You know what McDonald’s, Wendys, Dunkin Donuts, KFC and Burger King all have in common? Yes, they produce some of our favorite fast food classics, but did you know they’re all franchises too? Yes, anyone with enough capital can apply to open one of these juggernaut franchises and reap the benefits. But what about those of us who don’t have millions to open one, is there any other way to take advantage?
Until now, the most common way to invest in a franchise has been to buy its shares, if they are publicly traded. Don’t get me wrong, investing in a big franchise is great, but you’re still subject to the vagaries of the market. You may also only see a tiny fraction of the company’s total profits in dividends.
You can also open one yourself to see the instant winnings. Not every franchise requires millions, but most require far more than the few hundred or few thousand you may be able to invest.
Until now you really had no options. So what has changed? FranShares now offers a way to invest directly in franchises to get a much greater return on your investment.
What is a franchise?
As mentioned, McDonald’s, Wendys, Dunkin Donuts, KFC, and Burger King are some of the most popular franchises. But what exactly is a franchise. The technical definition is the right or license granted by a company (franchisor) to an individual (franchisee) to market and/or trade in products and services in a specified territory or territory.
What does that mean? Basically, you have a business that allows individuals to use their logo, promotions and overall brand for a fee. For example, as we all know McDonald’s is a company that sells hamburgers among other things. However, each McDonalds is (for the most part) owned by different individuals. They paid their franchise fees of about 45k to buy the rights to use McDonald’s branding. They also pay 5% of their monthly sales to McDonald’s.
There are three types of franchise:
Product: This is when a franchisor authorizes a franchisee to sell a product using its logo, trademark, and brand name. Manufacturing: The franchisor authorizes the franchisee to manufacture and sell their products using their logo, trademark, and brand name. : This is without a doubt the most popular form of franchising. The franchisor licenses its brand to a franchisee with regulations on how the business is run.
Why invest in franchises?
There are several reasons to invest in a franchise. Your reasons may be different depending on the route you take.
If you are opening a franchise yourself, your main reason may be to quit your day job and start working for yourself. Owning and operating their own business is the dream of many people. However, it can be very difficult to start a business on your own if you have no idea how. With the knowledge and expertise of a franchise behind you, you are more likely to succeed.
When it comes to conspicuously investing your money in a franchise, there are several reasons why investors flock to them. First, many of the larger franchises are considered very stable and are said to have low volatility. At the same time, they can also offer high returns. In fact, FranShare’s target return for its portfolios is between 16% and about 22%! More on this later.
Also strictly from the point of view of investing your money, investing in franchises gives you much more diversification. Not only can you invest in almost any industry, you’re not putting your money in the stock market, which can be affected by many factors other than the franchise’s performance.
Who is behind FranShares?
FranShares is the brainchild of founder Kenny Rose. Rose was previously a financial advisor to Merrill Lynch and a franchise broker.
Once he rose through the ranks of the world’s largest franchise brokerage, he founded Semfia. Semfia is a franchise brokerage that focuses on revenue-generating and manager-led franchises.
What is FranShares?
FranShares is a brand new way of investing in franchises. In the same way as other crowdfunding websites such as Fundrise, Fransshares will enable crowdfunding of the purchase of franchises. Essentially, many investors will pool their money, which is then put into a fund. FranShares will then do all the hard work to find the best franchises to invest in. Individual investors can invest as little as $500 with FranShares.
How does FranShares work?
FranShares has a six-step process in investing your money and paying your returns.
Franchise Selection
FranShares has experts vetting hundreds of potential franchises. Based on their selection criteria, FranShares will select the brands to invest in based on profitability, growth, manageability, recession resistance and executive leadership.
Investment
FranShares will create several franchise portfolios to invest in. These portfolios will include franchises in different locations and in different industries to ensure diversification.
Franchise Management
Once franchise locations are open, FranShares will handle full franchise management. Management includes site creation, employee hiring, and ongoing operations.
cost
Fees can be the point or breaking point for many investments. Well, FranShares will charge investors zero fees. Yes, you read that right, zero costs. FranShares, together with the individual investors, will pay up to 20% of the fees for each of their funds. They will receive regular distributions and a share of franchise sales like the rest of us.
Distributions
FranShares plans to pay out additional income to all investors to create a passive income stream.
FranShares will pay distributions from franchises after an increase of 12-18 years and will give investors their share of any franchise sales.
Liquidity
FranShares is not a short term investment. They will recommend keeping any investment with them for 5-10 years to see their full potential. They do plan to have a secondary marketplace where investors can sell their shares sooner if necessary.
Is FranShares Regulated?
Yes, FranShares is regulated by the SEC like any other investment platform. All franchises it invests in are regulated by the FTC.
The FTC requires each franchise to fully disclose its background, financial records, and achievements. FranShares will provide investors with regulatory compliance reporting and documentation, in addition to what is required of them by the SEC.
How does FranShares choose their investments?
FranShares will primarily use eight different factors when selecting their franchises to invest in:
Return On Investment (ROI): FranShares prefers to only work with franchises that show net profit in their FPR so that our investors can better understand the potential return. FranShares will try to avoid franchises with high build-up, staffing and inventory costs to achieve the highest possible ROI.
Growth: FranShares looks at several factors of a franchise’s locations to ensure they are currently a growing franchise.
Availability: Location is everything when it comes to opening a franchise. FranShares looks for growing franchise brands that have the potential for multiple locations in good markets.
Leadership: FranShares is looking for experienced leadership teams. FranShares will seek leadership with experience in the industry and franchising in general.
Sustainability: Fransshares will avoid “fad” franchises and will invest in franchises that last in the long run. Staples like fitness, cars, and hair care are some of their favorites.
Competition and Competitive Advantages: Franchising does not create new industries but instead consolidates existing ones. We look at who the other competitors are in their respective sectors, whether they are growing and what the competitive advantages of our franchises are to gain market share in the space.
Manageability: FranShares looks for franchises with simpler operations, allowing for less management and fewer employees.
Recession and Pandemic Resistance: After what we’ve seen in recent years, FranShares knows that anything can happen. FranShares will focus on need-based industries that will thrive in all economic conditions.
What are the expected returns?
As mentioned earlier, FranShares’ expected return is between 16% and 22%. This can vary by industry, according to their website these are their main industries:
Average Hair Care Net Profit by Location: $111,120 (After Year 3)
Fitness average net profit by location: $300,979
Average Net Income Children by Location: $159,981
Average Pet Net Income by Location: $147,683
Automotive Average Net Income by Location: $378,230 (top quartile)
Average Food Net Profit by Location: $168,924
How long should I hold my investment?
FranShares should be viewed as a long-term investment. FranShares recommends holding any investment with them for at least 5 years, but they will provide you with a way to sell your investment if necessary. Holding onto your investment is suggested for two reasons, growth and taxes.
With the Qualified Small Business Stock (QSBS) tax exemption, you can avoid 100 percent of the capital gains tax paid when you sell a stake in a startup or small business, as long as you hold the stock for five years.
When and how often will I receive benefits?
FranShares will begin distributing distributions 12 to 18 months after a fund is launched. From there, the benefits will be paid out at least quarterly. FranShares will try to make monthly payments whenever possible.
How does FranShares make money?
FranShares will not charge investors to make money. Instead, they will invest in the same funds that they offer to individual investors. Up to 20% of each fund will be invested by FranShares. FranShares will receive their share of distributions and sales. They will not make money unless the investors make money.
Investing with FranShares – Final Thoughts
I am incredibly excited to invest through FranShares. The franchise industry is stronger than ever and getting a foot in the door is a great way to diversify and earn high returns, akin to Fundrise.com.
The waiting list is already at 9200 investors and growing, so you better get on it now!
Jeff is a fan of all things finance. When he’s not changing the world with his blog, you can find him on a run, playing a Mets game, playing video games, or just playing with his kids.
This post FranShares Review: Franchise Like a Boss
was original published at “https://haveyourdollarsmakesense.com/investing-with-franshares/”
