Most entrepreneurs my age seem to be focused on creating the next amazing app or website, which frankly bores me because I'm not a tech geek.
Anyone else give much thought to acquiring an unsexy business like a gas station, car wash, fast food restaurant, etc., and then building out an entire network of them?
I feel like I hear about stories like this all the time. Joe Shmoe buys a gas station, then buys another a year later, then buys three more, and within a decade he owns an empire of 40 in five states.
Roll-up opportunities like this intrigue me, but how difficult are they to actually accomplish?
i have a lot of family friends in gas station and car wash business
the margins are razor thin for gas station (you make a few cents PER gallon sold). the majority to most of the profit really always comes from the convenience stores inside beacuse of the markup that they charge on drinks, chips, gum, candy etc. etc. Also, owning 1-2 gas stations isnt enough. lets say each station has a net margin of 2% (i dnt knw if its at this level, just an example) you'll get 200k per station pre tax off of $10M in top line. so you can see the model here and more is always better when its a low margin business
car washes, i've heard similar things. but its VERY cyclical and has to be in high income regions. middle to lower class people dont/cant afford premium car washes more than maybe 2x a month sometimes where as i know people in LA that get like $30 detail car washes like 4-5x times a month. also weather is a big factor lol has to be in a sunny place because literally rain = death for car wash business. so you need sun shine like 365 days a year optimally
BUT, yes, i do know people that made it big and are doing big things because they buy portfolios of gas stations that have been repossesd by banks by going to auctions and bidding on the notes (im talking about about families that own like 20-40 gas stations and use the cash flows to leverage up on commercial real estate and are easily worth like $30million -70million now).
and op, im like you (same edumondo) i dont like this app shit. its not here to stay. im more into hard/physically businesses where strategy, operations management and business decision/sense really matter.
If I had a banana I'd throw it.
Someone throw him a banana for me?
and there aint ANYTHING "unsexy" about these businesses. Because you knw what? To me, cash flow IS sexy. And having physical assets like property or equipment to use as collateral to get leverage up the ass is king. leverage used the right way = better than equity
You can definitely make some money in these types of businesses. When I did more commercial banking, I had a customer (actually a few of them) who owned a few Mickie Ds. One in particular was able to take over some nice operating agreements the previous owner had that gave him great lease rates/franchise fees for quite a few years before they renegotiated. If my memory serves me correctly, he had 3 stores which produced a cash flow of about $600K. Prior to this experience, a friend of mine told me that MCD was really in the real estate business. I realized this after I started working with these guys. MCD does all of the analytics, e.g. store placement, traffic counts, demographics, planned developments surrounding the potential location. By the time they offer you the store, they already know how successful the store will be, within a certain margin. If you don't hit the numbers, they'll make you sell the store or they'll buy it back. You buy the franchise, they own the real estate. Since they've done the analytics and offered you a turnkey business, they've have gradually increased the lease rates from the 5-6% range to around 15%, but can still get paid. The guy I was talking was still hovering around the 7-8% range. It is designed to payoff after 7 years. After that you straight. When you get to this level, you can hire a "district manager" to run the stores and you monitor the performance and metrics against MCD's budgets, which can be more stringent than the bank's. And let's say the store costs $1.4MM, you probably only have to come up with about $350K. If you netted $100K, that would be a 29% return on your equity. Plus, the franchise could still be worth millions. So, if you've paid it off, you could exit with a couple of million in hand.
Had another company that bought and started a Cajun style restaurant franchise. Three guys went in together and to cover the upfront cheese and brought in a restaurant consultant to help get it started. Once they had a chance to operate for a full fiscal year, they pulled in about $2.5-3.0MM in revenues and about $330K in net earnings. They chose a great location. Total costs were about $700K in hard costs and $150M in soft costs. And by using SBA loans they only kicked in 10-20% of the costs upfront. They also obtained the franchising rights for the whole state and had exclusivity to open any new ones in the area.
No matter what you decide to get into, "don't quit your day job!" (LOL) Treat it truly as an investment, do not depend on the earnings to live, partner up if needed, and allow the cash flow generated to extinguish any debt you incurred to get it going.
If your able to enter high finance and make $1MM+/yr, then by all means do it. But you could also start a business that pulls in a few hun, expense your Benz payment through the company, and head in to the office only when you fuckin feel like it. Either way...If you can rip apart a F500 10-K and analyze a multibillion dollar acquisition, you're light years ahead of the average guy who starts a small business.
I've given this a fair amount of thought and, at one point, was working with a buddy and we were going to raise a mini PE fund among a few friends to buy a laundromat. Eventually one of the guys ran across of government red tape that had to do with waste water and that pushed us away.
This is still something I would like to do. Hopefully I get into bschool this year and can make my way into MM IB post MBA. My thought is, I can use the majority of my bonus to buy into a few businesses, or maybe just one to start off with. I'm fairly certain you can find some absentee owner style businesses that can cash flow $50k-$100k per year, that you can buy fairly cheap.
My crazy plan is to talk my parents into retiring near where I'll be living and see if I can get my dad, because my mom might still be working, to help run these places. Realistically, if I'm in banking, I won't be able to spend any time with the businesses, so I will need the workers in place when I buy the business and then someone to keep an eye on everything so I'm not getting raped behind my back.
The idea would be to find some small, random, one-off type business, that you can get for a steal. Use the cash flow from that business and your following year's bonus to bankroll another store, possibly a different type altogether, and repeat the process every year or two. After you get half a dozen of these businesses, you should be at the point where you can look at legitimate franchise businesses and then truly start your empire.
Certainly easier said than done, but that's the plan.
Regards
Also, one other option. If you are at your wits end with finance but maybe have some knowledge of a particular industry or type of business, talk with every business broker you can find and see if they can find something you can buy. Hopefully you have a few hundred thousand saved up from your finance career and can get aggressive with the seller. Maybe they will take the few hundred thousand cash, a larger than expected seller note and retain a smaller equity piece, instead of all cash. Probably a long shot, but worth a try.
Also consider finding some smaller PE shops that might back you in the business. OPM, right? My shop has done this on a couple of occasions and the results look good thus far. You put up the few hundred thousand you have and they bring a large chunk of money to the table as well, either equity or debt. That buys the business and you just have to figure out what the ownership split will be with the fund. We've used claw backs in many cases that gave us 80% or so of the business up front, but lowered that amount depending on the equity value at the end of 5 years.
We've done this with both 'industry experts/executives' and finance/ex-PE guys. The industry exec is trying to build out a business in an industry that he worked in for the last 20 years, except he was an internal manager for very large companies that utilize the his new business's services. That particular business hasn't taken off like we thought it might given his industry contacts, but he is executing on the plan we came up with and things are starting to fall into place. Cost are coming down and the build out of the necessary pieces have occurred so the next year should really show us whether the guy was worth the risk.
At the end of it all, the guy says he wants to keep the business over future generations, but if he sells the business in a few years, assuming things go according to plan, he could walk away with a $3mm-$5mm...maybe more if he knocks the cover off the ball...which is great for 5 years worth of work and for not putting up much money at all.
Ideally you want to be able to buy a business with OPM, but not give up much equity. Of course, PE groups are too smart to let you get away with that, so you might have to take a hit and only receive a small portion of your first sale, but bank roll that into another opportunity where you keep most or all of that new business.
The key is going to be negotiating purchase price and deal structure. If you can get a handle on those two points, you are going to be off to a great start. And, truthfully, most of the folks here will have the advantage of knowing what those two points are and just how to use them to their advantage.
Regards
Strip clubs make a mint. You can't even get a license for one anymore in most counties, which means there will be no new competition... and titties never go out of style. If you know the business, you can buy a strip club at like 3x EBITDA using seller financing, and then improve EBITDA through hard work. Most people running strip clubs just want to bang stripper-hookers in the back and don't actually manage their businesses well. Don't buy one in Vegas or whatever though, you want it in a solid blue collar neighborhood in a city with stable or growing demographics.
The industry is wide open (oh snap!) with almost no strategic buyers except RICK and it's not an industry that private equity has any interest in even though it has awesome cash flow (makin it raaaaainnnnn).
Apps still suck though, never forget that.
dat wall of text
This is a fucking awesome post. Ironically, I made a thread asking about the QSR industry and ways to value stores not too long ago.
Anyway, this is something I've been looking into on and off for the past 3 years (got involved in finance and got sidetracked) and I'd like to contribute what I can. I'm no expert on this but I'd like to help anyone out there who's looking into this as I've found small business ownership/franchise businesses to be something hard to get good information on. I hope this helps!
7-Eleven
One franchise I looked into was 7-Eleven. I talked to several franchisees and heard mixed stories. One thing I got from all that I talked to was that 7-Eleven didn't seem to be keen on having you open more than 4-5 units. Then again, maybe this is because I was asking franchisees in the Long Island and metro NYC area. 7-Eleven has also restructured the way they get paid; as your sales go up, so does their cut. Typically, they get 50% of gross profit. The important thing is to see what percentage of sales are cigarettes, beer, and lotto (these 3 can be the bulk of sales in the store but I've been told they shouldn't exceed 30% or more), and also what is the Gross Profit %. 7-Eleven will give you all this info after you sign their FDD (Franchise Disclosure Document) and go through the assessment. One cool thing is you don't pay the rent, which is awesome since the leases and rent rates here in NYC for commercial space are ridiculous. Here's the cool part: 7-Eleven builds the stores out and gets them going and then tries to sell them to franchisees. So buying a store is buying one that's already going and you can see what revenue/profits they've had. You can also completely build out your own store if 7-Eleven approves, but I don't believe most stores are done this way; typically they're either corporately-owned or owned by an existing franchisee looking to sell (called "Goodwill" stores). I've also been told that in the city, a 7-eleven is not necessarily any more profitable than a good bodega, which are everywhere here (NYC) and directly compete with 7-Eleven stores. I like 7-Eleven and am continuing to look into it but am not so sure because I'm worried about how scalable it is (with them not wanting you to own a large number of units). Another thing is that I have heard stories of a couple which closed and from what I heard, it didn't seem to be from poor management but rather that the store met competition from another business or the location soured, etc.
The investment range is very low for the stores in NYC, we're talking 70-500k with open doors and running, depending on the store and location.
Pros: - Franchise gives you good training - You don't pay the rent! - Constantly one of the highest-rated franchises
Cons: - Long hours - Low margins - Possibility of getting robbed - Franchisor doesn't seem to want high # multi-unit owners
One other point is they do not allow absentee owners; you have to be there running it. This can change after you've had one for a bit, but to begin you have to be there working at the store.
Subway
I looked into Subway as well but don't have as much dirt on it as 7-Eleven. I spoke with 4-5 franchisees in Manhattan and none of them seemed to be very happy. One franchisee I spoke with had 3 partners and said the store was a lot of work for not a lot of reward. I asked if he would continue if he had full ownership of the store and he said "maybe". Another owner has barred credit-card purchases under a certain amount (which I think is against the franchise rules) and is an absentee owner.
An owner I spoke with back home has over 40 units and has done EXTREMELY well for himself, however, he got into the business decades ago before it was a big name and constantly built/bought out units in the region as Subway kept getting bigger. He said it's a good thing, to just be willing to put in the hard work. One thing I found interesting in what he told me was that he never worked in a store prior to owning one (which isn't something I'd be comfortable doing).
The investment can be pretty low for Subway, going from 60k to up in the six figures. I'd have to do more research to really settle down on Subway more.
Pros: - Low investment - Constantly one of the highest-rated franchises
Cons: - I've heard several bad stories on failed stores (maybe I missed more bad stories on others and this is biased)
Auto repair
A good friend of mine's father owned a small auto repair shop in a very small town. He was already winding down the business by the time I met him, but he told me that years ago (when he was younger and more physically able to work) he was pumping out mid six-figures of profit but working many 12+ hour days and nights (and weekends). He only had this one unit and was there every day. The profits mainly came from labor (duh) and some on parts. The reason his business was successful came from word-of-mouth. Everyone knew he did a very good job on cars and pushed stuff out quickly; he knew his shit. Let me also say that this guy never finished college and dropped out of high school but became very successful in life. He also owned several others assets that he poured money into and another side business that was very lucrative; the auto shop wasn't his only source of income.
Gas Stations
The things I've heard about gas stations are the same things that others posted in this thread. The 2 people I talked to said they were making almost nothing on the gas and pretty much dependent on the inside sales. Lotto, cigarretes, and beer were the biggest things the inside sales came from according to the owners (same as 7-Eleven). The investment is pretty steep from what I understand (high six-figures to low millions), but I'd have to do a lot more research on gas stations to know more.
Cell phone retail
A good friend of mine is a manager for the stores owned by an authorized retailer. The owner is not much older than me (late 20's) and is absolutely motherfucking killing it with what he's built in just a few years. He now has almost 30 units and is expanding into another state. This is getting harder to get into as some carriers (or at least one I know) are stopping new retailers/franchisees from coming in; now you have to purchase the rights through a licensee franchisor (may be using the wrong term) like Wireless Zone.
One thing I would be a tad worried about with the cell phone retail business is how technology could possibly remove the current service carrier monopoly. I don't think it's crazy to say that technology may advance enough to the point where we no longer use carriers but rather WiMax or something (I know WiMax coverage hasn't done too well but just giving an example) to make calls instead of the carriers' networks.
Other points
A random point I've been told by several owners (and maybe this is just a given and I shouldn't even mention it) is to open business where the costs are low and the competition is little. I've heard more good stories from business owners in small towns back home than good stories here in NYC. I've thought about even moving overseas (like Southeast Asia), getting a small menial job, getting to know the area, and seeing if I can find a good business opportunity in something from the US that isn't offered there. One big problem with overseas businesses in SE Asia specifically, for instance, is corrupt government. In Thailand, police come and grab vendors' goods and shop materials and demand payment of fines to retrieve them - it's the fucking wild west out there. One cool thing could be low cost in some of these emerging countries but really I don't know too much about this, just kind of throwing it out there.
I just thought I'd throw all this out there as this is something I'm very passionate about. I've been working in trading for almost 2 years now but originally came to the city to open a business. I actually wound up in trading when I tried to get a small job to settle into the city - go fucking figure. I love trading and may stay, idk yet, but business is the thing I have been wanting to do for some time now and the longer I work in trading, the suckier my job feels even though the subject intrigues me and I spend a lot of my time on it and enjoy it.
I still think starting a business is a better route than trying to climb a corporate ladder. Most of the prestige and crazy paychecks that graduates think about when getting a job in any industry are usually enjoyed by only a very small percentage of the company, and many have gotten there not only through work but because of political reasons. I've met plenty of very smart and capable people who've put years of work and energy into their job and aren't board members - it seems like there's a hell of a lot more factors that come into play than just getting a seat and doing a good job. What's your real edge?
On the other hand, I've seen people and heard of people who've done very well for themselves in business and the best part I love about the people I've met who own businesses is that they're people you'd never think would have achieved the things they have. They tend to be very down to earth and simple people who are humble and hard-working.
With all the talk about millennials not wanting to go corporate, I think a better route could be business. The majority of successful people I've met are not those who work for other people, but rather business owners in all sorts of industries including small brick-and-mortar storefronts. Unfortunately, some of the capital required for some things (like some I've mentioned) may be out of reach for some people...but I think through saving and maybe getting investors, it can be done. There are other businesses that also cost less (mobile businesses of goods/services like food trucks, mobile computer repair, etc).
For whatever it's worth, I hope whoever actually takes time to read the stack of shit I've spewed out will find some benefit from it. Unless I really have a change of heart by the end of this year or find some other opportunity, I'll probably be leaving my job to pursue a business. I'm trying to get a job part-time at night and on weekends to get some experience now. As far as being "unsexy businesses", to me there's nothing more unsexy than having some title at a company, being chained to a desk, and being someone else's property. The real prestige goes to the owners and high-level management. So in that case, owning several small businesses is not only more prestigious IMHO, but can also be more profitable.
Hope all this helps, just trying to offer up what I have learned and give my opinion
I have two businesses currently. I own a international trading house (Basically, I do import from china, export to Bangladesh, contract manufacturing, etc). I also own a tattoo/piercing parlor/gift shop on St. Marks in manhattan (LES). I also use to own a verizon wireless franchise & a mobil gas station (I HATE them btw) in florida. Both of my current businesses are very profitable. But it IS NOT EASY.
First the negatives Trust me when I say this. For 90% of people, even most bankers, It is best not to get into a unsexy or non-finance business. Why? well b.c just like i can't go and become an associate at a IBank tomorrow with no experience. It is also very different from getting a steady paycheck to worrying about where your next paycheck is going to come from. Also Intellect has nothing to do with being successful. It is all Handwork, networking (very important), capital, & a lot of LUCK.
I tell my friends when they ask me sometimes what I do, sometimes I'm the CEO, COO, CFO, Secretary, & Janitor all in the same day. Thats what it takes to be successful. Nothing is "below" you. If you don't understand the cash register at your gas station you will never be able to stop the reason most gas stations fail (theft). For anyone wanting to go into an unsexy biz or franchise, i urge you either to work at one or partner with someone with experience. I have personally seen tons of people come into my areas of business and fail while losing lots of $$$$. A lot of these people actually came from respected other careers. Doctors, lawyers, accountants; etc.
2 things about buying business & franchises. Remember, always think that someone is trying to screw you. 1. When buying a business, DO YOUR DD. Pay someone if your not an expert in that field. B.c most likely they are lying or exaggerating. Just b.c on their tax return they put X amount, that means shit to me. Everyone says their selling their business b.c their retiring or have another investment opportunity. But usually that means their not making enough money.
I have personally looked over most of the "best" franchises & businesses available in NY. If you guys want my input just send me a msg.
Now that the negative part is over, here are the benefits.
If you are successful, you can make amazing money with great tax benefits. Also being a business owner is like being a successful FA. You eat what you kill. & honestly when you are successful there is no better feeling in the world than putting $100k in your pocket b.c you closed a deal. Its nice to see getting rewarded for your hard work. Something many people don't see in normal careers where you are at the whim of office politics and your bosses.
Your time is flexible (for the most part). Yes you still have a boss. Your boss is your customers, manufacturers, lawyers; etc. But if you need to go to a doctors appointment or a massage on a Wednesday morning, no one is going to tell you no. This is one of the main things about being self-employed that is AMAZING.
Also one benefit that is a double edged sword, is that sometimes if you are very successful, you might actually have too much free time. You would think that is amazing, but it sucks sometimes as well. Your friends aren't going to chill with you tuesday @ 2 pm. (you might be working Sunday all day though). Sometimes it does get boring. But hey thats why I'm looking for a day job. In your 20s WORK hard.
The experience you get in a short amount of time is unparalleled imo (if you are successful). Your not just a spreadsheet money, your not just a intern, not just a resident; etc. You will be able to do every job involved in your business within the first year. You will be the leader. Sometimes theres things that you can't just teach. Working full time and owning my own businesses since 19 has honestly changed how I am as a person, for the better.
any questions or advice, I'm happy to share.
About 3 years ago, a friend and I quit our BB analyst gigs after our first year. We worked on a few projects, then settled on opening a fast-casual franchised restaurant. We've been in business for about two years now. My advice: Don't do it. It's not the best way for you to make money, and it's extremely risky. It may be an okay opportunity for someone with minimal education and/or technical skills (e.g. immigrants), but it's still risky. You should maximize your earning power by utilizing your specialized skills, then invest in other people who are utilizing their specialized skills.
Can you do it? Of course you can. Should you do it? Probably not. Do some people make a lot of money with franchised restaurants? Sure. But most don't. It's a low probability event. Unless you are willing and able to invest enough capital to take several chances (and stomache early losses), then you should not do it. Remember, franchisors are in the business of selling franchises, not running restaurants. Be weary of their marketing materials and sales pitch.
You will not be able to work full-time while running a new store. It's a lot of work, and it's dirty work. I know you feel confident in your financial analysis (like I did), but it means nothing when opening a restaurant--even if it's a franchise. Whatever model you build for your store will be thrown out the window once you start. All this talk of margins means nothing. Industry averages mean nothing. Margins all depend on sales volume. In EVERY franchise system, you have high-volume and low-volume stores. Multi-unit operators can subsidize low-volume stores with the profits from high-volume stores. If you open a low volume store as your first store, you're fucked. If you open an average store, there will be no cash flow for years, then maybe a little. If you expect to open a high-volume store as a your first store, good luck. The stores will not generate sufficient cash to open new stores--unless you get very lucky. This is a capital-intensive, low-margin industry with intense competition.
Me eat food. Me like food. Me knows what EBITDA stands for. Me thinks good idea open franchise restaurant. IS THAT YOUR INVESTMENT THESIS? (that was mine)
Unless you have an experienced franchisee/restaurateur on your team (helping you with EVERYTHING--especially concept and site selection), it's a bad idea. Do not fool yourself because it's a franchise. It's just a restaurant. Do not take advice from finance and real estate people about opening a restaurant. Only take advice from trusted operators. No one knows shit about choosing locations for restaurants. The only people with whom you should consult about choosing locations are current franchisees (of your chosen concept). Let me repeat that: The only people with whom you should consult about choosing locations are current franchisees (of your chosen concept). Every concept has its own set of criteria for a good location. And even then, there is still a lot of luck involved.
These last few years have been just as hard and stressful as when I was a banking analyst. We're doing okay--and it's getting better--but I still make little money. I don't regret it--the experience is invaluable--but I would be much wealthier had I not opened the franchised restaurant.
I could go on and on. Bottom line: it's risky, it's not passive income, it's a capital-intensive and low-margin industry, there's high competition, and it's a headache. Go earn six figures and invest in Chipotle and Starbucks. The risk-reward is much better (even if they're overvalued). The average franchise earns $50k. If you expect to make any more than that, you better have legitimate reasons based on real experience.
And don't get me started on minimum wage workers.