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Here is the short story version of my foray into franchising.
In 2009, I decided that I would have to leave corporate life, or I would die of a stroke or heart attack at a young age. I had some real estate investments, but I wanted to have an additional source of income that was substantial – enough to walk away from the man.
I looked at all kinds of franchises – yogurt, pizza, coffee, clothing, auto repair, tanning salons – pretty much everything. I happened on to a hair salon franchise that had not expanded into my area.
There were a few things that appealed to me about this:
1. You could start one of these franchises while you kept your job – a salon manager runs the place.
2. There is very little inventory to keep track of.
3. There are no accounts receivable.
So…in early 2011 I signed an agreement that would allow me to open up to 3 franchises. The franchise fee was $40,000. To open a salon, it was another $120,000 or so. Well I didn’t have another $120,000.
And surprise surprise, banks don’t lend money for new businesses. I found out that banks only do business lending when the loan is heavily collateralized with hard assets. Banks don’t really lend money at all. They effectively lend you your OWN money.
So…I looked to a rental house that I owned, that was worth around $150K. Sure enough, the bank would loan against that, and I borrowed $120K to open the first franchise.
I opened it in 2011. It was earning a profit within a few months. We stashed away the profit while paying back the home equity loan. In 2012, we would open our second location, this time using equity out of YET ANOTHER rental house that we owned. That location was making a profit within 6 weeks.
All combined, these two salons were earning around $120K a year. That, combined with my real estate investments and vacation rental management company, allowed me to give my notice at my company.
In 2015, we opened our third location. It has never made a dime. We spent $120K opening it, and it loses about $3,000 a month, and will likely from now on. We simply chose the wrong location. I suppose it could get to break even, but I doubt it.
The good news is that the other two salons do great, so net income including all three salons is still over $140K per year, and we think that number could approach $200K at some point.
We wanted to open a fourth and fifth, but salon number 3 kind of wrecked things for a bit. We certainly cannot afford to have another one of those.
I have no retirement accounts. I own this franchise business outright now with no debt, as well as around $600,000 equity of income-producing real estate, as well as a highly profitable vacation rental business. These are not only my current income, but also my future income.
I am functionally retired. I don’t care about what they say on CNBC, although when the markets are soaring, real estate prices are climbing, which presents some pretty tempting offers. I just had someone offer me $150,000 on a lot where a cabin of mine just burned. He said he just made a bunch in the stock market. I declined. I’m rebuilding a luxury cabin there that will hopefully produce $50K per year.
Most people my age are frantically saving for retirement, and hoping like heck that there isn’t a major bear market between now and then that could really screw the pooch.
Myself, I am not assuming business will always be good – I am constantly searching/seeking expansion opportunities in all areas. This will be my income sources for the rest of my life, for better or for worse.
Feel free to post questions. I'm pretty much an open book. I'll tell you the good, the bad, and the ugly.
In 2009, I decided that I would have to leave corporate life, or I would die of a stroke or heart attack at a young age. I had some real estate investments, but I wanted to have an additional source of income that was substantial – enough to walk away from the man.
I looked at all kinds of franchises – yogurt, pizza, coffee, clothing, auto repair, tanning salons – pretty much everything. I happened on to a hair salon franchise that had not expanded into my area.
There were a few things that appealed to me about this:
1. You could start one of these franchises while you kept your job – a salon manager runs the place.
2. There is very little inventory to keep track of.
3. There are no accounts receivable.
So…in early 2011 I signed an agreement that would allow me to open up to 3 franchises. The franchise fee was $40,000. To open a salon, it was another $120,000 or so. Well I didn’t have another $120,000.
And surprise surprise, banks don’t lend money for new businesses. I found out that banks only do business lending when the loan is heavily collateralized with hard assets. Banks don’t really lend money at all. They effectively lend you your OWN money.
So…I looked to a rental house that I owned, that was worth around $150K. Sure enough, the bank would loan against that, and I borrowed $120K to open the first franchise.
I opened it in 2011. It was earning a profit within a few months. We stashed away the profit while paying back the home equity loan. In 2012, we would open our second location, this time using equity out of YET ANOTHER rental house that we owned. That location was making a profit within 6 weeks.
All combined, these two salons were earning around $120K a year. That, combined with my real estate investments and vacation rental management company, allowed me to give my notice at my company.
In 2015, we opened our third location. It has never made a dime. We spent $120K opening it, and it loses about $3,000 a month, and will likely from now on. We simply chose the wrong location. I suppose it could get to break even, but I doubt it.
The good news is that the other two salons do great, so net income including all three salons is still over $140K per year, and we think that number could approach $200K at some point.
We wanted to open a fourth and fifth, but salon number 3 kind of wrecked things for a bit. We certainly cannot afford to have another one of those.
I have no retirement accounts. I own this franchise business outright now with no debt, as well as around $600,000 equity of income-producing real estate, as well as a highly profitable vacation rental business. These are not only my current income, but also my future income.
I am functionally retired. I don’t care about what they say on CNBC, although when the markets are soaring, real estate prices are climbing, which presents some pretty tempting offers. I just had someone offer me $150,000 on a lot where a cabin of mine just burned. He said he just made a bunch in the stock market. I declined. I’m rebuilding a luxury cabin there that will hopefully produce $50K per year.
Most people my age are frantically saving for retirement, and hoping like heck that there isn’t a major bear market between now and then that could really screw the pooch.
Myself, I am not assuming business will always be good – I am constantly searching/seeking expansion opportunities in all areas. This will be my income sources for the rest of my life, for better or for worse.
Feel free to post questions. I'm pretty much an open book. I'll tell you the good, the bad, and the ugly.
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