How to Own a Franchise Without Operating It Full Time | Semi-Passive Franchise Investing

Bob Bernotas (00:00)
But more importantly, I had a manager that I know and trust I felt very comfortable with. Okay. So I can turn the reins over to him. He’s done a fantastic job. So we meet once a week on each Tuesday at noon, just to go over everything, to look at the look at the numbers, look at the unit economics, look what’s happening.

with with everything and spend an hour together and that’s pretty much my involvement on it. In fact, since my first two units of Gameday Men’s Health have opened, I literally have not set foot in either one.

Michelle Kesil (02:03)
Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with, Bob Bernotas of Franchise With Bob, who is a franchise consultant and franchise investor. So excited to have you here today with us.

Bob Bernotas (02:23)
Thank you, Michelle. Great to be here.

Michelle Kesil (02:26)
Great, so let’s dive in. First off, for those new to your work, can you share what your main focus is these days?

Bob Bernotas (02:36)
Sure. Well, I have two focuses. One is on my consulting business, and that means working with individuals, working with franchise investors, working with groups to help them find, fund, and acquire the right franchise fit. My second focus is also still on franchise investing, which I’ve been doing since back in the Stone Ages, back in 1986 when I bought my very first franchise.

And I’ve continued to to invest in franchises, build and and develop and then sell franchises since that point. Typically my model is a three to five year window, ever since my first one. And then I’m looking to position to to to sell the business that I’ve launched.

Michelle Kesil (03:22)
Right. And do you work with franchises nationwide or in a specific market?

Bob Bernotas (03:30)
No, I work nationwide. I I work nationally. So it it it really I I can work with any franchise company out there. And consequently I can help people find the right brand virtually anywhere in the in the United States. There’s no, I mean, there’s over 4,000 different franchise concepts out there. I’m not relegated to any 10, 20, 50 franchise concepts. I could potentially go in any direction and take my candidates.

Towards any type of brand out there, any of the 4,000 plus. Now, I will tell you that, you know, 70, 75% of the franchises that exist, honestly, I would go nowhere near. I don’t think they’re worthwhile opportunities, and I never want to put a client in position where they’re simply buying themselves a job. Out of the other 25 to 30%, there’s some good ones, there’s some better ones, and there’s some exceptional ones out there.

I tend to really try to focus on brands that provide the best ROI and earnings. I tend to be widget agnostic. I don’t focus on what the widget is as long as it’s it it produces.

Michelle Kesil (04:42)
Right. And is there a way that you’re calculating what would be the best investment for someone?

Bob Bernotas (05:40)
Sure. Well, first I have to get to know them. So I’ll work with a a candidate. The first step of my process, I’ll ask them to complete my confidential questionnaire. Might take twenty to thirty minutes to complete the questionnaire. Once I have that information, then we then we do a consultation. We’ll spend an hour on a Zoom call together. We’ll walk through the questionnaire. I’m just in information gathering mode.

We’ll think we’ll talk about things like what are the characteristics that are important to them in a business they want to own, what are the characteristics of the role they want to play in the business? Do they want to jump into something on a full-time basis or are they looking for something semi-passive? Maybe, you know, building something that’s an eventual off-ramp from corporate America. we’ll establish a budget together. Once all that information I’ve been able to gather from someone I’m working with, then I use that information.

To start identifying brands that I think will potentially be a good fit. I may go through hundreds of brands to start with. And then I tend to whittle the list down until we do the next call, the disclosure call, where I’ll actually put brands in front of a client. We’ll discuss them. And hopefully there’ll be two, maybe three on the list that they say, Bob, these look interesting, would love to learn more about them. And then I help them dive into those brands and investigate the brands.

I will tell you also that when it comes to franchises, I mean, I review the the franchise disclosure documents on these companies. There’s certain things I look for in a brand, but the main things that I’m looking for, I’m looking for strong a management team that’s been there to done that before in franchising. I’m looking for the capital behind the brand, super, super important. I’m looking for the infrastructure to scale.

I also look for, and by the way, unit economics, how their individual units or territories are performing. some of the key things, though, I think, in franchising that are absolutely imperative, and franchising has changed so much over the last, I’d say, you know, 20 years, but especially over the last five to 10 years, you see so much more capital going into franchising now. So I only work with brands that have something larger behind them.

When I say something larger, a larger entity that is providing either providing the capital, providing the infrastructure to scale, providing the management expertise. And they typically, these entities, I call them aggregators, their brand parents, they will buy a brand, but they usually have a demonstrated history of taking a brand and making that brand very successful, and by extension, making their franchisees very successful. I also like to work with, and by the way, there’s dozens of those out there.

But there’s only a handful I consider to be really good organizations. I also like to work with some of the top FSOs in the franchise industry. FSO stands for franchise sales organization. Again, dozens of them out there. There’s only a handful, in my opinion, four actually, that I consider really good organizations. The way FSOs work is from their standpoint, they will take from the franchise company, they help franchise companies grow.

So they’ll get maybe half of the franchise fee. They’ll be gave maybe get a half a point of the royalty fee on the on on the back end. But they’re incentivized to help franchise companies grow. Why is that important? Because if the brand grows, then it’s going to become a successful brand, if it if it grows nationally across the country. So I want to always put my clients in a position or into a brand.

That I can reliably predict is going to sell in their market and preferably sell out in their market. It’s going to put them in a great position not only to increase the value of their franchise, but potentially to sell their franchise. Because as that brand proliferates in their market, so does the awareness of that brand in the market. And consequently, with that increased awareness, becomes increased inquiries to the company.

By individuals saying, hey, this looks interesting. How do I get one of these? And they’re quickly told that, sorry, everything is sold out in this market. But we might have a resale opportunity. And then if my client’s selling, they’ll introduce that individual to my client. And then hopefully they’re in a position to sell their business. So I always I always counsel my clients that it’s absolutely imperative to have a good exit strategy, not necessarily because you want to build something for five years or 10 years and 20 years and then have a great exit exit strategy and sell for many multiples. That’s a huge part of it, of course, but life events occur. And if something occurred that you needed to sell the business, I want to put you in the best position to do so. And there’s strategies specifically around accomplishing that.

Michelle Kesil (11:11)
Yeah, absolutely. And what would you say is the biggest challenge of owning a franchise?

Bob Bernotas (11:19)
That’s a great question. But it comes in there’s so many different answers to that. And it depends upon the type of franchise that you get in. And it depends upon even like the same franchise, the same type of franchise, exactly the same type, but with two different organizations, it can be vastly different. And that will be dictated by the amount of support that you’re that you’re getting. But when you’re getting into a franchise, I I I think it’s super, super important to understand what your role is going to be and how much time

you need to put into that, into that franchise. And there’s a lot of concepts out there that require your full-time effort. So if you, if as a, as you know, someone who gets into a concept that let’s say is a home service type brand, and there’s some great franchises in that space, whether it be, you know, some types of some type of home maintenance concept or even a B2B concept that crosses over into B2B, a roofing concept, whatever it happens to be.

Those you can expect to get into on a full-time basis, okay? At least for some period of time, be it a year, two years, three years, before you can take a big step back and then start operating on a semi-passive basis. Vast majority of franchises will become semi-passive over time, but most franchises, you’re going to be required to start on a full-time basis.

Most of my clients are not looking for that. Most of my clients are looking for semi-passive because they have a full-time job, make good money. They don’t want to walk away from that money. So most are looking for semi-passive. Semi-passive is defined as businesses that are they’ve developed a robust enough support platform to support franchisees on a part-time basis. They’re doing things for the franchisee that the franchisee would normally have to do for themselves.

Most of the semi-passive brands usually are brick and mortar, be it brick and mortar, you know, office space, medical parks, mixed-use professional, but most likely brick and mortar retail type concepts. So they tend to be a little bit more expensive. Let’s say they start in a quarter million dollar range all in and go up to how many millions would you would you like to spend? And important, I think, for your listeners to understand, I help with financing as well. I work with all the top financing sources to the franchise industry.

Typically what lenders are looking for is the franchisee to capitalize to the tune of about 20% and then you borrow 80%. So in the case where I mention, okay, you know, starting point with brick and mortar retail might be in the quarter million dollar range, that means my client would put in 50 grand and then borrow 200 grand. If if I have a client that I’m working with and they say, well, I’m comfortable with putting $200,000 in, then we can probably look at concepts all the way up, not saying we should, but all the way up to a million dollars.

Twenty percent capitalization, borrowing, eighty percent.

I hope I answered your question correctly. I think I

Michelle Kesil (14:14)
Yeah, it does. Thank you. And what are you most focusing on solving or scaling to next?

Bob Bernotas (14:22)
yeah, I’m I’ve been really focused in from my perspective on my own on my own business. I’m I I’m not gonna do this forever. It it I’m I’m at a point I’m on the wrong side of sixty, so I want to retire in the in the near future. But I I have some people that are working under me and I will start taking a step back in about a year and propping up other people but continuing to support them for a for a few more years. But

My focus right now, I have I have four daughters, and getting a couple of them into a franchise is is a is a goal of mine in the next in the next year or so. Plus from my from my client standpoint, I really have put a lot of focus on the health and wellness category. It it is it’s it’s burgeoning. I think there’s tremendous opportunities in that category now, especially with the

the whole turning of the food pyramid on its on its head and and is creating a lot of opportunities, but also the whole MAHA movement to make America healthy again movement and so much traction that that’s getting. So I think there’s just tremendous opportunity in that particular category. So I’m working with a lot of my clients on things to fall in that that category right now.

Michelle Kesil (16:25)
Amazing. And are there like what does someone need to know in order to get started with the franchise?

Bob Bernotas (16:35)
Well, I mean, first of all, I I highly, highly recommend, whether it’s me or someone else, find yourself an expert. If you’re interested in the franchise industry, find an expert. Preferably someone who has a background that may have been in both as a franchisor, worked as a franchisee or owned a franchise of their own, better yet, multiple franchises, but maybe someone also that has a background in at at a

At a higher level, perhaps an executive level in a franchise company itself. If they have a mixed background of both, even better, better yet, they’re gonna see it from from two perspectives. So I would seek out a professional, somebody that can help guide you in that in that realm. Work with them closely, ask them questions and you know, try to understand the industry, but really use the

information that they can potentially provide you, you know, especially if they can engage with you and work with you for a for a period of time. Now, I know a lot of people just don’t have that kind of time that they can dedicate to something like that. If you have a friend who who has that type of experience, they may not just be able to give you that much time. I mean if you if you engage with a franchise broker, more importantly, I would suggest a franchise consultant. There is a distinct difference that I think I pointed out at the beginning.

Find a good franchise consultant. They’re incentivized because that’s how they make their money to help you find the right franchise. But critical, critical, interview them. Don’t just accept anyone. Make sure you understand their background. Make sure they have the right requisite background to be able to help you.

Michelle Kesil (18:18)
Yeah, that’s great. And as a franchise owner, would that person also be the operator or is that something that is a supporting role?

Bob Bernotas (18:31)
you mean somebody who’s becoming a franchisee, would they be the operator of the franchise? Yeah. So there’s two models. Basically, you can someone can jump into it on a full time basis and be the operator. I prefer the semi passive model because most of my clients, that’s what they’re looking for, whereby they’re manage the manager models. Okay. The better franchise companies will actually help you find that that individual that’s going to manage your.

Going to manage your business, they’ll train, potentially certify and and and support that particular manager. And my and and your role in it as a the franchisee, the owner, might be managing the manager, the key performance indicators, and the profit and loss of the of the business. But there’s so many different nuanced levels to that, and some are more semi-passive than others.

That’s why it’s so critical, you know, when I’m working with a candidate to really get to know them to understand how much time they have. Not just how much time on like hours per week, but what do those hours look like over the course of a week? Because some people have very few hours to put into it. I think I shared at the beginning like with Gameday Men’s Health, the one that I bought six units with more recently, my total involvement in that brand is a one hour Zoom call per week. Now,

Trust me, I am not saying to any of your audience, that’s the way you should get into a business. It’s just, I’ve been doing this a long time, number one.

But more importantly, I had a manager that I know and trust I felt very comfortable with. Okay. So I can turn the reins over to him. He’s done a fantastic job. So we meet once a week on each Tuesday at noon, just to go over everything, to look at the look at the numbers, look at the unit economics, look what’s happening.

with with everything and spend an hour together and that’s pretty much my involvement on it. In fact, since my first two units of Gameday Men’s Health have opened, I literally have not set foot in either one.

And again, I’m not suggesting that anybody do it, but that’s how I set up my business. So that’s one extreme end of the scale that we can talk about, but I I would suggest that anywhere, you know, you might start out at

ten to twenty hours of your time a week in the very early stages if you launch a semi passive brand for the first few months, but then you should be able to take it a big step back at some point and then maybe a year into it take even a bigger step back and operate the way I’m operating.

Michelle Kesil (20:59)
Absolutely, that makes sense. Thank you so much for sharing all of that.

Before we begin to wrap up here, if someone wants to reach out, connect, and learn more, where can people find you?

Bob Bernotas (21:13)
They can go to my website, franchisewithbob.com. They can also email me at [email protected] or heck ping me on my on my cell 610-506-0002. Any of those work.

Michelle Kesil (21:34)
Perfect. Well, appreciate your time and your story. Thank you for being here.

Bob Bernotas (21:39)
My pleasure.

Michelle Kesil (21:41)
Great. And for the listeners tuning into the show, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Bob who are building real businesses. And we’ll see you on the next episode.