Thank you Wolfsdorf Rosenthal LLP for having Patrick Findaro of Visa Franchise on your webinar. Watch the full recording HERE.
The following is an excerpt from the Visa Franchise presentation on franchise business options for the E-2 visa.
Visa Franchise Clients
Patrick: So, the majority of our clients at Visa Franchise really prioritize the longevity of the business and getting some profits out of the business rather than short-term profitability and selling the business for a huge profit. And a lot of them really want to lean on someone to help provide initial and ongoing support in the franchise work and really fill that gap. So, pretty much all our clients will buy an existing franchise business, but genuinely are going to be investing more money like $250K, $300,000 plus, or they start a new franchise business from zero where they’re investing $100,000 or $300,000. And as Bernie mentioned, the ones that are investing $100,000, $150K, or started $100,000, you know, $130K, generally, they’re having more issues at the concept level of interviews and cause a lot more tension in the whole process between the immigration attorney to franchisor and all parties involved. Because the petition needs to be that much more airtight.
Review of Business Opportunities
Patrick: Sure. Our analytics here in Miami have gone through over 2,900 businesses today. They’re all franchise and licensed businesses. And the factors that we’re most focused on today is analyzing the profitability at the unit level. So, at the franchisee level, as well as the franchisor. Is the franchisor…do they have solid income statement and balance sheet to be around for the next year to support your business? Recurring revenues, so this would be like a real estate property manager or a commercial cleaning franchise, where every month you can expect to have that same client paying a certain amount. A high margin business. It really varies, but it could be like a barbershop where the barbershop owner basically is keeping 50%, and then the barber keeps 50% of every sale, relatively high gross margin. And then management team, who’s behind it if it’s on the franchisor level? What’s their experience? How do they weather the last economic crisis in 2008/2009? And also looking at industry and brand growth, I’ll go through some of the industries briefly. And then strong liquidity to weather the current crisis.
So, here are some of the industries with compelling business opportunities. And it really varies. When you break out each of these industries, whether it’s fast-food restaurants or education, there are winners and losers in terms of sub-industries. And I’m just looking at beauty, for example, barbershops, you do see in a lot of states people are going back every four weeks, six weeks. I need to start going back. And I’ll go next week. But people are resuming that habit where if you look at things that beauty-related where maybe a nail salon where people necessarily going back at the same rate as before from our analysis now. You know, a 30% drop, a 40% drop can have a huge effect on a single franchisee. So, I think we can go to the next slide where I want to talk a little bit about a fast food restaurant sub-industry, a phenomenon we’re seeing which are ghost kitchens. Our folks in Thailand and UK or Europe, dark kitchens, which have been around for quite some time, especially out of London where you have 5, 10, 15 restaurants, all operating under a common space where they have a very large industrial kitchen and they’re just doing takeout and delivery.
Ghost Kitchen Takeout / Delivery Space
Some of the takeout and delivery apps are recording 80%, 100% increase in sales year over year. A lot of the franchisors that we work with and the ones that are most advanced in terms of looking and innovating on opportunities for their franchisees have really dived into this, where there are multiple ghost kitchen operators, including one of the founder of Uber that left Uber and he founded a ghost kitchen company which has opened up locations across the U.S. and the world. So, where you have an initial investment of $500,000, $1 million for a restaurant, and 20 employees, with a ghost kitchen, you could have three employees and invest between $150,000, $300,000. And with that, you have a lot of money in terms of working capital, marketing to really get the business going.
Bernard: Well, Patrick, just to pipe in here, these ghost kitchens are definitely red hot right now. I mean, the reality is we order, you know, from them all the time because my wife doesn’t do much cooking and I don’t either. Just one question, does the kitchen come together with the ghost, or is that separate? All right, Bernie, stop being silly. Had to just break in with a little bit of my stupid humor. Patrick, 2008/2009 was a scary economic crisis. What have you learned from that, and how can you assure your investors that we’re not in the same sort of situation?
SBA Curve Data Analysis
Patrick: Sure. So, all our clients at Visa Franchise, we’re now offering going through the SBA analysis of that particular franchise industry, so you can really see what were the percentage of charged-off loans, where the bank basically, it’s essentially been a default, and then also paid in full, where they’ve lent out the money and over a seven-year-period, generally, they receive all the money back. So, we’ve gone through over 100,000 franchise loans and this project started back in January of this year for loans through the SBA to franchisees over the past 30 years. And we found that during the last low economic downturn in 2008/2009, there was a doubling of the non-defaults. And there were some industries that were hit much harder than others. So, this is the type of information we share with our clients, and with our prospective clients and online, we do share quite a bit of information, but we then take to the next level analysis and insight with our clients and Visa Franchise.
Bernard: What is this V-curve and what is a U-curve, can you explain this to me? I’m a lawyer. I don’t do math.
Patrick: Yeah. So, we’ve got a lot of curves going on here where I go through some of the possible business scenarios. So, we’re already seeing from the franchisors and our clients that have already invested in cleaning and maintenance, healthcare services, business services, really a nice rebound, where many of them are up at the same level if not above the pre-COVID-19 crisis, or when you look at the 2019 numbers and some of them, maybe just a 20% drop, which isn’t that bad given the current environment we’re in. In business services like insurance, accounting, things that you so need anyways. And then the healthcare is really split between, you know, where you’re operating it in and the healthcare space. In the education programs, you’re seeing, especially after the parents have been with their kids now 24/7, a real desire or need for different educational programs for kids, whether it be coding and math and science supplemental education for kids or right now in the summer and just education period.
Bernard: So, what’s the U-curve?
Patrick: Yeah. Real quick. U-curve, these are the ones that it’s going to take them longer to recover. So, food and beverage, real estate, pet care, boutique fitness centers, it’s going to take longer for those industries. Real quick, Nike Swoosh. So, really a hard drop. I mean, if anyone’s seen the travel, hotel occupancy, airline stats, they’re down like 90% plus depending on the company. And it’s gonna take a while to really recover, you know, whether that happens in 2022 or 2023. So, for those industries, you know, you have to be prepared and have liquidity and financial stability.
Bernard: What’s the L?
Patrick: And then these are the L curve. These are the ones that people have become accustomed to now doing Peloton and doing exercise…doing different fitness online and less in a very large fitness center, for example, or just buying products off Amazon where e-commerce has skyrocketed. So, will those businesses ever go back to their pre-COVID-19 levels? I don’t know. Maybe.
Businesses in California, New York, and Florida
Bernard: Let’s go into case, you know, I’m here in Southern California and I was surprised to read during all these COVID where you can actually check out property, that property prices are actually going up. In the area where I live, there’s been a significant increase. I guess, people want to spend more time in their homes and so need a place to stay and real estate I guess in certain parts of the U.S. continues to be strong.
Patrick: Yeah. And I think you’ve noticed some dynamics where, you know, maybe some of the crowd in SF might have had a second home in Southern California and now there are remote work forever, or at least the next year. So, we’ve seen that in New York where a lot of New Yorkers coming down to Florida. So, there has been an opportunity in property management for the short-term rentals, like anywhere from a few days to months at a time. And then also long-term has done pretty, pretty steady. This particular example is from a client that invested back in 2017 and had to really work hard to build up the business. If you could just go one slide back, yeah, he invested around $110,000, so on the lower end, and that included everything from working capital, franchise fees, spending money on Google Ad Words, the company vehicle, you know, it’s 100% on his franchise and he had a lot of work the first year, but it paid off. He now has over 200 units located across LA County.
And his business is booming with, you know, 200 units where the average rental contract nationwide is over $2,000 for that franchise system. I’d bet LA County is more like $2,500, $3,000 per contract, so, you know, if you wanted to sell that business today, you would probably sell for $500,000. Part of the reason that most of our clients decide to start a franchise from zero because they’d rather invest less money and potentially have an exit later on should there be [inaudible 00:13:56] tied into the business. And then real quickly, we do have quite a lot of high net worth individuals where they have to travel a lot. They have businesses abroad. They’re not able to work day to day in the business, but they do need to have a majority controlling stake in the business and be actively involved. So, in this case, our client, they didn’t have the E-2 visa eligible passport, they invested in the Island nation of Grenada through a real estate project $220K and then another $220K in the landscaping business. And with that, they are able to sustain their E-2 visa, draw some profits on their business, and they had no plans to get a Green Card due to tax purposes.
So, we’re here principally to reduce your risk. We’re not here to make you millions of dollars in the first couple of years of operation. Some of our clients have done extremely well, especially over a longer horizon, you know, three, four, or five years. We’re here to analyze all the possible franchise opportunities and we have pretty deep relationships in the franchise community. We know which franchisors are willing to have an E-2 visa candidate and which ones might be open to having their first E-2 visa candidate. And we help those conversations in convincing the franchisor to take our clients on as franchisees.
