How Semi-Passive Franchising Builds Cash Flow and Equity With Bob Bernotas

In this episode of The Same Day Podcast, Yoni Schmidt talks with Bob Bernotas, President of Franchise With Bob, about building wealth through semi-passive franchise ownership. Bob explains how to compare franchises with real estate, why emerging brands may outperform big names, and what investors should know about funding, unit economics, and exit strategy. He also touches on franchise resale challenges and first steps for getting started.

How Semi-Passive Franchising Builds Cash Flow and Equity With Bob Bernotas

Bob Bernotas is the President of Franchise With Bob, a franchise consulting firm that helps professionals evaluate, finance, and acquire franchise businesses aligned with their goals. With franchise experience dating back to 1986, he has been a multi-unit owner, CEO, investor, and advisor to executives and real estate investors exploring semi-passive business ownership. Bob helps clients assess unit economics, funding options, territory strategy, and exit potential so they can pursue cash flow and long-term wealth through franchising.

Here’s a glimpse of what you’ll learn:

• [2:08] Bob Bernotas reflects on opening his first video rental franchise in 1986 and learning when to exit
• [4:30] What semi-passive franchise ownership can look like for busy professionals and investors
• [7:41] How franchises compare with real estate investing for cash flow, risk, and equity growth
• [10:27] Why recurring revenue models and exit strategy matter before buying a franchise
• [12:46] The biggest mistake investors make when chasing big-name franchise brands
• [17:56] Bob breaks down unit economics, emerging brands, and what made Game Day Men’s Health stand out
• [30:14] Franchise funding options, from SBA loans to portfolio loans and 401(k) rollovers
• [39:32] How Bob helps candidates evaluate brands, match opportunities to their goals, and start the franchise exploration process

In this episode…

For investors who understand the power of cash flow, semi-passive franchising can offer a different path to building equity beyond traditional real estate investing. It gives busy professionals a way to explore business ownership with established systems, operator support, and the potential for recurring revenue. How can the right franchise create both income and long-term value without requiring you to start entirely from scratch?

The answer begins with looking beyond brand recognition and focusing on the fundamentals that make a business scalable, sellable, and sustainable. Franchise expert Bob Bernotas explains that emerging brands with strong support systems, solid leadership, recurring revenue, and a clear territory strategy can create a better upside than established household names. Bob also emphasizes the importance of planning an exit strategy before buying, understanding realistic capital requirements, and knowing how much time a semi-passive model may actually require. When evaluated with discipline instead of emotion, franchising can become a practical strategy for building cash flow and equity, while offering greater financial control.

Resources mentioned in this episode:

• Yonatan Schmidt on LinkedIn
• Mat Zalk on LinkedIn
• Keyrenter Property Management
• Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
• Keyrenter Property Management email address: [email protected]
• Bob Bernotas on LinkedIn
• Franchise With Bob
• Game Day Men’s Health
• U.S. Small Business Administration (SBA) Loans

Quotable Moments

• “But if you know what to look for and you’re willing to wait for it, these types of concepts emerge.”
• “Don’t focus on the big brands.”
• “Focus on things that we can reliably predict are going to grow.”
• “We always talk about an exit strategy.”
• “You need to position that up front before you ever buy to be able to position.”

Action Steps

1. Evaluate franchise opportunities beyond brand recognition: Looking at unit economics, leadership, territory quality, and support systems helps investors identify stronger opportunities instead of chasing familiar names.
2. Plan the exit before buying: Understanding resale potential, market demand, and territory strategy early helps owners build a business that can be sold more effectively later.
3. Prioritize recurring revenue models: Choosing businesses with membership or repeat-service revenue can create more predictable cash flow and stronger long-term value.
4. Be realistic about semi-passive ownership: Knowing the expected time commitment, staffing needs, and management responsibilities helps investors choose a model that fits their lifestyle.
5. Understand funding options before committing: Reviewing SBA loans, portfolio loans, home equity, and rollover structures helps buyers make smarter decisions about capital and risk.

Sponsor for this episode…

This episode is brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need. 

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

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Episode Transcript

Intro 00:04

Welcome to The Same Day Podcast, where we discuss driving incremental business growth and other topics related to real estate, property management, and entrepreneurship. Now to the show at hand.

Yonatan Schmidt 00:20

Yoni Schmidt here hosting today’s episode of The Same Day Podcast. Today’s episode is brought to you by Property Management at Keyrenter Property Management, we are a full service property management company helping clients buy, renovate, operate real estate assets. We help our clients build wealth while taking the headache out of property management. That is why no matter what asset you have, what rental you have single family homes, condos, townhouses, apartments. We have the management solutions for you.

Go to pmc.com or email us at [email protected] for more information. Today’s guest is Bob Burnett. Burnett. Bernotas. Sorry. 

 Close enough.

Bob Bernotas 01:03

It’s all good.

Yonatan Schmidt 01:04

President of franchisewithbob.com and a highly experienced franchise consultant, investor and entrepreneur, Bob has been working in the franchise industry since 1986. That’s before I was even alive. As a multi-unit owner, franchise CEO, and trusted advisor to investors and executives seeking to build wealth through semi passive business ownership, Bob specializes in helping busy professionals and real estate investors identify franchise opportunities that align with their capital, risk tolerance and lifestyle goals. If you if you ever wondered whether franchises could provide cash flow and equity growth comparable to real estate, this conversation is for you. Welcome to the show and thank you for being here.

Bob Bernotas 01:50

Hey, thanks for having me, Yoni. Great to be here, Bob. Let’s by the way, I mean, since 1986. and I know you weren’t born then, but. But that makes me sound really old, man.

In my defense.

Yonatan Schmidt 02:04

Experienced.

Bob Bernotas 02:05

Well, that, but I get the same. Or in my defense, I was. I was a kid in my 20s when I got into my first franchise. So there you go.

Yonatan Schmidt 02:15

Nice. Well, actually, let’s dive right in. What was that first franchise? You’ve been involved in this since 1986? Like, what was that first franchise?

Bob Bernotas 02:24

Yeah.

Yonatan Schmidt 02:25

Well, I mean, the industry to.

Bob Bernotas 02:27

A lot of your listeners may not even remember this industry, but if you remember the video rental industry v renting VHS tape. Okay, blockbuster. Yeah. Well, this was, this was even I was in one called West Coast video. They later bought national video.

They had over a thousand units across the country with combined with national video, but it preceded blockbuster. But I bought my first unit back in 1986. I opened it in December of 1986 in a little area of of Philadelphia called Germantown. And it just fortunately, that unit took off for me really quick and open it in December. That January, a month later, it became the top unit in the chain, which that allowed me gave me the springboard to move into multiple units in that market and then move up into New York with them as well. 

 But everybody knows where that industry is now. It’s gone. Taught me a valuable lesson. Yeah, but it was.

Yonatan Schmidt 03:24

Until the end.

Bob Bernotas 03:25

No, no, no, I got out of the I mean, I saw the writing on the wall and I got out and I made some, I made decent money with it, but if I got out early I would have made a lot more money. But a lot of my colleagues stayed in long term and went right down the tubes. But I mean, I thought I thought the writing on the wall was pretty obvious that technology was going to wipe this out. But yeah, people hung on, man. They didn’t want to quit.

Yonatan Schmidt 03:47

Yeah. I mean, I remember as a kid going to blockbuster, I grew up in the Middle East and we had a blockbuster, you know, in, downtown Jerusalem, Israel, which is where yeah, yeah, yeah. I mean, going with my parents to pick out movies and take them home.

Bob Bernotas 04:04

That is.

Yonatan Schmidt 04:04

Awesome. I love that. Yeah. So that’s awesome. But yeah, Netflix and technology really kind of wiped that industry out.

Let’s talk a little bit. Oh yeah.

Bob Bernotas 04:15

There’s only one blockbuster left somewhere in Oregon for nostalgia purposes, but rest of the industry is gone.

Yonatan Schmidt 04:23

They might be turning it into a museum pretty soon. Here. Yeah. There you go. Let’s talk about someone who’s new to the concept of franchises.

Right. What exactly is Semi-passive franchise ownership? Why is it appealing to, you know, someone who’s a busy professional? You know, like many of the people who are listening to our podcast.

Bob Bernotas 04:44

Semi-passive franchising is, is just a, it’s a concept whereby the, the, the franchise has developed a robust enough support platform so somebody doesn’t have to step into it on a full time basis. Now understand there’s all kinds of definitions of semi-passive. Semi-passive could mean 2025 hours a week, which I don’t really consider semi-passive. It could be. It could be like what I’m doing right now.

I mean, I have a I bought the most recent franchise I bought is something called Game Day Men’s Health. I bought six units of that concept. They’re two hours from me because everything in my immediate market sold out so quickly. I got involved in some site selection, but ever since then my involvement has been a one hour Zoom call per week. Now that’s that’s extreme situation. 

 But I would anticipate semi-passive most people are going to get into it, maybe put somewhere in between 10 to 15 hours a week in the early stages. Once the systems are running smoothly, have the right people in place. Now you can start backing off and spend less and less time.

Yonatan Schmidt 05:43

Yeah. And so basically you’re putting in an operator, someone who’s managing the business. They may have some equity in the business because you want them to have, you know, skin in the game and long term, you know, buy in. Right. And you’re, you’re, you’re basically, you know, capital consulting advice, maybe opening doors, making introductions, helping grow the business on the front end.

Until it’s kind of like in a, in a flywheel kind of place.

Bob Bernotas 06:10

Correct. And to your, to your point with, with Game Day Men’s Health. I mean, the way this came about for me is because I look, I at this point in my life, I’m not putting a lot of time into anything other than my consulting businesses, the franchises I own. I don’t want to put a lot of time into. But I was actually working with with a local client.

I showed him this concept. He absolutely fell in love with it. He just didn’t have the capital to execute. It was going to be a stretch for him to do one. So I said, John, hey, would you want an investor? 

 Would you want a partner? And he said, sure. So we started talking about one. We started talking about three. And then all of a sudden it turned into six and bought six units. 

 The first two were open doing great. I mean, the first unit opened 17.5 months ago. I think it’s been at this point. Last month we did 120 4k in revenue. I mean it’s been building it’s a membership based recurring revenue model. 

 So it builds each month. 120 4k last month over 3030 plus percent profit margin with this. And so I mean I could probably sell that unit right now for a couple mil based on based on where it is in its in its trajectory. And I’m only open three days a week because I’ll go to a fourth day, I’ll go to a fifth day eventually as membership bills as, as it’s continuing to do. Yeah, my investment was 350 on that first unit. 

 So that’s an example of a unicorn. There’s not a lot of concepts that I can show, you know, clients that are going to perform like that. But if, you know, I’m working with a client and they give me the latitude to say, hey, Bob, you know, show me ROI earnings. I don’t care what the widget is, as long as it’s ethical, provides valued service to the community and show me something semi passive. If they give me that much latitude I can show them some really good concepts.

Yonatan Schmidt 07:55

Yeah love that. Let’s talk a little bit about, you know, franchises versus real estate investing. Maybe, you know, real estate investors have a ton of equity that’s tied up in, you know, their properties and their real assets. And they may want to diversify a little bit and go a different direction to maybe generate more cash flow and then maybe go buy more real estate, grow their franchise business, a lot of different things. Many of our listeners, as you may or may not know, are real estate investors.

How do franchises compare to, you know, rental properties in terms of maybe cash flow leverage, long term equity creation and so on?

Bob Bernotas 08:36

Yeah, a great question, by the way. I love, I love real estate. I mean, I’m in a number of syndications. So I, I, I’m also a real estate investor. And I think that should be part of anybody’s portfolio.

I think where they’re going to diverge is with with franchises. Is the risk factor higher? Yeah. But it’s not that much higher if you get into the right franchise, if you know what to look for, but you’re going to build equity at a many multiples of real estate. Now, look, if you got into real estate right before Covid, it was a nice time to get into real estate. 

 That’s not realistic on an ongoing basis. But, you know, like I said, with, with, with Game Day, the one that Game Day itself, the one that I bought my first unit at this point. And realistically, I mean, 40 K to the bottom line at this point or close to it. And, you know, multiply that by 12, let’s say a five multiple, that’s over two mil. I mean, there’s not too many things you can open 17.5 months ago for 350 and have it worth a couple million dollars at this point. 

 I mean, that just doesn’t exist. And again, that’s a unicorn even for franchising that rarely exists. But if you know what to look for and you’re willing to wait for it, these types of concepts emerge.

Yonatan Schmidt 09:57

Yeah. I mean, because, you know, I’ve always been under the impression that the statement if you build it, they will come is not one. That’s true. Right. You really have to know who your clients are before you go to market and before you have a product.

I even, you know, read an article about an entrepreneur who was saying, you should market your product before you even have it to see what, what kind of, you know, interest in, you know, activity you can generate before you even have the product. Yeah. So let’s talk, I guess, about choosing the right franchise, right? What are the biggest mistakes people make when they’re evaluating franchise opportunities?

Bob Bernotas 10:41

Yeah. Well, if I can just jump back for a second, what you just said, I think is really important, and offering or selling the product before you even have it. I mean, that’s part of a lot of models, by the way. I mean, for instance, I mean, I couldn’t do it with Game Day Men’s Health because people have to be tested before they become a member. But there’s a lot of franchises out there where memberships before a franchisee has ever opened companies help them with pre-sale of memberships so they may open even theoretically and in some cases, realistically at a profitable level, the day they open their doors because of the pre-sold membership.

So that dramatically reduces reduces risk in those situations. So I like reoccurring revenue models. I think they make a lot of sense. They typically are going to sell at a higher multiple. If you decide to make a move at some point in the future. 

 But I also want to make sure with any of the clients that I work with, you know, we always talk about, I mean, exit strategy, I think is one of the key things you can possibly consider when you’re getting into a business for a variety of reasons. But whether you want to, you know, have a, you know, a short horizon, like I look at things at a 3 to 5 year horizon. I want to be out, be it five years, ten years, 20 years and have a transaction and sell it for many multiples. But often, you know, life events occur and you may need to sell your business and strategies around selling it sooner rather than later. If you need to go about doing that, being able to reliably predict at whatever brand you get into is going to predominantly or entirely sell out in the market that you’re in, which means it will predominantly sell sell out around the United States. 

 That’s important because that puts you in a position, a much better position to sell your franchise. And there’s kind of an art to that. I mean, I knew when I bought Game Day Men’s Health based on where they were, the numbers behind them, I tracked them for a couple of years before I ever made my purchase with them, but as soon as they got into the right organization that’s behind them, that that would help them grow. And I know the organization and one of the top organizations in terms of what they do. I knew that brand was going to blow up across the country, and I timed it right, and it fortunately worked out well for me. 

 Now, what was your question? I’m sorry, I went on.

Yonatan Schmidt 12:52

Yeah.

Bob Bernotas 12:52

Like what?

Yonatan Schmidt 12:53

What are the biggest mistakes? I know I appreciate that, but like, what are the biggest mistakes people make when they’re evaluating these franchise opportunities?

Bob Bernotas 13:00

Yeah. People want to go for big brands.

People see, you know, a brand that they recognize and, and it’s, it’s, you know, and that’s natural for anyone to. But I can tell you the opportunity is over. And it’s not even if the brand has available market to buy, you probably don’t want to buy the markets that they’re offering at that point, right? A universal, immutable law in franchising is that the first third of franchisees that get into any franchise system will almost always do better than the final third that get into the franchise system simply because what are you going to choose? First, you’re going to choose the tier one territories.

You’re going to choose the best territories. They get bought up first. Once they’re sold, then tier two territories start to get bought up, and eventually the tier three territories start to get bought up. And the problem is, a lot of these franchise companies, they may reject those tier three territories up front. If somebody lives in that area and they want to be in a market like, oh, sorry, it’s not strong enough. 

 But once everything else is sold, guess what? They go back and they sell those territories. And often they shouldn’t have sold those territories. So my, my counsel to anyone would be, hey, don’t focus on the big brands. Focus on things that we can reliably predict are going to grow the, the emerging brands, but they still have to have all the elements behind them. 

 They have to have a strong management team. They have to have the they have to have the capital behind them. They have to they have to have strong unit economics. They have to have the infrastructure to scale if they can check all those boxes and even more importantly, if they have the right organization behind them, because franchising has evolved from these mom and pop type concepts that launched 20, 30, 40 years ago, and maybe had success, rarely do you see those succeed now. Now there’s bigger organizations behind them with a lot of capital, and if it’s not the right organization, I avoid those types of brands.

Yonatan Schmidt 15:04

Yeah. That’s interesting. You know, it also answers the next question of why boring, service based, boring, service based franchises often outperform more glamorous businesses like those brands that you mentioned. But I guess a follow up question would be you mentioned the first third, right? Are often, you know, the ones that will outperform the last third and, you know, are those are the first third also sold at somewhat of a discount because they’re testing the market.

Is it like a stock that IPOs that you can come in on the ground floor and say, okay, I’m buying it for a little bit of a discount because you’re a new franchise, you’re a new concept, you’re coming in and you’re testing the waters here. Which would those be cheaper than if you, you know, are in a proven in a proven model?

Bob Bernotas 15:51

Absolutely not.

Okay. Look it there. Look, if companies are doing that, if they’re discounting at the beginning now, they may just universally have a lower franchise fee. And that’s a natural natural evolution. Later they bump it a bit, later they bump it again. The royalty fees may get bumped.

Doesn’t affect the franchisees who are already in those. Those fees are locked in. But it could affect, you know, newer, newer ones coming in in the future. But usually you’re not seeing a giant. But if they start negotiating and like, oh, we’ll sell you the franchise fee for half price, you probably don’t want to get involved with that company. 

 That that’s a show of desperation. Look, if there’s a commonality, if I’m working with a client, there’s always a commonality. They will see there will either be a really strong brand aggregator behind the brand that I will show them brand aggregators, an entity that acquires brands, okay? They put them on their platform, they supply the franchise expertise, they supply the capital, they, they supply the infrastructure to, to scale. And then they start growing that, that fledgling franchise company on their platform. 

 Another entity is something called an FSO or franchise sales organization. And look, there’s, there’s dozens of them out there. There’s only four in my opinion, that are good. Okay. So I only will deal with those companies with those companies. 

 Same thing with, with brand aggregators, there’s only a handful that I will deal with. The rest of them. I want nothing to do with if, if a brand gets gets into the portfolio of one of those organizations, one of the better ones. I mean, I know there’s a really good chance that that brand is going to be very successful. So the the commonality that anybody that I work with will see there will be one of those entities or possibly both behind any brand that I show. 

 It’s just a much safer investment. They know what they’re doing.

Yonatan Schmidt 17:52

You mentioned earlier unit economics, right? What are those key unit economics and metrics that every investor should understand before, you know, they sign on the dotted line of, you know, whatever PhD or buying a franchise in your opinion.

Bob Bernotas 18:09

Yeah. Well, when it comes to the unit economics, I mean, it’s, it’s, it’s, you know, it’s what somebody is looking for and what they’re comfortable with, what the return on investment is. And often people will say, well, it doesn’t matter. I can make less money with it. As long as the risk is less, I’ll get it.

It doesn’t necessarily work that way because some of the best things also have the greatest rate of return. So typically, you know, they could have great unit economics with, you know, with a few locations, like when I started evaluating Game Day Men’s Health and this was years ago. I mean, it was a while before I bought. They just franchised, but they, they had, they, they didn’t have any franchises behind them. They got a few sold and whatnot. 

 And so I loved, I loved the unit economics behind it. When I looked at their. They had six corporate owned units in Southern California. So all in one market. But the six units were ranging anywhere from a year old to five years old. 

 They ranged like a year old store, did a million the previous year. The five year old store did 2.5. I want to say it was. But you know, the year old store made really good money. The store was five years old, dropped like nine something to the bottom line. 

 So, you know, those are very, very impressive unit economics and investment. That’s relatively low. So I was very interested in that, but I didn’t know if they could scale. I didn’t know if they can truly build this across the country and keep the wheels on doing it. They had the capital behind them. 

 They had a good management team behind them. But once they got into the portfolio of a really good FSO that I that I know and trust, I knew it was going to blow up across the country given the category. It was in longevity, a very, very hot category. And the cost of this franchise. Unfortunately, I was right. 

 And within 17 months they sold 900 and some units completely sold out to United States and Canada, one of the fastest growing brands I’ve ever seen.

Yonatan Schmidt 20:12

Wow. And your longevity, this cryogenic stuff and or not so much.

Bob Bernotas 20:17

With with this. No, they don’t use cryogenics with this one. This is just men. It’s hormone replacement therapy, weight loss, peptides ed treatment. Now there’s some other ones that have emerged, one in particular I like a lot.

That is not only doing that with men, but offering it to women as well. And they have other parts of the business, like an apothecary selling a series of products, but they also have some of the things you were mentioning, like hyperbaric chamber, cold plunge therapy, red light sauna, IV drip therapy, compression therapy, things of that nature. They’re putting it all together under one roof, like a really serious longevity concept for both men and women and appealing to a lot of age groups. So I do like that concept more expensive to get into, but it’s I think it’s a great concept.

Yonatan Schmidt 21:10

Interesting. I want to talk a little bit about, you know, key venture. We’re a franchise business model. There are a bunch of different key ventures all over the nation. We operate seven of the markets that Keyrenter is in currently managing roughly 3600, you know, mostly single family residential homes, right?

One of our markets, you know, in the Midwest, there was a competitor franchise, I’m not going to name it, but there was a competitor franchise. And the franchise owner had, you know, grown and scaled their business. And they they wanted to sell. Right. And it seemed pretty, you know, I guess obvious that they could it’s a property management business. 

 They could sell it to anyone who wants to operate a property management business. Right. But when Keyrenters stepped in, we were having a conversation. We had, you know, great rapport with this business owner. This business owner was concerned about selling to us because we weren’t within their franchise brand. 

 We were in a separate franchise brand. And it created, you know, it killed the deal ultimately.

Bob Bernotas 22:20

Yeah, I would imagine. Yeah.

Yonatan Schmidt 22:22

What what’s your advice on something like that for someone who, you know, is getting into a franchise model that maybe that you may be able to sell to anyone else. Like, is it common for someone to have to buy into that franchise and pay another franchise fee? Essentially, if they’re coming in and they’re buying that business? And what should, what should, you know, people who want to get into franchises look for in, you know, the contract to avoid that if possible? I don’t know if it is.

Bob Bernotas 22:56

Yeah. I mean, look, any franchise organization typically isn’t going to allow you to compete against them. So if it’s an organization, if you want to sell to this other or buy this other franchise, you own one franchise, you want to buy another one and be absorbed by it. Is that is that your question?

Yonatan Schmidt 23:18

Well, you know, yes, but it’s the same industry, but two separate brands.

Bob Bernotas 23:25

Well, the brand, the brand that would be absorbing you would be happy. The brand that is, is being absorbed by not going to be happy at all. And in their franchise agreement, it’s going to prevent you from from being able to do that.

Yonatan Schmidt 23:38

Yeah. So her options were, I can sell it to another franchise owner. That’s the same brand right within their market. Who said, why would I buy you if you stop working? I’m going to swallow you anyways.

That’s what he said to her, right. And or her other option was to essentially, I mean, really like take the risk, which she didn’t want to do because then they could sue her.

Bob Bernotas 24:08

Yeah. And they will.

Yonatan Schmidt 24:09

And they will.

Unless there was a third option. Sorry. Find someone who wants to operate in this industry and they would be willing to buy that franchise from her. Yeah. But that person would have had to make, you know, about a 50, 60, $70,000 investment to essentially like buy the franchise from the franchise and then also pay her for her recurring revenue.

Yeah, whatever.

Bob Bernotas 24:37

If her if her revenue was worthwhile or if the, I mean, if it had a bottom line and it was worthwhile and somebody just has to pay, you know, the franchise or pay them out. Then it would be, it seems to me it would be worthwhile. But a lot of franchisors will typically I mean, if she wanted out, I mean, she could just I mean, walk away and hand the keys over. But that isn’t what she wants to do. She wants to sell the business, but it might sell at somewhat of a premium.

Well, first of all, wait a minute. The franchise or the only thing that they should be looking is whatever the transfer fee is. So you can sell to anybody she wants to. They can’t stop her from selling her business unless the person isn’t qualified that she’s selling it to based on whatever the then current minimum standards are for someone to to buy into their franchise. But otherwise she should have, she should absolutely be allowed to sell her franchise to whomever she wants. 

 Now, there might be a transfer fee, $10,000, 25% of the then current franchise fee, something like that. That because they have to retrain the franchisee their way or whoever’s coming in their way, but they typically brands have no issue with you selling it.

Yonatan Schmidt 25:49

Yeah. As long as you maintain the brand, you can’t sell it to another competing.

Bob Bernotas 25:53

Right? Correct. Yeah. That’s a problem. Yeah.

You can’t do that.

Yonatan Schmidt 25:57

Yeah. Okay. Thank you for answering that. Some of my next questions are about timing and execution. Right.

Can someone buy a franchise while they keep their day job. And you know, if they do well, what does that typically look like?

Bob Bernotas 26:13

Yeah. I mean, most of my clients, that’s what they’re looking for. They’re looking for a semi-passive brand. And, and it could be, I mean, it depends on how much time they have and what those hours look like during the week. Some brands are more semi-passive than others, and it depends upon I mean, for instance, if you get into a model that is a you mentioned, you know, one of the dirty businesses or, you know, a home service type, most of them cross over to B2B as well.

You’re probably going to spend more time in that in the early stages. So I would say even if they had a semi passive platform, you might be looking at somewhere between 10 to 20 hours of your time per week. Eventually, there will come a time where you can take a big step back and then another big step back. Once you have the right people in place and systems are running smoothly. But then on on the other side of the ledger, there are there are managed manager type models where you get into something typically their brick and mortar. 

 And, and it could be something, I mean, you pick a, pick a category. Let’s say it’s service retail service like a like a Pilates franchise, which by the way, they do super, super well. But they’re typically manage to manage your models, and they’re one of the models whereby the franchisor will help you pre-sell memberships. They’ll help you find labor. Once you have your labor in place, you have your manager in place. 

 You don’t have a role in daily operations, you’re managing the manager, the key performance indicators, and the profit and loss. So once it’s up and running, give it a couple, three, four months in, you’re just keeping tabs on it. You’re stopping in once in a while to see how everything’s going. So it ranges from that all the way up to maybe 20 hours of your time per week.

Yonatan Schmidt 27:57

Interesting. You mentioned, you know, the semi passive, like what, what, what are those operational systems that need to be in place to truly make a franchise semi passive?

Bob Bernotas 28:07

Yeah. I mean these companies will have all of the bookkeeping in place. So you just plug right into it. Many of them are going to have a national call center. So instead of you hiring admin people that are going to man the phones and you have to train them so they can effectively sell your product.

Because if it’s a home service type concept, it might be, you know, hey, the only thing they’re selling is scheduling an appointment for the salesperson to go out and meet with the homeowner or meet with the. It could be B2B, meet with the business, whatever it happens to be. Or it could be such a simple service that like a franchise that, believe it or not, there’s a grill cleaning franchise out there that’s doing really, really well. Yeah, they just schedule, you know, the tech people call, they’re told, you know what, how it works. The call center will schedule the technician. 

 Technician goes out, does the service might be a 3 to $400 for for like a three hour service is done typically on, you know, higher end grills. You’re not. But but those things aren’t going to require. So that that’s like a support platform for something like that.

Yonatan Schmidt 29:16

Interesting. And it’s strictly grill cleaning.

Bob Bernotas 29:19

So all we do grill cleaning, part replacement. Grill replacement. Hey, we’ll get rid of your. We’ll dispose of your grill. We’ll install the new grill for you.

But grills, you know, these parts start wearing out and they replace parts and things like that. But the bulk of the business is actually cleaning and it can apply to commercial as well, like HOA and whatnot, which could be.

Yonatan Schmidt 29:40

Restaurants.

Bob Bernotas 29:41

Really reoccurring. Yeah. Correct. Golf courses. Restaurants.

Yep.

Yonatan Schmidt 29:45

Interesting that. I’d like to learn more about that. Let’s talk a little bit about funding, structuring the investment. Right. Someone who says, I want to do this, how do I do it?

What are the most common ways that people finance franchise acquisitions? I guess a small business loan?

Bob Bernotas 30:05

Yeah. I mean, SBA is a is a pretty common way. SBA is a pain in the butt, but it’s, it’s, it’s also pretty good terms. You’re getting ten year terms, reasonable interest rate. You can pay it off soon, sooner if you want to.

You’re not going to get penalized there. So a lot of my clients will use will use SBA. There’s portfolio loans against, you know, stock portfolio. There are, you know, obviously home equity loans, things of that nature. There’s something called a 401 K rollover or the Rob’s program, whereby you can roll funds out of a 401 K or IRA into a business without taxation penalty or interest. 

 Now you have to you have to be eligible for it. So you either have to have been you have to be a certain age if it if it is a a 401 K with your current employer and all your money is in that. But if you control that 401 K if it was from previous employers or it’s a, you know, an IRA, then there’s no problem. You can roll it, you can roll it into a business. Now under that structure, a little more, that’s a layer of complexity because it needs to roll into a C corporation. 

 But the entities that I work with, there are several of them that set these up for people, and then they will manage it and do the filings and everything for you so you don’t run into a compliance issue with it.

Yonatan Schmidt 31:24

And there’s no double taxation problem. If you’re rolling it into a C corp or.

Bob Bernotas 31:28

There’s no what.

Yonatan Schmidt 31:29

Double taxation?

Bob Bernotas 31:31

No, they have their methodology for avoiding that.

Yonatan Schmidt 31:35

Okay, wonderful. Let’s talk about realistic capital ranges that someone should expect when they are making an investment to acquire, you know, a quality franchise opportunity. What does that look like?

Bob Bernotas 31:48

Sure. I mean, like that grill cleaning concept that I mentioned to you, you’re going to be in 100, 125 range to launch, to launch something like that. Your investment, what they want you to do is pay the franchise fee upfront. Franchise fee on something like that. Typically about 50 K range 49.5, I think specifically on that one.

And given the cost of it, everything else can be financed. So that that would be something on the low end. When you see franchises out there that are, you you know, 30, 40, $50,000 all in. You want to stay away from those. They’re not worthwhile opportunities. 

 I would tell you that probably 70 to 75% of the of the franchises that exist in this industry, I wouldn’t go anywhere near.

Yonatan Schmidt 32:27

Interesting.

Bob Bernotas 32:28

Don’t consider them worthwhile opportunities.

Yonatan Schmidt 32:31

What’s the, I guess is it better to start a new franchise or try to buy an existing one that’s already operating?

Bob Bernotas 32:39

Yeah. Good question. And look, buying an existing one could be a really solid option. I find in most cases it’s not what I’m trying to find a concept that you like in the market you like and pay the price you like. That’s the challenge.

Okay, so that’s a needle in a haystack scenario. So I find it to be a lot easier. And look, if you, if you want to buy a cash flow and you’re willing to pay someone maybe 4 or 5 times what they paid to launch it two years earlier. Those opportunities are out there. But do you really want to do that? 

 I mean, if it’s a good franchise organization, they should be able to get you to that level pretty quickly. And you’ve spent a fraction of what it would cost. I mean, if it was an independent business, that’s a different story. Okay. You don’t have that that infrastructure that’s going to support you, get you launched, work with, you provide the coaching and everything. 

 And so but then you have another problem. If it’s an independent business that you’re considering buying. What I have found, because I’ve bought independent businesses, what I have found that 90%, 95% of the time they’re lying about the numbers. And I can tell you horror stories about that. The numbers have been manipulated and sometimes majorly manipulated. 

 So that’s the pitfall there. I always find that, you know, doing a startup starting from scratch, because typically you’re going to pay a fraction of what you would if you’re if you’re buying a REIT, unless it’s a distressed situation, you buy a recent resale in a distressed situation. If it’s brick and mortar retail. That concerns me a bit because was was the problem location. Is that why it’s distressed? 

 Because the old adage location, location, location, if it’s something that is, let’s say a service oriented business home service and you’re operating from an office or maybe a small warehouse, maybe some flex space, and it’s not performing, but the demographics are good. And you can compare these demographics to other markets where franchisees are doing well and their similar demographics. Then it could be a really good situation. And maybe the problem was, you know, you had, you know, there was illness, there was death, there was divorce. Something’s going on to allow you to grab that opportunity at a really reasonable price. 

 Then I would say it’s worthwhile, but finding those situations is a needle in a haystack.

Yonatan Schmidt 35:06

Yeah. Interesting. Let’s talk about, you know, exit opportunities. You mentioned that earlier, right? Like what are the exit opportunities for franchise owners and how do they compare to, you know, selling a real estate portfolio, for example?

And, you know, keeping in mind that, you know, we just, we had gone through a not really full underwriting, but we had, you know, started the conversation with this other franchise owner who had a difficult time exiting her business.

Bob Bernotas 35:37

Yeah. And that, and that is very, very common. And so it’s not going to be comparable to real estate in most situations. I mean, look, somebody selling a single family home that’s not going to be typically put the right price on. It’s not going to be hard to sell.

You get into some commercial situations, it could be hard to sell. But with with, with franchises, you need to position that up front before you ever buy to be able to position, I mean, to position to sell effectively. And I mean it, it sounds counterintuitive, but here’s why. When I’m working with a client, one of the key things that I look for is I’m, I’m focused on exit strategy before they ever start. And the way I do that is I want to be able to reliably predict that anything that I put that candidate, that client into, that we can predict it’s going to be it’s going to sell out predominantly or entirely in their market. 

 And again, if, if the right things line up and I can see, hey, this brand has really good unit economics, good management team, they have, they have capital behind them. They have the infrastructure to scale. Now they just got into the portfolio of a really good FSO. I know that brand is going to blow up around the country. So if it sells out in their market yet, we were able to help them get tier one territory because that’s critical. 

 Okay. You don’t want to be buying at the end of the cycle and buying the territories that are left over. So if they can get in, get tier one territory within a year or two years. It’s sold out in their market now with with the proliferation of that brand and that given market there, there is a heightened awareness of the brand. People are seeing the logo on on storefronts, they’re seeing it on vans. 

 They’re they’re hearing it maybe on the radio. They’re seeing social media ads for the brand. With that heightened awareness comes a ton of inquiries to the company saying, hey, this looks interesting. How do I get one of these? And then I quickly told, sorry, everything’s sold out in your market. 

 However, we have a resale opportunity. Johnny’s interested in selling his franchise. We’ll be happy to introduce you. They make the introduction. Person has no choice. 

 If they want to get in the brand, they either can buy a tier three territory which they don’t want to go into, or they can buy an existing franchise. And in that case, it’s not hard to sell. Yeah. If I may give you an example, when I got into it, I had to I mean, I had to move so quickly because everything started to sell so quick, I couldn’t even buy territory. I’m in southeastern Pennsylvania. 

 I had to go two hours into new Jersey to buy territory. Wow. To buy tier one territory. I could have bought tier three territory that was still left. Areas I never want to go to. 

 Yeah. So I went to new Jersey and I bought, I bought territories in, in those areas. And then everything just sold so quickly all around there. There was another franchisee that bought, it was a small group. They bought 19 units just to the east of me. 

 Okay. I could have sold my franchises unopened, just territory dirt at that point to them for twice what I paid for them. Okay.

Yonatan Schmidt 38:45

Wow.

Bob Bernotas 38:46

Just because they wanted, they. I got prime territory. They got good territory too. But they wanted more number one. And then I said, that’s some really good territories.

So consequently, I could have sold to them and doubled my money. Didn’t make sense because I know what the upside of that franchise was. So if you get in the right situation, we can identify the right situation. I mean, it’s it’s almost like, you know, there’s a frenzy for franchises at times to get that that tier one territory.

Yonatan Schmidt 39:11

Interesting. Well, for someone who’s listening today, who wants to create additional cash flow and greater control over their financial future, what’s the first step to exploring franchise opportunities?

Bob Bernotas 39:23

Yeah. So if I’m working with with a candidate, the first, my first step, first step of my process is my confidential questionnaire. It takes maybe 20, 25 minutes to complete. It gives me the initial information I need on the candidate. Then we follow that up with the Zoom call.

We spend an hour or so on a Zoom call reviewing the confidential questionnaire. I’m just an information collection mode. Once I have all the information I need, then I use that information to start identifying brands that are going to fit. My candidate, will fit their budget, will fit the characteristics that they’re interested in, the business, the characteristics of the role they want to play in the business. Semi-passive. 

 full time house Semi-passive all those things will check those boxes. And then on subsequent calls, I start putting brands in front of them that will check all the boxes. We discussed those brands and hopefully there’s two, maybe three on the list that they say, Bob, I’m interested in diving into these brands, learning more about them, and then I help them investigate the brands.

Yonatan Schmidt 40:22

Nice. Love that. And how can listeners connect with you and what type of investor or executives tend to benefit from your guidance?

Bob Bernotas 40:29

Yeah, I mean, it’s all over the board in terms of the types. I mean, it could be anybody from, you know, management position that wants to get into something semi passive. Maybe they like their job, maybe they don’t like their job, but maybe they want to, you know, structure a two, three, you know, five year exit from corporate America, an off ramp from corporate America, if you will, or somebody that wants to do it quicker, somebody wants to do it immediately or somebody who already owns other businesses, they want it to, they want to extend their their portfolio. They want they want to start scaling, you know, vertically and buying some other other types of franchises. I mean, it’s across the board, people that I work with and people with, you know, $250,000 net worths to people with $250 million net worths.

I work with, and in terms of getting in touch with me, just reach out to me through my website. It’s franchisewithbob.com, or you can email me at bob at franchisewithbob.com.

Yonatan Schmidt 41:30

Awesome. We’ll put those in the comments below for everyone or in the description below for everyone to see. Bob, you really educated me and enlightened me. I truly appreciate it. Thank you for being here.

Bob Bernotas 41:44

Yeah, thank you for having me.

Outro 41:49

Thanks for listening to The Same Day Podcast. Tune in to a new show each week and be sure to subscribe to get future episodes.