Overview of How to Buy a Franchise: What You Need to Know Before Investing
In this BiggerPockets Money episode, Scott Trench speaks with Alex Smurznack, founder of Franzy, about how to evaluate, finance, and buy a franchise. The conversation frames franchising as a middle ground between corporate employment and starting a business from scratch: it offers a proven system, brand support, and easier financing than many independent businesses, but it still demands real effort, risk, and often full-time owner involvement. The episode is especially aimed at people with some savings, strong operational or sales skills, and a desire for more control over their time and income.
Main Takeaways
Franchising is a business model, not just restaurants
- Franchising spans many industries, including:
- Food
- Health and wellness
- Home services
- Senior care
- Childcare
- The common stereotype of franchises as only McDonald’s or Subway is misleading.
- There are very low-cost side hustles and multi-million-dollar concepts.
It can be a strong fit for the right person
- Best suited for people who:
- Want to own a business but don’t want to build one from zero
- Have some capital saved
- Have transferable skills in operations, sales, management, or marketing
- Want more autonomy and long-term wealth-building potential
- Not ideal for:
- People with very limited capital and high downside sensitivity
- Highly independent entrepreneurs who do not want to follow a system
The first few years are usually not passive
- Most franchise owners should expect to be heavily involved early on.
- A franchise is still a business:
- Hiring staff
- Managing operations
- Selling services or products
- Building systems
- “Passive franchise ownership” is usually only realistic later, after hiring a manager or building a multi-unit portfolio.
Costs, Financing, and Capital Requirements
Entry costs vary widely
- Franchises can cost:
- $10K–$20K for small side-hustle concepts
- $50K–$150K for many income-replacing opportunities
- $1M+ for larger operational franchises
- Alex suggests $50K–$150K can access many “good” concepts with serious upside.
Financing options discussed
- SBA loans are common.
- ROBS rollovers allow some people to use 401(k) funds penalty-free to invest in a business.
- Buyers often need around 20% down, depending on the deal.
- Working capital is critical:
- FDDs may show only 3 months
- Alex recommends at least 6 months, preferably 9 months
Rough capital examples
- With $100K–$150K cash, a buyer may be able to pursue a business in the $400K–$600K range, depending on leverage and risk tolerance.
What Makes a “Good” Franchise Deal
Return expectations
- A strong target is a payback period of:
- Under 2 years = very good
- Under 1 year = exceptional
- 3+ years = increasingly risky unless there’s a strategic reason
- Franchise businesses can generate strong cash-on-cash returns, but only if the operator performs well.
Valuation and resale
- Franchise businesses often sell at higher EBITDA multiples than independent businesses.
- Alex says franchise exits can command roughly 0.5 to 2.5 turns higher than independent operations because of:
- Brand recognition
- Easier lending
- Better systems
- Shared purchasing power
- More predictable performance
- Multi-unit operators usually get better valuations than single-unit owners.
Single-unit vs. portfolio ownership
- One location can be a good income replacement.
- Multiple locations create:
- More stability
- More leverage with lenders and franchisors
- Greater appeal to buyers
- Better operational efficiency
- This is where multiple arbitrage becomes more meaningful.
Examples Shared in the Episode
Artificial turf franchise
- Former police officer moved to Texas to open an artificial turf business.
- In less than a year, the business surpassed $1 million in revenue.
- The owner said fulfillment and happiness improved dramatically.
Commercial kitchen cleaning business
- Startup cost: about $140K–$163K
- Average revenue: around $1.5 million per location
- Highlighted as a less glamorous but potentially very profitable route.
Senior mobility / home modification business
- Startup range: $190K–$412K
- Franchise fee: $25K–$75K
- Focuses on ramps, bathroom modifications, stair lifts, and accessibility improvements.
- Strong demographic tailwinds due to aging U.S. population.
Orange Theory / fitness portfolio case
- A guest went from a corporate background and a couple of locations to 115+ franchise units over several years.
- Demonstrates how franchising can scale into a portfolio and private-equity-style play.
- This is presented as a higher-capital, higher-complexity path.
Risks, Red Flags, and Diligence Tips
Important risks
- Not all franchises are well run.
- Some brands may oversaturate markets or place locations too close together.
- A bad brand choice or bad fit can lead to poor outcomes even if the franchise system is solid.
What to investigate before buying
- Current and former franchisees
- Unit economics and payback period
- Territory rights and exclusivity
- Market saturation and cannibalization risk
- Working capital needs
- Realistic owner time commitment
- Brand growth vs. maturity
Best diligence advice
- Talk to current and former franchisees directly.
- Ask:
- Would you do it again?
- How did you finance it?
- What surprised you?
- What does day-to-day ownership actually look like?
- The FDD lists contact information and historical franchisee data, which can be a major source of insight.
What Franzy Does
Franzy’s role in the buying process
- Franzy is described as a platform that helps people:
- Discover franchise opportunities
- Compare brands
- Match opportunities to their finances, skills, and risk tolerance
- Access financing and professional support
The pitch
- Franzy is positioned as a “Zillow for franchises.”
- It helps reduce the black-box nature of franchising by aggregating data from thousands of FDDs.
- It also connects buyers with:
- Franchise attorneys
- CPAs
- Lending resources
- Coaching and discovery tools
Final Perspective
The episode’s core message is that franchising can be a powerful path to financial independence for the right person, but it is not a shortcut or a passive investment. It works best for someone who wants to own a business, is willing to work hard in the early years, and values a proven system over pure independence. The hosts repeatedly stress that fit matters: the right brand plus the right owner can be a strong combination, but the wrong fit can make even a good franchise a bad decision.