long time. A lot of the companies we work with allow for that. There are four or five companies that are truly passive. That’s where the franchisor actually recruits and manages the manager for you. It’s kind of the holy grail. There aren’t many companies that do it, but there are four or five. They’ve been wildly popular with our clients. I actually just bought into another one myself. I live in Atlanta and putting the locations down in South Florida because the great demographics down there, but the franchisor will run the business for me. I get on one or two calls a month, check in with the team, review performance and make decisions. There are a few of those.
Radon Stancil:	Yeah. Excellent. You’ve named, just in our little conversation here, quite a few different ideas. I know my brain starts kind of thinking, “Well, man, what would this be like or what would this particular, or what would I even do?” And I start going, “What would my interest be or what would excite me or whatever?” Could you walk us through what that process looks like? I mean, somebody is talking, I’m assuming with you, you help people with this, right? You help people kind of think this through.
Jon Ostenson:	Yeah, absolutely.
Radon Stancil:	How would that look? I call you up or we have a meeting and I’m just trying to figure out, I don’t even know anything about franchising. How does that process look?
Jon Ostenson:	Yeah, so step one come out to our website FranBridge Consulting, which I’m sure will be in the show notes. We’ll send you a copy of Non-Food Franchising, which is our new book that really takes you through a lot of great information and kind of exposes you. We’ll send you a video as well to kind of give you an overview, but it’s entirely free to work with us. From there, if you’d like to book a call with me, I’ll get on the phone and we’ll talk through your situation. I’ll get give you some things to think about. We’re funded by the franchise companies when placements. Very much like an executive search or real estate type model, if you will. And we work with over 600 companies. We work with all the top development firms out there as well.
	What we’ll do is we’ll get to know you, have you fill out a little bit of information. I’ll come back to you then with typically around 10 or 12 opportunities that I would say based on the strength of the franchisor, their leadership team, their competitive advantages, their availability in the market, based on my experience, if I’m in your shoes here, the ones I want to be looking at in your market. From there, your goal is to narrow it down usually to three or four. I would then make introductions to the franchise companies. If you don’t like the first calling, hit pause on it. Oftentimes that one that was number four in your mind going in pops up to number one. Over 90% of our clients end up purchasing something that was never on their radar. And that’s what makes the process fun is you have that light bulb moment and you say, “Wait,” look at your spouse and say, “We can really do this. This makes a lot of sense.”
	The franchise world, just like everything in franchising is very process driven. They’ll take you through a whole process of exposing you to all facets of the business. We’re there to hold your hand and support you along the way and serve as a sounding board and provide you with funding resources. Many people are using their retirement funds. There’s what’s called a ROBS program where you can roll those over. We have a franchise attorney, we have a recruiter, so we have all the key people to bring in as needed to support you as well.
Murs Tariq:	So help us understand a little bit about the financials around franchising. Obviously there’s the buy-in cost and then there’s projections on revenue and profit. Help us understand that part. Obviously one franchise is going to cost something and another one is going to cost something completely different because it all depends on their revenue models and their profit models. Then you just mentioned something really interesting because a lot of our clients work within retirement assets and they don’t have necessarily a bunch of cash on hand, but they’ve got a couple million dollars in a 401(k) type investment. Walk us through that part, that piece as well.
Jon Ostenson:	Yeah, so touching on that piece real fast, you can use a 401(k) or IRA from a previous employer and roll it over through what’s called a ROBS program. There are a few steps you have to take along the way. We have a partner that helps our clients with these rollovers, but essentially you can purchase the franchise with the ROBS program, pay yourself a salary out of it, and you’re able to not have the tax implications you would if you just pulled the money out. Certainly we have some very large placements out there, but I’d say the majority of what people are getting into, some of these service-based businesses, when you look at the franchise fee, startup cost and working capital all grouped together, you’re oftentimes in the ballpark of I’d say 150 to 350. And some of our clients are using cash, again, cash sitting on the sidelines, many are putting maybe 50, 75,000 of cash into the business and then using an SBA loan for the balance.
	That’s very, very common in franchising. Then some are using the retirement rollover or a HELOC. As far as the type of returns, I mean, it really is across the board and we always want our clients to be conservative. The nice thing in franchising is you do have what’s called the item 19 within a franchisor’s FDD, their franchise disclosure document. You can see historical numbers associated with the performance of past franchisees. You can also talk to existing franchisees through what we call validation. They hear about their ramp up and their experience. You get some good inputs. It’s not just back to the napkin modeling, but when you look at some of these, there’s some really attractive returns to open up people’s eyes. I’ll give one example just there was one that we did nine placements with last year. It’s a gutter business.
	Gutter installs, $6 billion, highly fragmented industry. Had everyone from doctors to a Wall Street attorney buy this one. Then insurance guys, corporate executives, all an investment on this year in the 200 to 225 range. There are franchisees across the country, several dozen franchisees, I think were in their item 19, averaging 1.7 million in revenue with about a 27% EBITDA or bottom line margin. Pretty healthy. Even if you take a conservative approach too. Then you think about what you put into the business and what you’re getting back. Now that’s probably year three revenue. There’s a ramp up to that. But many of their franchisees have actually hit the one million mark in revenue in year one. It is a pretty fast ramp. Not everyone has 27% margins, some are more in the 15% range, but that’s just an example of one that’s been really popular out there.
Radon Stancil:	When you’re talking about these different franchises, is it typically I’m buying a … I mean, this is your typical where I’m buying, let’s say a franchise and I’m going to an area where I’m going to start up that franchise fresh, or is it I’m buying another franchise that’s already operating and I’m buying that franchise and I’m just taking over? What’s the typical?
Jon Ostenson:	It would be the former. I’d say probably 90 to 95% of our clients are buying new territory for an existing franchise brand. We do some resales. The challenges oftentimes they’re picked over and there aren’t too great options out there. A lot of times people like the idea of the resale. I do have a chapter in my book on resales versus franchises and starting new and kind of talk about the pros and cons of both. Because I think once you think about perspective of what if someone were to leave the business or what if you lose a key customer, you’re paying a premium for a business that has some risk, inherent risk to it when you buy a resale. Yeah, the majority would be new locations. Now, interesting point though, when you build up your franchise, so you’re getting the cashflow along the way, you’re getting the tax write-offs as well, there’s a lot of things you can do as a business owner.
	You could end as a W2 employee from a tax standpoint, I’m happy to get into that piece of it, but you’re also building towards an exit. You’re building an asset that you’re going to be able to sell down the road if you run halfway decent. There was an interesting study done recently by the Riker School of Business where they looked at 2000 transactions over a 10 year period and they look at like-kind industries of franchises versus non-franchises in these industries. What they found was franchise businesses on average traded a multiple of one and a half times non-franchised on like-kind businesses. There is value to be seen when you go to sell the business down the road.
Radon Stancil:	So is there, when we go to your website or whatever, is there like a list of different types of franchises or is there a place I could go to? I mean, I know we could book a call with you and I get that, but do you give something for somebody to go ahead and start thinking about or what do you do there?
Jon Ostenson:	Yeah, I’d say in our book, we have a whole chapter on industries that talks about different types of businesses out there. I think we have a few examples on our website, but the challenge with just publishing a list is oftentimes they aren’t going to be available in your area or maybe there’s a nuance to the market. And that’s where even if you were to go out there and say, “What are the top 100 franchises?” And there are lists that do that, the challenge is a lot of those companies are paying to be on that list. It’s a PR move. You really have to understand behind the scenes what’s going on with these franchisors. There was one recently, if you went to their website, they just moved from Canada to the US. Well, you wouldn’t know they had a US presence, except they’ve already sold 75 licenses in the US, but you would never know that looking at the website. There’s always a story behind it.
Murs Tariq:	Yeah. Well, I don’t think I have any other questions. Do you, Radon?
Radon Stancil:	I was just going to ask one more before we wrap up. Is there anything that you think, “Hey, you guys, I want to share this. Maybe we didn’t ask it?” Is there anything at all you might want to say, “Hey, I want to cover this point before we go?”
Jon Ostenson:	Yeah, I think starting with the end in mind, what your ultimate goal is, and again, we have some passive opportunities, then quite a few there are semi-passive, but I just look at case studies of clients of ours and what they’ve done and where they started and what they built up over time. I think of Nathan, our client in Columbia, South Carolina, who has a $35 million business and two million truck moving service, operates in 10 markets. Every year he comes to us and buys another franchise, puts a young guy from his church or his community over the business and says, “Go make us proud.” And I think we’ve done that four times now. He comes back and buys additional locations every time in the first year. I love seeing success stories like that where I think for your audience, where they are from a career standpoint, thinking about giving back as well. You’re not just building from a financial standpoint, but you’re creating jobs. You’re able to mentor through this and there could be some intangibles as well.
Murs Tariq:	Well, Jon, thank you so much for coming on today. It seems like there’s a wealth of knowledge here with Jon to be tapped into. If you’re listening and you say, “Hey, I’ve been thinking about this idea, but I just don’t know where to start,” we’ll have the website in the show notes. He’s got a nice offer there. But Jon, thank you for hanging out with us for a little bit.