Have you ever considered franchising your business? In this series you will learn the benefits to franchising your business, as well as the three important steps necessary to begin franchising.Sign Up to Watch
Hey, Paige. Taylor here. And in this series, we're with Clay Clark and Thrive of the Month winner Mykhaylo. Mykhaylo's business, American Hybrid Homes, specializes in making homes more energy efficient. Today, Clay will be speaking on the subject of what you need to know before you start a franchise.
Are you looking to franchise your business? Then this episode will be extremely important for you, as Clay will go over all of the things that you need to have in place in order to franchise your business. So let's start this lesson.
All right, Mykhaylo. Welcome to the Thrive 15 studios. How are you doing, my friend?
-I'm good, happy to be here.
-I am pumped to have you here today. And we're talking about a topic that a lot of people have questions on. And you as a Thriver, Thriver of the Month, got the most points. I'm excited to help you on this because so many people want to say, I want to franchise. I want to open a franchise. Someday I want to franchise my business.
Here's something I want to tell you that will challenge your thinking. Franchising takes about three years. But in three years from now, won't it still be in three years from now?
You know what I mean? So three years from now, it's still going to be three years from now. And franchising takes about three years. So I recommend that you would franchise because in three years from now, you'll still be three years older. You know what I'm saying?
Deep thoughts. So, there's three things you have to do to franchise. There's a lot of people say, I don't want to go through this process of franchising 'cause it takes three years. But what I would say is just do it over the next three years, and then you'll have the system.
It makes no sense to start a business like what you're doing and not franchise. I mean that. So the name of your business is what?
-American Hybrid Homes.
-American Hybrid-- whoa. American Hybrid Homes. And if you had to tell a third grader what you do, what basically, what products or services do you offer?
-We offer services that will help your mommy and daddy pay less for utilities, spend less money for their bills, electric bills. And just so that it's a little more comfortable to live in the home. So you don't have the fluctuations of high, cold, high, cold.
-So you basically are making homes more efficient, and you're helping to make them more comfortable?
-And if you build a system, let's say you're building the system right now. Because to build a business, you have to build a scalable and duplicatable process, right?
-You have to build a scalable and duplicatable process. If you look it up, it might be called duplicable. Duplicatable, we'll get into arguments about that later. But the thing is, it's system you can repeat. Well, you have to do that anyway, right?
-So why not just franchise it? Because the only reason you would buy a franchise is because you don't want to go through the three year hassle of trying to figure out how to do it. So people who have a lot of money are like, I'd rather buy a franchise and buy a proven system then to try to figure it out myself.
But there's three things you have to do in order to franchise. Is one, is you have to build a duplicable business model. So step one, you have to have, this is called a turn-key business model. What does that mean? What does that mean?
Well, how do you get customers? How do you deliver the products or services? Whoa, deliver the products or services. How you get customers?
How you deliver the products or services? And how do you make a 30% profit without working in the business? That's about all a franchise is.
Now, there's a lot of details into that, but it's specifically, this is how we get customers. This is how we do it. This is how we deliver. And the third is this is how we make a 30% profit.
If your system does not generate a 30% profit, you're not building a franchise. If you don't know how to deliver on a checklist and a system and there's a duplicatable process that explains how you do it, it is not a franchise.
And if you don't have a system to get customers, meaning that I could take your system and move out to California and bam! I'm making money. Buy your system, move to Austin, Texas, bam! Making money. In the franchising world, most people who buy franchises will by three to five locations at the same time.
So I'll buy location one, two, three. I might buy Phoenix. One lady I know bought a franchise in Phoenix, Arizona. She bought a franchise in Arkansas, and she bought a franchise in I think it was Chicago, all at the same time. And she had family members in each place. And she's making 30% profit in all three places.
So, franchising is huge. And why is a franchising such a good thing for you if you're the franchisor who starts the franchise?
-Because you get the 30%.
-Well, because you built the system that you needed to build anyway, and now you're going to collect a franchise fee, which is usually 6% to 8% of the gross revenue that you get to keep. So that means there's hundreds. A friend of mine owns a company called Oxifresh. I encourage you to look it up. O-X-I- fresh dot com.
-I've heard of him.
-He has hundreds and hundreds of franchisees who are out there making a lot of money, having a lot of success, building great revenue to support their great families. And he gets to keep a percentage of everything they do. And they're happy, because they save time and money by buying his proven system. And he's happy, because he's able to make money without actually cleaning all the carpets in the world. You know what I'm saying?
So, building a franchise. So, that's what you have to do. It's a turn-key model.
-Now, the second step-- which is kind of enveloped in this first step-- but the second step is, you must have a 30% profit. Why? That means after you do everything you do, and you pay other people to do the work-- so if I buy a franchise from you, after I pay other people to run it, manage it, deliver it, market it, sell it, the whole deal, there's 30% left for me. Why do we have to have at least 30%? I will tell you why.
Because banks fund the purchase of a franchise. So if I want to go buy a McDonald's, it's over a million dollars. If I want to go buy a subway it might be a couple hundred thousand dollars. If I want to buy an OxyFresh, it might be $50,000. When I go to the bank, and I say, hey, I want to buy a business. And they say, OK, cool. What kind of business? A franchise. They go, ding, ding. They're excited. They love to lend on franchises. They go, ding, ding. That's awesome. Ding, ding. Wow. They're excited.
So then they say, well, what kind of franchise do you want to buy? And I say, I want to buy an OxyFresh. And they say OK, we're going to need to see this thing called the FDD, Franchising Disclosure Document. They look at it. They go to item 19. They talk to me about it. They go, oh, wow. This looks like the kind of business that we'll lend you money for. What kind of business? A business that makes a 30% profit. Without it, they won't.
But wouldn't it be stupid to build a business that doesn't make a 30% profit, anyway?
MYKHAYLO PANCHISHAK: Yeah.
-So you're already doing it, anyway, right? Remember, it takes about three years to get a business to be very successful, anyway. So you might as well document it as you go and build a franchise. You're already doing the work.
And once you do the work-- do you think that once your rocking and rolling in New York, and you're making money hand over fist, and you're offering great value to your customers-- don't you think your buddies who you went to college with who live out in California are going to call and go, hey, bro-- that's how people in California talk in my mind. Hey, bro.
But they'll call, and they'll say, hey-- your buddy in Oklahoma called. Hey, man. Hey, man. Y'all heard of, got some good franchises in? They're going to want to know. Hey, man. I want to do that. Can I buy a franchise? They're going to ask you, Mykhaylo, you're doing great. Hey, man. Can I buy a franchise? Your body in California-- hey, bro.
And wouldn't you love to be able to say, yes. I have an FDD. And, yes, I actually can get you a franchise. You can buy it from me. And you can open it right there in Oklahoma and have the same success that I'm having in New York. Wouldn't that be awesome?
MYKHAYLO PANCHISHAK: Yeah.
-Cool. So I'm just telling you, You've got to do that. You have to do that. You've got to go for 30% profitability to franchise. And the third is, you have to build this FDD, this Franchise Disclosure Document. And why you have to build a franchise disclosure document?
-Because that's how the banks can track you. Right?
-One is franchising is a federally regulated deal. So the federal government gets to decide whether you can franchise or not. OK, because they want to make sure you're not ripping people off. Back in the day, people used to sell franchises to people that didn't work. And they're, like, Mykhaylo, you've got a problem with your brain. This system's great. You know. But the government stepped in and said, hey, you can't just sell poppycock and hoo-ha anymore. You've got to actually sell a real thing.
So I'm going to read to you the definition of a franchise disclosure document from franchise.com. The Franchise Disclosure Document is a format for disclosing franchisor information to prospective franchisees. The purpose of the FDD is to protect the public by providing information about the franchise company. The FDD format was adopted by the North American Securities Administrators Association in 1993, which was approved by the Federal Trade Commission, FTC.
You don't want to screw with the federal government. That's a rule. That's a life tip. Notable quotable, don't screw with the federal government. OK? Now the third is, there are 23 categories of information that must be provided by the franchisor to the prospective franchisee at least 10 business days before the execution of the agreement.
-What does this mean? It means that I have to give-- if you said, hey, I want to buy a franchise from you, Clay. I have to give this document to you, and you have to have it in your possession for at least 10 days before you're allowed to purchase a franchise.
And all those 23 items in there have to be documented. So in your FDD, you're going to have 23 items. And in that, you're also going to have your marketing and your differentiation. What makes you different? You're going to explain what makes your company or your approach to business different.
And if you have those documents, then you can begin to sell franchises. Now a couple other things I want to throw out for you.
You're going to have to have a year of documented profits of 30% or more profit before you can be certified as, these are my actual profits. You can't have one month of a 30% profit.
So the goal is to try to build your business as fast as possible so that you're making a 30% profit--
-And then you can start the process?
-And then you start the process--
STUDENT: OK, OK, three years.
- --of building an FDD. And an FDD-- somebody watching this is going to be a franchise expert, and they're like, that's not true, bro. But the thing is, it's about $30,000 to build an FDD, virtually every time.
Why? Because you're going to have to do your trademarks. You're going to have to go in there and deal with lawyers. You're going to have to build your FDD. There's all these things you have to do, and they all cost a lot of money. But the rewards are ridiculous. So let's just think this through real quick.
Let's say that you could make $500,000 a year with your American hybrid homes. So your profit is $500,000 a year in New York. Wow. New York.
So if this is our great country, which is not-- there it is. That's our country. So if you're up here in New York, and you're making $500K, and your buddy you went to college with in Oklahoma's like, hey man, I really want to buy one of them franchises, if you know what I mean. I'm from Oklahoma so I can mock myself, OK?
But if he wants to buy one, and you say, OK. I'll sell you one. He puts up the great flag of your company. And he makes $500,000. If you keep 6% to 8% of that, how much do you keep?
-Yeah. So now you're keeping $40,000 a year here. And if your buddy out in the great state of California-- he puts up a flag-- you're making $40K there. But are you working in those markets?
-No. Well, what if you could sell like my buddy who has Oxi Fresh? What if you could sell 300 plus units? Let's do the math on that. Whoa! Now we can get as much frozen yogurt as we want whenever we want.
-You know what I mean? Not that that's like my number one life goal. But it's at least in my top 10. As much frozen yogurt as I can have. You can do whatever you want at that point, right? And aren't you financially free then? It's awesome.
So now the pain of building a franchise, the only thing different you have to do to build a franchise, then-- to run a successful business, don't you need to have a duplicable system?
CLAY CLARK: Don't you need to be at 30% profit? The only tough part you have to do that's different is you have to build an FDD. So it's really not that much harder to win.
The people who run the race a little bit earlier, they start earlier, they tend to finish earlier. The people who go the extra mile tend to actually have run an extra mile. If you go the extra mile, three years from now, true, you'll be three years older. But also true, you could be-- how old are you now?
-22. So my buddy who owns the Oxi Fresh, Jonathan Barnett-- I don't want to mess up the facts, but I think before he turned 35, I think he had over 300 units.
But it took him a couple years to get that first one. But then after that, he started-- he nailed it, and then he scaled it. Make sense?
So you can make millions to buy as much frozen yogurt as you want, as long as you go through that process. Make sense?
-Hey. I appreciate you being here my friend. Hopefully that was helpful.
-Thank you for having me.
-You can send all your complaints directly to our camera crew. And they'll filter those and get those to me.
-All right. Boom!
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