How To Make Clean Money With Dirty Laundry?

There is a lot of clean money to be made in dirty clothes. ~Allan Boomer

Allan sat in the parking lot of a large shopping center in Maryland with his pro-athlete client. They were scouting a location for their fitness franchise. Under Allan’s financial advice, the athlete had pursued his passion for fitness, but the venture was dragging on. The fitness industry was getting too crowded.

A line out of the door

In that same shopping mall, however, people were standing in a long line with their dirty laundry. Fascinated by this solid proof of interest, Allan learned more about the business. He soon became a franchisee of ZIPS Cleaners, opening eight locations across Maryland and Indiana, and securing the rights to open stores across Atlanta. Allan shared his advice for aspiring franchisees.

What you must understand about franchising…

In his advisory work, Allan has to explain various forms of investment. Here are three things he wants people to understand about franchising.

1. It’s not a passive business. “With almost 100 employees, franchising is labor-intensive and also requires active management. I can’t be an absentee owner, but I can be a distance owner. So with a franchise, I sacrifice liquidity and time in exchange for the goal of premium returns of 30%.”

2. There’s power in being a franchisee. “Many people are wearing the same jacket, and we aren’t alone. I plug myself into a national brand.”

The franchisor isn’t your friend or enemy but a frenemy.

3. The franchisor is your frenemy, so watch out for your interests. The zor wants you to succeed, but ultimately it’s your name on the lease, the personal guarantees and the loans. Zors get paid based on revenue, and you get paid on profits.

How to pick the right one?

Here is the four-step framework for analyzing a franchise:

1. What is in the FDD? The FDD gives you all the information you need; it’s up to you how you use it. Be careful in how you read the FDD, and pay attention to the footnotes. Your job is to deduce everywhere where the franchisor “has put on lipstick”. For example, when analyzing averages, try to understand how much the bottom 20% make.

2. What is not in the FDD? Metrics such as royalties tend not to be reflected in Item 19. You will have to source this information from other sources.

3. What do other franchise owners say? Because neighboring territories are not in competition with each other, franchisees tend to be helpful. Try asking them for their PNLs or any other feedback or advice.

4. What do you observe myself? Use your eyes. Go to one of the locations. Stand in the driveway and watch the store’s performance. Make projections for daily, monthly and yearly sales that way.

Overall, your job is to understand the pros and cons, so keep your eyes open for both the good and the bad. If you only see the pros, you haven’t done your homework.

Why ZIPS Cleaners?

ZIPS Cleaners offers two models: a plant location where garment cleaning takes place, and a hub-and-spoke drop-off location that works 24/7. A combination of these two models allows to the franchisee to cover a larger territory with more efficiently. Allan is looking to add more 24/7 locations to his portfolio.

He also mentions how the franchisor has helped his team analyze each line item in the PNL and how it can help drive profitability.

Armed with a strong manager who now holds equity in the portfolio, Allan is “going all in on dirty clothes.”“

• If you want to talk to Allan or any of the folks at ZIPS, email us at mariyam@wefranch.com

A word about generational wealth:

“I want my kids’ world to be bigger by seeing that entrepreneurship is on the table. When everyone is looking for a job, I want my kids to know that they can be looking for a business to start or buy.”

Allan with his wife and three kids outside their ZIPS store in Maryland

Finally, Allan advises prospective franchisees to “be open to the idea that franchising can be a great business path. You see franchises, but you also need to know you can be an owner on the other side.”

Watch the full webinar and clips here.

Hot takes:

1. Franchisors tend to get paid from sales. Franchisees are paid from profits. Know the difference.
2. Analyze zor’s PNL and look for rebate income; you want the zor making money mostly from royalties (zee selling to customers), not rebates (zor selling to zees).
3. When you acquire a franchise, there is no hope involved. You buy a business that’s likely to make a certain amount of money. When you open de-novo, you control all the factors that can change that number drastically (location, staff, etc)
4. When making a financial projection, run your number unlevered. Calculate your costs, EBITDA and time it would take to make your investment back. Allan aims for a 30% unlevered IRR (internal rate of return). Bear in mind that banks will let you lever up more than you should.
5. Figure out your need for working capital. You don’t want to be in a situation where you run out of cash.
6. Equity capital gives you patience that loans cannot afford.