Episode #07 : The "F" Word of Business Ownership with Kenny Rose

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In this episode of The Richer Geek podcast, I’m chatting with Kenny Rose, one of the world’s experts when it comes to franchise investing. Kenny has been featured on ABC and in an Amazon bestseller, and he’s a top writer on franchising on Quora.

If you’re a professional who’d rather keep a full-time job and invest on the side, Kenny is here to help us weigh the pros and cons of semi-absentee franchise investing.

In this episode, we’re chatting about…

·       Franchise investment benefits versus investing in the stock market

·       Four types of franchise industries that are recession-resistant

·       How your 401K can help you finance your first franchise investment

·       The most common mistake new franchise owners make when they invest in a franchise

·       Why the food industry is the LAST place you should look for a franchise investment

Kenny’s Top Tips

·       Don’t overlook the value of your 401K and the Rollover for Business Startups program – it can help you find the financing to get started.

·       Look carefully at your long-term investment goals – understanding those goals will help you determine the type of franchise you’re best suited to own.

·Stay away from what’s “hot” – focus on what’s good for you.




Rollover for Business Startups (ROBS):https://fitsmallbusiness.com/rollover-business-startups-robs/


+ Read the transcript

Nichole Stohler 0:01
What if you could be doing something smarter with your money that creates income right now, if you're an IT professional is wanting to get ahead financially and enjoy greater freedom of choice. And if you wonder who else in tech is creating ways to make their money work for them? You want actionable ideas, honest pros and cons and no fluff. Welcome to the richer geek podcast for helping IT professionals find creative ways to build wealth and financial freedom. I'm your host Nichole stohler. And in this podcast, you'll hear from others who are already doing these things and learn how you can too.

Welcome back to the richer geek podcast. Today we're going to be talking about semi absentee franchise investing. Mike and I are real estate investors and one of our properties is a franchise hotel. So I do have some familiarity with owning a franchise but I think overall the model is extremely interesting and the approach of predefined systems, built in back in operations, national branding and marketing. And then research teams really sets the franchisee up for success. Our guest today is Kenny rose, who is one of the world's experts when it comes to franchise investing. Kenny's been featured on ABC in an Amazon bestseller and is a top writer on franchising on Quora, Kenny's company. Semfia is a franchise brokerage, which educates investors on the franchise industry and then helps match them up with the fastest growing brands that meet their budget and their overall goals. Welcome to the Richer Geek podcast, Kenny.

Kenny Rose 1:42
Thank you, Nichole. It's great to be here. And I appreciate you inviting me on.

Nichole Stohler 1:45
Let's kind of jump into it because I think you have a really great kind of background for this specific industry and your experience. And what prompted you to start Semfia.

Kenny Rose 1:56
Well I started my career off in finance and I was with Merrill Lynch.And the longer I was there, the more I started to realize that you know, you have more things like robo advisors coming on, you start seeing that things like tweets and world news from across the globe that doesn't really have too much impact on the day to day how your portfolio grows. And just so many things are throwing them off that you really can't take these risks when you're talking about long term retirement. And eventually I found my way into the franchise brokerage area with a family friend. And really his company was coaching CEOs I've done for years, I didn't realize that his company was a franchise. And so as he surprised me with that bit of knowledge, I realized I probably don't know as much about franchising as I thought I did. And then the further I dug into it, I come from a family of entrepreneurs, but yet I didn't have my own unique business idea. And so I realized, Oh, this is really just a great industry where if you have that entrepreneurial drive, and you need really a business plan to get it going, you can follow everything else that you can really accomplished with long term goals. The more I worked with, especially executives in IT, and tech and finance, they realize that way, you know, I really rather keep a full time job and invest in these on the side. And so that's where some I have some absentee franchises come in. And these are ones that have been around for, you know, 10-20 years, but people just aren't familiar with this side of the franchise.

Nichole Stohler 3:24
I love a couple things that you mentioned there you talks about, you have an entrepreneurial drive, but you just maybe don't have you're racking your brain trying to think of some unique business idea when the reality is, there's probably something right in front of you and you don't have to come up with anything unique. I think that's pretty fascinating.

Kenny Rose 3:42
I usually like to say why reinvent the wheel when you're still trying to go to the same place?

Nichole Stohler 3:46
Absolutely. Now, how would you do this? Because I think semi absentee could mean a lot of different things. How would you define that?

Kenny Rose 3:54
Oh, that's great. So, semi absentee is a franchise that is designed from the ground up to be run by a manager, majority of their owners have full time jobs. And so their job is to manage a manager. And so that way you can work that full career, get that extra income and do it for less with time commitments, you can really diversify your income stream. Typically, it's five to 15 hours a week two manage a manager. And really, it came up that way. Because if any franchise ever tells you, it's completely absent, that's a huge red flag for me. There's no such thing that's just writing a check and it's going to disappear. So something where you need to be able to keep an eye on everything that's going on, but yet you can have these people run the day to day operations that, frankly, some of your skill set probably doesn't need to be in there to do got it.

Nichole Stohler 4:42
Okay. So you said about 15 to 20 hours a week.

Kenny Rose 4:46

Nichole Stohler 4:46
Yeah, roughly. Okay. Now, you talked a little bit about people looking to build wealth and a little bit of the challenge with the market and you know, kind of fluctuations based on a tweets and those types of things. Why in general, would someone want to own a franchise? Like what are the benefits, especially your background in finance, versus just investing in the stock market besides the tweets?

Kenny Rose 5:10
Yeah. So it's kind of you think about the difference between traditional and alternative assets. And a lot of alternative assets you think like fine wine collections or art, you don't have any liquidity in that tip, typically. And you're really just only focused on the long term equity growth and hopefully appreciation, but you really have to be an expert in those areas to gain that equity over time. When you look at traditional investments, you think of where you need that long term equity growth, and unless you're in some areas like real estate, a lot of them don't produce income for you, you're just more focusing on you know, the equity growth, maybe a dividend here and there, but some something that's going to give you cash flow now. Franchising is really something where you get that income stream, you get to the equity because you're building a business and specifically with a semi absentee franchise.

This is something that's of interest in. So that's why a good resale that semi absentee usually never hits the market. It's something where a friend or family member or customer is more than happy to buy the business optimists for some reason they're even selling it. So a lot of people start these up with both that income stream in mind that equity bill, and also just a way to diversify from the market. It's something that I really focus on recession resistant industries. And so I'm more of the pessimistic mindset where we're thinking, Hey, you know, is there another recession coming? What's could happen down the road? You know, how do you diversify into areas where even if that does come, you're not going to worry about it.

Nichole Stohler 6:38
Okay. And you brought up kind of the red flag that I think a lot of people like you said, we've had a really long run today. What are the types of kind of industries that you're recommending that are recession resistant?

Kenny Rose 6:50
So the main things to think about are what do people still do when the economy goes down? One of my favorite industries, the healthcare industry, actually because no matter what you know Apple stock can go down but your hair is still going to grow. And so anything you might want to look at things like a budget cutters like super cuts, and one of the fastest growing industries in franchising is actually more on the barbershop side. While people are familiar with the term Floyd's, Floyd's 99 really proved that the barbershop can be a franchise. And most people are familiar with the name yet there's only 100 hundred and 115 locations across the country. And no one can really name any competitor for them. So that's why that's the basis. You'll definitely know your competitors coming up in the next few months, a couple years from now.

I also love automotive, because it's an area where everyone has to drive. It's also thing where people think about, you know, what about new technologies and cars. I mean, as much as they're here, they're not going to be widely adopted for many years down the road. And especially if we do go into a recession, people are not going out to buy a brand new car. In fact, they hold on to the cars they have and they're investing more money to make sure they run along and even differently.

Like that you could think about the insurance side of it. There's a lot of franchise that focus on pretty much from insurance companies for restoration, you get a little day and insurance company trusts a big name company to take care of you no matter where you are. So that's why companies like make those a great example of something that's very recession resistant. Fitness is also something I like because people who are in the fitness lifestyle, it's one of the last things they'll ever cut. And if anything, you want to maybe focus on something that if you're extra worried about the recession, what's more of a budget type of fitness area, but you know, type of things again, you think about what's a need and not a want at the end of the day. And that's really how you determine if it's recession resistant or not.

Nichole Stohler 8:44
That's great. You've given us four different example five different examples there. Now, okay, so you've kind of described the benefits and general industries. What are some of the cons that you've seen or challenges with owning a franchise?

Kenny Rose 9:00
Yeah, I'd say there's two main ones. The first one is that it's not absentee, it's not putting money in the stock market and just checking how it goes every day, you really need to be more active. Like I said, it's a couple hours a week of work. And so you need to make sure that the p&l statements are going right that you know, people are coming in the shop, being able to talk to a manager to understand what's not going the same way as corporate plan intended, and then working with them to fix it. So it's not just a set it and forget it model, its business ownership, which leads me to the other areas that you know, businesses take time to ramp up. I've had clients to, they expect to write a check and open a door and immediately be cash flow positive first day, but the same time anyone who's ever start a business will tell you it's not something that's profitable in the first day and that you need a couple months to really get things ramped up. Even if you're very wide known brand name franchise, people don't know you're there yet. And so it's time to get the advertising and the marketing in place and really ramp up so that especially most people don't see the full benefit for, you know, three or four years. And they really need the patience to understand that it's a long term investment, it's not something that you like said make money day one, or else everyone would do it. And so you got to have really the stamina to be able to, you know, follow the process and trust in the process.

Nichole Stohler 10:23
You know, it's interesting, you're talking about, it's a three to four year and you don't make money day one, it takes a while to build up your clientele, depending on what the businesses or to you know, have people moving into the area, if it's some kind of business where people are walking in. The same thing applies to real estate investing, actually, I mean, even if you're, if you're flipping which is not something I'm not in that particular model, but you still have a while and you have a lot of risk. You're kind of sweating a little bit during that timeframe. But real estate, if you buy an apartment complex, you're probably buying it because there's there's some turnover you need to kind of establish with your residence and you'll kind of put new rules and processes and people are going to move and you've got some repairs that you have to make. So I think anything that's worth doing requires that long term view, I think.

Kenny Rose 11:15
Which you think it may be common sense, but I feel like a lot of people just, they want to be able to see cash flow from day one. And so I think just coming in with that mindset of really determining your goals first, same thing with real estate investor, you're not buying it to sell it the next day, it's how many years do you want to hold this? What is the quiet return that you're looking for? And being able to identify these goals ahead of time is something I feel like can really help you understand what you're looking for overall.

Nichole Stohler 11:42
And that's something that your company, Semfia really works with your clients on? Is it tell us a little bit about that process, how you match a client with a particular type of franchise or recommendations?

Kenny Rose 11:56
Yeah, absolutely. So I think a lot of it's really down to getting to understand somebody what their long term goals are, frankly, what I use a lot, like being a realtor or financial advisor, is that you need to really develop relationship and ask the tough questions at the end of the day. I think I mean, it could be what they're interested in, it could be how long they're planning on staying at their current company. It's things that people probably don't think of, but a really important, they could be having a great well paying job now, but they're thinking, hey, maybe in three to five years, I don't want to be there anymore. And so that really changes your investment strategy. Oh, maybe we're looking at something for multiple locations that you can scale up over the next 1 to 3 to 5 years and then build an income stream that can allow you to shift from being an employee to a full time entrepreneur. So where I come in is really to understand those type of ideas. It's important to understand what people like and where their passions are, but it's also kind of tough for people to grasp that that's also not the most important aspect of buying a business. A lot of people's made great money over the years and carwash and laundromats but they will never tell you. They're passionate about it. It's something that helped them with their lifestyle. They said they want to be able to answer to themselves, they want to be able to retire comfortably. They want to make it passed down to their kids. So really understanding these types of things is how you're able to identify what could be good system in there.

And so someone might come in and say that they actually I love when someone comes in and says they want a food franchise. It's the one industry I've pretty much never worked with, even though that's what they normally think of in franchising, and you know, I asked them why they want food. And so they'll say, Oh, we like see it's very busy, you make good money, and they own a bunch of locations. But if you take all those out, that's not necessarily food, that's franchising and that could apply to different industries. And so actually help them compare multiple options at once and usually multiple industries to to use the realtor example, you don't walk around down the street, see an open house and walk in and buy it because it look good. You need to shop and compare around. So I will never work with anyone who's not willing to look at three different businesses and they're pretty much always in very different industries. Otherwise, you don't really have anything to compare it to. And anyone I've ever heard of making a bad franchise investment, usually because they read an article about one specific business or they saw one specific location. And they didn't even know how to compare or even thought to compare it. They just thought that was the nail on the head that they just hit.

Nichole Stohler 14:25
it's a great doing due diligence, really not taking an emotional, quick reaction, but you know, really researching and vetting. I do have to ask, why don't you work with food? I'd love to hear that.

Kenny Rose 14:38
So, one of my more popular articles on Quora was actually about is it worth the time and money involved to do a food franchise, and for me, it's the most competitive industry known to man. The same reason why most people think about food franchises the same reason why it's not a good industry to get into. You're pumping more money to marketing than anywhere else because you have to fight through the noise to be noticed also the slimmest margins of any franchise industry. The industry as I mentioned, fitness, hair care, automotive they are all service based as a service based require less investment and they get higher returns because you're marking up from that service provider. When you're slimming down margins on food products, you're really fighting for pennies and any food owner will tell you that you are literally fighting for every penny and the last one is that the highest cost to get into someone's mentioned the McDonalds example I'd say why would you spend you know million dollars on a McDonald's when you could buy five Supercuts for the same price? And now you're diversified geography wise as well. Okay, I don't really see why wouldn't get into food.

Nichole Stohler 15:43
That is so interesting. And again, I never thought about it. But when I think of franchising, absolutely I think of subway and McDonald's and all the pizza franchises. So very fascinating. And I also thought that you should always do something that you were very interested in like you know, we all like to eat food, or we all eat food, and some of the things that I'm interested in, but I like how you say you should really kind of keep an open mind and look at something else and look at industries that you know, maybe aren't something you're passionate about that are going to give you the lifestyle that you need.

Kenny Rose 16:16
Yeah, I mean, if you think about a lot of the most popular stocks over time, it's a very simple things, and they're just essential products. So I don't know why people think they'd be very passion about one specific thing, when really it's again, what are you hoping to get out of the business and, you know, everyone knows that someone that grew up with down the street, who owned a side company, or people didn't think would make money against to use the laundromat example, but made them great money. And it was something where, if you don't need to be flashy, you can make a lot of money doing things that people didn't think about. It's always good to think differently.

Nichole Stohler 16:48
That's so interesting, because I know you advise your clients also with you looking at their financials and what they're able to bring, and how you know how much they're able to invest what are some kind of overall guidelines and requirements that you typically see.

Kenny Rose 17:04
Well, I typically say that they should have a net worth of at least 250,000. And the ability to have liquidity, that being anything from cash to real estate or even a 401k is an option of 50,000 or more.

Nichole Stohler 17:19
Talk a little bit about that, because I know that 401k tell us a little bit about how that could be leveraged towards buying a franchise.

Kenny Rose 17:28
So I thought you'd ask about that one, because that's the one that most people don't think of. And, again, your 401k is typically only involved in the market. There's actually been a program that's been around for about 30 years that most people don't know about, called the rollover for business startups program. And basically, we think about what a 401k does. It's a retirement vehicle that purchases shares of publicly traded companies in order to return for you. What this does is that you create your own company with its own retirement vehicle that can purchase shares of itself. And so this way you're able to do a rollover just like if you're moving companies or starting your own extra 401k that is tax free and penalty free in order to do so. So what the majority of people do when they're looking at franchise investing is they realize like, Oh, you know, I should probably diversify that from the market. They roll over 50 to 100,000. And then since any good franchises actually guaranteed by the Small Business Administration for a loan, then they do these SBA loans for the rest. So that way, they're just really able to leverage these pre tax funds in order to purchase a business or even several of them that they want to scale up over time.

Nichole Stohler 18:42
The whole rollover process and that program that you mentioned, is that something do you handle that or is there a third party that you work with and is this kind of, you know, part of your consulting that you bring?

Kenny Rose 18:55
So I'm very big on introductions, you know, I introduce people to franchises. I introduce people to same type of thing when it comes to lending. I know a couple different partners and I usually like to understand a person to see who they're gonna be a best fit for. And always introduce them to a couple anyway, just so they can kind of figure out what would be the best fit for them there. You know, even when it comes to getting things like a franchise attorney, that's part of the process, they recommend to, I like to make sure you have different options from you know, all over the area to make sure that you get someone who understands you best, and be able to really make sure you're covered from every aspect.

Nichole Stohler 19:29
Okay. And that program you described is that different than a self directed IRA?

Kenny Rose 19:35
It is, yeah, this is something because you actually have to have someone like, um, the legal aspect for it, instead of just diverting the funds. They need to make sure that it actually complies with the IRS in this area too, because it needs to basically be verified that you're starting this business and that it is creating jobs and it is, you know, basically just to make sure that you're not buying a Mercedes on the side.

Nichole Stohler 19:57
Okay, I've never heard of that. Obviously very familiar with self Directed IRAs, just not familiar with that program that is really interesting to understand. You talked about a few of them, but any others that you want to mention that are kind of really popular right now that you see a lot of growth opportunity with the brands,

Kenny Rose 20:14
With the brands. You see, it just goes all across the board. As I mentioned, the barbershop industry is just exploding right now. But you'd be amazed with their franchise and I personally work with 400 different franchises in about 100 Industries. I mean, I know custom tailored clothers that are franchises, I know clothing recycling bins that are franchises, people who do your office building, cleaning, and the windows are franchises. So it's just such a big world. And I always tell people to stay away from what's hot. It's what's good for you. Because at the other day, you want this to be something that's going to last you depending on your timeline, 5 - 10 - 20 years, and so just focus on what's hot. Now you especially in the food industry, they get really into what's hot, and so it's really making sure that you take a step back and they're just open to everything as a whole. Because do they realize that most people have never had any form of education on franchising, they know what it is. But they've never really gone deep into learning anything about it.

Nichole Stohler 21:12
It's such a great point. And thank you for also kind of telling us a little bit about the number of different companies that you work with, I think we just don't know we're driving around and not realizing you know, that however, many different companies are actually a franchise, it's really quite fascinating. How can listeners get in touch with you or learn more?

Unknown Speaker 21:32
You know,

Kenny Rose 21:33
You know, I'd say the best way is to go to our website at Semfia.com, or I'm always just a big fan of people just educating themselves building really, over time. So add me on LinkedIn, as I have a lot of people on there I talk with every day, it's probably my most used platform. And so I always welcome a conversation and the other times not right for everyone. Some people listening might say, Oh, that's interesting in five years from now, and there's plenty of people I've known for years who have eventually get that point when they're ready. And so I just share people should keep up with the education side. And when they're ready, they're ready.

Nichole Stohler 22:07
Excellent. Well, thank you so much. Thank you for taking us through this and kind of sharing, you know, the research and the information that you know, and your expertise around investigating and owning franchises.

Kenny Rose 22:22
Oh, it's my pleasure. And again, thank you for having me.

Nichole Stohler 22:27
for tuning in to the Richard geek podcast. For today's show notes including links and resources, visit us at the richer geek.com. Don't forget to head over to iTunes, Google Play stitcher or wherever you get your podcasts and hit the subscribe button. help us spread the word by sharing with others who could benefit from listening and leave a rating and review that'll help us get the podcast in front of more people. I appreciate you. Thanks so much for listening.

Transcribed by https://otter.ai


Kenny Rose.png


Kenny Rose is one of the world's experts when it comes to franchise investing, having been featured on ABC, in an Amazon Best Seller, and is the top writer on franchising on Quora. His company Semfia is a franchise brokerage educating investors on the franchise industry and matching them up to the fastest growing brands available based on their goals, budget, and long term goals.

Kenny is a big fan of building relationships over time, and you can connect with him on LinkedIn or through the Semfia website at www.semfia.com.