EP 28 | Franchising Made Simple: How to Start, Grow & Sell Smart

Paloma Goggins: Welcome back to another episode of Merger. She wrote, I'm your host, Paloma Goggins, and the owner of Nocturnal Legal. Today's guest is what I would consider a specialist in franchises, and I'm hoping that he will enlighten us on the various issues that you might run across.

Paloma Goggins: Either as a potential franchise owner or a franchise seller, I'd like to welcome Max. Emma, thank you so much for being on today. 

Max Emma: Thank you, Paloma. It's great to be here. 

Paloma Goggins: Thank you. So I'd like to just kick things off right away. And you know, max, I think if you could weave in a little bit about yourself in this first question, but you know, how did you get into the franchise world?

Paloma Goggins: And I know you're doing some franchising stuff now, so just give us kind of an explanation of your origin story here. 

Max Emma: Sure. Without [00:01:00] going to too much of detail, I came to the United States from the former Soviet Union over 33 years ago, got my degree in finance, and then, uh, after that work for corporate America for about four years.

Max Emma: Just to realize that the corporate world is not for me. Always joking that I was constantly kissing the wrong butt. So I guess I wasn't good at it. So I left and joined a small family business, um, which was construction and grew it from three to 96 employees, and it was growing, it was doing great. Then the recession hit and unfortunately we didn't have a choice, but close the company and we had to declare the bankruptcy, both, uh, business and personally, because we were personally guaranteeing a lot of stuff.

Max Emma: Mm-hmm. I mean, oh 8, 0 9 was. Fun time that, you know, hit, hit a lot of people. But luckily for me, no jobs were available at the time, so I had to start another business. And that was more successful. Sold it. And while running this to businesses, uh, we [00:02:00] realized that, um, the bookkeeping piece is missing. I have bachelor in finance, my then wife, who became a co-founder of my next business.

Max Emma: Um. Elena, she had masters in accounting, so I was the village idiot with my bachelor degree. So we understood the importance of accounting, but we're so busy growing the company, we did not pay attention. And that's how bookkeeping started. And bookkeeping, uh, from local San Diego company became, uh, uh, company providing services at 50 states and eventually started doing bookkeeping for franchises, which led me to franchise the business.

Max Emma: And now we are the only bookkeeping franchise in the us. Uh, we have offices in franchisees in about eight states or nine states right now, and it's growing and just, uh, last month we made it on Entrepreneur 500 franchise list, which is like, congratulations, the top. Thank you. Thank you very much. I'm very proud and very grateful for that.

Max Emma: And then lastly. While doing that, I realized that if [00:03:00] somebody wasn't a good match for my brand, I kind of was wishing them luck and saying goodbye. So I added the brokerage as a separate business franchise brokerage where if somebody not a good match for bookkeeping, we can help 'em to find, uh, a franchise out of 600 that we work with.

Paloma Goggins: Very nice. So I wanna talk more about this whole idea of franchising because I feel like there are. Some individuals that view franchising as sort of this unknown territory, it's confusing to them. When I, I do a lot of, um, disclosure, uh, franchise disclosure document review for people, they're very cumbersome, right?

Paloma Goggins: If, if you're listening to this and you've never looked at a. Franchise disclosure document set, they're usually a hundred plus pages. It can be exceptionally overwhelming for someone who's never been in the franchise world to kind of be like, okay, I can financially make this work. [00:04:00] Because obviously they all have some sort of initial requirement from a financial standpoint, usually liquidity, but then they get into the documents and the paperwork, and I feel like there's so many people who become a little bit scared of the idea and so.

Paloma Goggins: Coming from a place where you franchised your, your business, and then you also are working with people to place them in franchises, like what can you tell us about, I guess, let me start from this place. If you're a business owner and you're thinking about franchising, like what is that look like? How complicated was it?

Paloma Goggins: Is it easy to cross state lines? Right. I like, what does that look like for someone who's like, I think this can be replicable. I don't wanna do it myself. I wanna have other people run those other versions of my business in other states. 

Max Emma: Well, first of all, uh, it's very capital intense. I am happy. I didn't know that when I started it because I probably would not [00:05:00] start it at the time, but it is very capital intense.

Max Emma: Um, just. Not only to prepare the franchise disclosure document to FTD, do the marketing plan, do everything else, you also have to do the brand manual, which is the Bible that, and you know how that you pretty much sell to your franchisees. I'll give you an example. When I was franchising bookkeeping, I was thinking, well.

Max Emma: I know how to run the business. We've been doing it successfully, so I'm just gonna write it myself as help of, of the team. And we wrote probably 30 page document and then I said, no, that's not gonna be enough, because I can't sell that to franchisees and expect them to pay money for that. So we hired a company that does that, which cost a lot of money, but at the end, they interviewed all of us and they got 600 plus page document.

Max Emma: Out of our heads. So my point is you don't know what you don't know, so you have to prepare. It's a long process, but you have to do it right, unfortunately, and you as an attorney, you'll appreciate it. There are a lot of [00:06:00] companies that just sell you, you know, couple thousand dollars agreement and you just plug in your names.

Max Emma: Boom. You have your franchise disclosure document. It's a very litigated industry in the United States. You don't want to do that. That's where you want to go to a franchise attorney. You don't want somebody online who's never done it before or has one template to do it for you. 

Paloma Goggins: No, and I think that's an excellent point.

Paloma Goggins: I, I think if you're coming from this angle as a listener for someone who has a successful business and you're thinking about getting into the franchise world, there are so many P's and Q's involved related to, and the paperwork, as Max was mentioning. There's so many things that in order to do things right and to also paper them in a way that reduces your liability and protects you from unnecessary litigation, there's a lot more to, I think in some ways in Arizona, they kind of simplify the idea of having a [00:07:00] franchise.

Paloma Goggins: And there are so much franchising going on in the state of Arizona, especially in comparison. I mean, I'm from Wisconsin originally. There is franchising going on in Wisconsin, don't get me wrong, but it is not at the pace and the level at which you see people opening franchises in Arizona. I think that's partly because Arizona's laws about franchising are.

Paloma Goggins: Easier, I'll say easier with quotation marks around it. More flexible, I think is the best way to put it. 

Max Emma: Yes, absolutely. And the statistics came out last year and Arizona, Georgia, and a couple other states were in the top, and I wanna say Arizona was number one and Georgia was number two in the country.

Paloma Goggins: It does not surprise me. I, I didn't know the stat, but I can tell you based on the number of franchises that open on a regular basis in every corner of the valley, I have to wonder at what point we get so saturated that there's no room for, you know, I can only imagine how competitive, you know, a lot of people think about buying a [00:08:00] franchise and then they get into the weeds on territory.

Paloma Goggins: I'd love to know more about how you've set up your territories for your franchise that you own, and then also maybe how you. Help people to find the right franchise. Um, if they don't want to, obviously go into bookkeeping. 

Max Emma: So, uh, the way we set it up, it's a home-based business. So the territory is the population of, uh, uh, just, just people.

Max Emma: And we give a pretty generous territory, which is half million people population. Mm-hmm. Which means there're gonna be quite a few businesses that need, uh, a bookkeeping services. Uh, obviously it's different for brick and mortar, uh, businesses, and there is. Limit how many can be put on certain, you know, square mile, uh, radios.

Max Emma: So every franchise is different, but location is definitely important. So, for example, you're moving to the area of the United States, or you live in the area where, um. It's the older [00:09:00] population. Maybe a kid's franchise doesn't make that much sense. Or if it's a fast growing and the young families are moving in, then yes, maybe it needs like a kid's gym or you know, the AI training for kids or whatever, whatever it is.

Max Emma: So it's very important before. Um, I suggest anything to anybody. I find out what their expectations are in terms of how much time they wanna spend in the business. Um, do they want to be involved day to day? Do they want to, do, they want to have a manager, which, and then also obviously the area. And then we just do the research.

Max Emma: I'll give you an example. For example, um, the. Senior Home in-home care franchise is very popular. It was super popular two, three years ago, but there are right now 68 franchises in the United States in this space, 68. So when you said about over saturating, for most of them, all the good [00:10:00] territories are sold.

Max Emma: So now again, for most of them, not all, there are still territories available. Um. The only ones available are not in the major, you know, cities. So you have to do the research and see is there gonna be enough, uh, population to support, uh, um, the growth. And also very important thing is there a talent that can, uh, uh, provide you, um, provide you the resources to grow your business.

Max Emma: Like for example, in California, the minimum wage is so high that. The cost of running business like that is way more than in another state where minimum wage is lower. 

Paloma Goggins: Of course. No, that's an excellent point. And I think too, just because there's a giant document that's associated with, you know, providing the framework or the foundation for starting a business, I think what Max has said is really a great.

Paloma Goggins: I think just note for [00:11:00] you, if you're thinking about owning or operating a franchise or even buying an existing one, is what are the actual costs in your geolocation? Right. Um, because that does play a role. Right. And I do see people buying franchises across state lines. And I think in some ways if you're not in that state, you can lose sight of the things that are very state specific that might impact the business.

Paloma Goggins: Just like you were saying, max, about. California minimum wages. I mean, if you've been in Arizona your whole life, you find a franchise that you wanna expand into in California that's maybe something that you haven't thought about. Um, I, I wanna go back just for a second on the territory thing, because I think the territory issue for most franchise locations can, I think if you don't do your due diligence, it can create.

Paloma Goggins: Limitations in your ability to grow. And I've seen that in some transactions where an individual will buy, you know, a [00:12:00] franchise and then realize the other territories in the, in the region are owned by, you know, one or two people. And so it's kind of a, I don't wanna call it a monopoly because it's not, but it's, it can be very concentrated, especially when people come in early on when the franchise is just getting going and there's tons of territories available.

Paloma Goggins: There are individuals who have done franchising in the past, so they feel really confident, right? It's like the same people who buy distressed companies and they have full confidence that they're gonna just like flip 'em. It's like, I'm gonna buy five territories because I'm gonna make this work. And I was working with someone and they were trying to move from Arizona to Utah, and I remember having this conversation with them about how all of the Utah territories were gone.

Paloma Goggins: And so he was looking to find one that he could buy from someone because he was kind of emboldened to his old franchise. So he, he pretty much couldn't compete in the same industry. And because his [00:13:00] current franchise was also in Utah, it made it exceptionally hard because all of the territories, like the, the non-compete in there was so perfectly written by their, their attorney that, you know, moving to Utah didn't solve his problems.

Paloma Goggins: It actually made it worse because the territories were all like the big cities. If you're familiar with Utah, there's not much in between the bigger cities, you know, there's not a whole lot of opportunity in the middle of the desert. So, um, I think, you know, you bringing up the, the idea of, of maybe the wages being really expensive, but also to play a little bit of devil's advocate when you're like looking for these franchise opportunities.

Paloma Goggins: I think asking about the other territories and determining sort of what your options are in case you don't wanna be in the franchise at a future date. Can be really critical as just future thinking and future planning. Um, so going back to your comment about your, you know, being a home-based business franchise and having a certain population, is it based then on the [00:14:00] location of their home office or is it just based off of like a threshold number of.

Paloma Goggins: Clients like or, or is it the chance that you could like cannibalize each other if you get found on the internet? Potentially. 

Max Emma: That's the problem. You can oversaturate and then people gonna be stepping on each other's toes. 'cause part of uh, bookkeeping strategy is local networking and going for small businesses.

Max Emma: What I don't want to happen is two bookkeeping franchisees. Calling the same business within few days trying to solicit the business. 'cause people just not gonna appreciate it. Yeah. So my requirements for bookkeeping, people have to live in the area. I will not sell somebody from Arizona, a franchise in California, if you use that as an, as an example, uh, because they just want to expand in California.

Max Emma: They have to be. Locally present, and a lot of franchises are actually make it mandatory. Mm-hmm. There is a great franchise that not only gives you a very good opportunity, I'm just not talking bookkeeping. Bookkeeping of [00:15:00] course, is the best franchise out there. What, what else am I expected to say? But, um, seriously, there is a franchise that absolutely love and they even give you, uh, clients from day one.

Max Emma: So they actually help you as the, uh, property management. Um, uh, franchise, but they're mandatory requirement. You have to live in the county where you run the business. They will not let you operate. So this way they want the franchise owner to be. In the area and make sure they go around and look at the properties and not just, you know, Hey, I'm in different states.

Max Emma: Maybe I'll come once a month. So every two months. So it is a requirements written in the franchise agreement. Same for bookkeeping. Once somebody has a territory and they got it and they want to expand and like, okay, I'm gonna hire a manager running it, that's a different story. But I will not allow people just to buy multiple states because it's just not gonna work in the long run.

Paloma Goggins: I think that's smart. I, I don't know. [00:16:00] Why certain franchises will allow for sort of more remote ownership. I just think it sets it up for, go ahead. 

Max Emma: No, no, no. I was just gonna say, I have a theory about it because franchisees, every franchise is different. Look like bookkeeping, for example. Part of the job, uh, for the franchise owner is to find clients.

Max Emma: Okay. Um, we help with providing staff, with providing training and everything else. We help them to find clients, but it's their main job is to make sure they get. The clients a franchisee of Pizza Hut or Taco Bell, I'm using as an example. You're not gonna see them going to local networking group trying to promote Taco Bell or Pizza Hut.

Max Emma: They're in fulfillment business. So when someone buys this franchise, their job to make sure that the pizza is fresh, I mean, the restaurant is clean and they have enough staff to, um, to run the business so [00:17:00] that. Allows you to be anywhere because you're gonna have a manager. Uh, from what I understand, an average number of employees in each McDonald's is over 50, so mm-hmm.

Max Emma: It's a big, you are not managing hamburgers and fries, you're managing people. It's a very heavy operate. I mean, heavy people operated business. 

Paloma Goggins: That makes sense. And, and to, to be quite honest, when I think about. A local person who's looking to buy a franchise, I don't often think of the big box name franchises.

Paloma Goggins: I think of the people who, I think in Arizona, I think of the people who I've helped. Right? There's a lot of, um, preschool or like, uh, elementary style, uh, schooling and teaching opportunities. There's a bunch of art. Creative, uh, like post school class type franchises. There's a lot of, um, wellness franchises.

Paloma Goggins: [00:18:00] There's a lot of kind of the, I'm not saying that we don't have more, uh, franchises than that, but it's, it's very much like if you start to get into the franchise world a little bit and you kind of open your eyes as you drive around the valley, you're starting to, you can recognize the, you know, recurrence of how, how many franchises are actually open.

Paloma Goggins: In your city and in around the city. It's kind of wild, but, um, all right. So I wanna, I wanna spend, I wanna flip our perspective a little, because we've been talking about a person who's gonna buy into a franchise, brand new. I think if, let's, let's say we're gonna buy into, you know, a franchise that's in existence, um, or even really just being someone who's operating a franchise and, and looking to exit, I think that might be our, our better angle here.

Paloma Goggins: I know for a lot of individuals who are selling a franchise, there's a lot of hoops to jump through, right? Um, you've gotta get the franchisor's approval. Uh, they, the new franchisee, the, the buyer's [00:19:00] gotta sign the franchise documents As a new franchisee, um, there's a lot less potential setup if it's brick and mortar and you've got like all your equipment, machinery, whatever it is.

Paloma Goggins: Um, inventory in place already in your brick and mortar locations. You're kind of just stepping into the shoes of the prior owner, but is there things to, I think from your perspective, you had mentioned selling a business previously, um, and I know you're currently in your growth mode for bookkeeping, um, but I'm sure you, you know, in helping people, you've seen kind of from all different angles.

Paloma Goggins: Is there something that if an individual currently owns a franchise and is thinking about selling it, is there something particular that they should be worried about? Thinking about planning for in advance? I mean, I can, I can tell you for sure. One of the issues I've seen come up in my practice is that the lease can be really complicated 'cause the lease can be tied to the franchisor.

Paloma Goggins: So it's not actually. [00:20:00] Leased by the individual who's running the franchise. It's, it's owned by the franchise company and so it can be really tricky and complicated. Um, not necessarily impossible. It's just a lot of hoops to jump through mm-hmm. In order to get that lease transferred over to the new owner.

Paloma Goggins: Anything else that you can think of on your end that you've seen that you're like, man, good lesson learned. 

Max Emma: Well, as you mentioned, uh, franchisor has the last word, a on a, on the new, uh, transfer. So before I would do anything, I would clear the name, uh, and let the franchisor interview this person and say, yes.

Max Emma: In principle, we would like to see this person as the new franchisee because it's not just the financial situation as a franchisors, I, I can tell you that for me, culture and the match, the DNA match. DNA, you know, in quotes, um, it's very important. I'm not gonna sell a franchise to somebody who is just gonna, [00:21:00] uh, ruin the system from within.

Max Emma: I want these people to have the same values as, uh, we do as the founders and. As you know, the rest of the family employees franchisees. So that's why a franchisor might say, you might be a great person, but you're just not gonna be a good match. Okay? And then franchisor gonna say no, and the person is gonna go through all the stuff, the due diligence, everything else, and the franchise franchisor gonna say, Nope, I'm not gonna allow the sale.

Max Emma: And that's enough. Franchisor does not have to explain why. Okay. Um, I mean, I've had people buying, you know, the territories for bookkeeping and it was an interview same as I would interview somebody when they want to become a new franchisee. So that's the first step. Before you go any further, make sure that that happens.

Max Emma: Okay. Second, I would recommend to ask, uh, your neighbor franchise owners, if it's a established franchise up. People in your city, [00:22:00] maybe they want to buy the territory because A, they already know how to run it and it's always a plus. With franchisor, it's easier for them to get the lease 'cause they already have a location or two and the whole thing makes it way, way, way easier.

Max Emma: Um, that would be my suggestion and. Third, um, people always ask me what's the best if I buy multiple territories from the beginning? Is it the best to have one legal entity or to have multiple legal entity, one for each of the, uh, locations? I'm not an attorney, but as a business owner, my advice always to have separate legal entity and yes, pay taxes and yes, more tax returns, but when you sell one, you only have to do due diligence for one and not for 10 of them.

Max Emma: And you know, as a franchisor, I have to do audit every year. This is the worst time of the year for me. Okay. Um, so I don't [00:23:00] suggest anybody if they don't have to, to go through that. 

Paloma Goggins: No, that, that makes sense and I couldn't agree more. And it, and not just from an ability to spin off one location over the others, but also from a liability standpoint, especially if you're brick and mortar and not the luxury of working from home.

Paloma Goggins: Um, I think from a liability standpoint, I always use the business catches on fire example just because it's so easy. But I'm like, if you know someone was to get hurt. In one location, it doesn't suddenly give them access to all business assets in every location of yours. From a. Just like Airbnb, I always tell people, I'm like, why does everybody have every Airbnb that they own in one single LLC?

Paloma Goggins: Talk about just horrible, horrible liability planning and asset protection. But that is a whole nother conversation. I digress. 

Max Emma: No, absolutely. But I always tell people to consult their attorney because there are advantages of [00:24:00] doing one. For example, labor. If you have five restaurants located next to each other and it's one legal entity, you can move people as much as you like.

Max Emma: If it's five separate LLC, you have a payroll issue. You have to creatively find ways to do that. And there are ways to do it. But again, talk to your attorney. I always say that. 

Paloma Goggins: Yeah, no, totally true. Well, I think, um, from a, from a high level perspective, one of the things that fascinates me most about the franchising space is the fact that.

Paloma Goggins: There's definitely, I would say, based on the experiences I've had in reviewing franchise documents for various size franchises, that there's certainly some franchises out there that help you more than others in terms of getting you started and supporting you. And I was really shocked to learn that in some of those really big franchises that you were talking about, max, like the, the, you know, fast food chain type.

Paloma Goggins: Situations, but in their [00:25:00] documents, a lot of times they don't have, you know, a guarantee. There's like phrases in there that stipulate that, you know, they'll run national advertising, but there's no obligation for them to run local advertising. There's no obligation to support your specific store location in your city.

Paloma Goggins: Yet you're paying in a number of dollars every month towards a marketing slush fund. And then there's all these like exceptions that they don't even have to use the slush fund to market and, and I just think there's some really bad bullying that goes on out there in the franchise world. And so if someone was looking to get into franchising for the very first time and you had to recommend a path, path A is getting into a franchise.

Paloma Goggins: That you're, you know, you're essentially starting in a territory brand new, um, and then b, you're buying an existing territory with an existing business that's already operational. You think one is easier than the other for, for a very brand new [00:26:00] franchise owner? I know they're both hard. That's not really a, a fair question, but like, is there one that's less complicated or maybe provides a more safe route to success?

Max Emma: Well, I wish I can give you one answer. I think it really depends. You have to look at each situation differently because if you're buying an existing business and it's doing good, you're gonna be paying more. Then when you start from scratch, 

Paloma Goggins: yeah, of 

Max Emma: course when you start from scratch, you're gonna take you longer to ramp it up.

Max Emma: But what people don't realize, and most of the people, they get, uh, financing and luckily money is available. And, uh, the small business administration, um, giving loans for franchisees relatively easy. Like for bookkeeping, you can get it. A loan closed in three weeks and you don't have an even to have a collateral because it's not very cash heavy.

Max Emma: Uh, business, obviously for [00:27:00] a fast food restaurant that we're using an example, it's way, way more. 'cause you have to buy equipment and, you know, sign the lease and so on and so forth. Um, but. My, my my point is that, um, if you get the money from the SBA or other sources, maybe just get a little bit more and put your salary in there for the next two years and then once you grow it, it's probably gonna be cheaper than if you buy the existing business.

Max Emma: 'cause you also buying there. Uh, baggage. You don't know what you don't know as much as you do due diligence. There is always something comes up. You know, there might be a bad apple as an employee who just gonna rotten everything from within and you don't know it until you actually close the deals. I mean, there are, so there is no one better than another.

Max Emma: Definitely my recommendation. Talk to somebody like me who is in franchise consulting. Please remember that our services are completely free. We only get paid even when someone [00:28:00] buys, uh, the franchise. So your risk is talking to someone in franchise brokerage is zero. I mean, because you don't have anything to lose.

Max Emma: Nothing happens. Nothing. You know, we, we don't charge anybody. I mean, we will get paid by franchisor if transaction takes place. 

Paloma Goggins: Hmm. I, I think your. Your answer is, I was gonna joke with you. You know, you keep saying, oh, I'm not an attorney, but I'm like, it depends, as such an attorney answer, I was gonna give you, give you a hard time about it.

Paloma Goggins: But it's so true. It is. It is really dependent on the situation and I feel like that answer applies in so many situations, but I think that there's certainly times when starting, I think there's times when starting from scratch affords you opportunities in a market that's untapped. To your point, if you are looking for something that is already operational, that doesn't always mean easy, right?

Paloma Goggins: You could have, like you said, the baggage that comes with that business, but [00:29:00] also you're paying a lot more for a business that's operational and has financials and things that can prove that you know, you're buying something that has a higher value than something that's starting from some, from absolutely zero.

Paloma Goggins: So. Something to definitely consider and something to weigh. But I think, you know, if anyone who's listening is thinking about franchising or buying an existing franchise, um. Max is a great go-to person. Max. If someone wants to reach out to you, how can they get in contact? 

Max Emma: Um, so the best way to find me is to go on my website franchise with max.com and then decide if someone wants, uh, bookkeeping for their business.

Max Emma: 'cause we do bookkeeping not only for franchises, but small businesses as well. Or if someone wants to talk about bookkeeping franchise. Or wants to discuss potentially franchising their business or looking at 600 plus other franchises. So franchise with max.com would be the best. And again, as I mentioned, my services are completely free.

Max Emma: Uh, moreover, [00:30:00] I will share part of my commission with the candidate when they buy, and also pay for nine months of their sales training out of my pocket because I know it's very, very important and I want them to succeed. 

Paloma Goggins: That's excellent. I think this conversation was super helpful. I hopefully, you know, if you're thinking about franchising, this has given you some ideas to chew on in your mind and more things to consider about what might be the right fit for you as you're moving forward in your franchise adventure.

Paloma Goggins: Well, thank you so much again, max, for being a guest. If you liked this, this episode, please like, share or comment on one of our social channels. If you have any additional questions for me or Max, we're happy to. Reply on any comment that you leave. Tune in again for another episode of merger. She wrote.

Max Emma: Thank you.