The RTO Show "Let's talk Rent to Own"

Franchise Success: The Inside Scoop with Mitchell Lee

• Pete Shau • Season 6 • Episode 2

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What does it really take to succeed in the rent-to-own franchise world? Mitchell Lee, Senior Director of Franchise Sales at Buddy's Home Furnishings, pulls back the curtain on this profitable but often misunderstood business model.

The conversation begins with a candid look at current market conditions. "When you see trends in real estate, you typically see trends with franchising too," Mitchell explains, noting how the industry cycle follows a 2-3 year pattern from boom to valley and back again. With rising interest rates and economic uncertainty creating challenges, Mitchell reveals how Buddy's has pivoted to focus on acquisitions alongside new store development.

One fascinating revelation is the financial commitment required – between $500,000 to $800,000 all-in to launch a successful store – and what drives that investment. "We're not like Chick-fil-A where we open the door day one and have lines out the door," Mitchell candidly shares. Instead, the business builds gradually, with mature stores averaging $1 million in annual revenue and an impressive 20% net profit margin. For comparison, Mitchell notes food franchises often operate at just 8% margins.

The most compelling insights come when discussing what separates franchise success from failure. Mitchell reveals that 86% of Buddy's franchisees own multiple units (averaging 8-12 stores each), suggesting the model works extraordinarily well for those who master it. However, the approval process is rigorous – a committee of four executives scrutinizes each candidate's financial position and operational plans before granting franchise rights.

Perhaps most valuable is Mitchell's straightforward assessment of who should consider this business model. "If you want to be the quarterback of one team, go be the quarterback," he advises. "If you want to be the head coach or general manager, that's a different conversation." This distinction between hands-on operators versus multi-unit developers perfectly frames the strategic decision potential owners must make.

Ready to explore franchise opportunities? Connect with Mitchell at BuddysFranchising.com or call 813-321-0401 to learn if this business model might be your path to entrepreneurial success.

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Speaker 1:

Hey everybody, welcome to the RTO Show. I'm your host, pete Schell, and today I have a special guest. It's the second time, listen. The first time we crashed and burned, it was a long story, we're not talking about that right now. Mitchell from Buddy's Home Furnishings. Who does the corporate?

Speaker 2:

no, no, what is it? So I do work for corporate. Yes, my name is Mitchell Lee. I am the senior director of franchise sales.

Speaker 1:

Franchise sales.

Speaker 2:

For Buddy's Home Furnishings.

Speaker 1:

So when we say corporate, that's like a different word.

Speaker 2:

So franchisees will say corporate, obviously. Or anybody that works for a franchisee of a system will say corporate, yes. Am I a W2M employee of Buddy's? Do I work for corporate? Yes, I don't see myself as corporate because I'm not in the day-to-day of what franchisees and franchisors go through. I'm on the front lines of finding people, talk to people, get them engaged and then get them to that point Gotcha. Am I technically part of corporate? Yes, but I'm an extension where I'm trying to find people and match them up to our franchise.

Speaker 1:

We're not wearing that moniker today. We're not wearing that moniker. Mitchell is not wearing that moniker today. So, truth be told, it's round two. Last year we had some things going on in the first part of 2024 RTO world was okay, and then I had some things going on in the first part of uh, you know, 2024 rto world was okay and then, like, I had some that were just hard, it was hard to get through, man, it was just hard to get through.

Speaker 2:

I was dropping some knowledge in that. I remember yeah second round.

Speaker 1:

We are at rto world 2025, which means that it's a whole different year, whole different ball game. When you're talking about franchising in the world of franchising, what's going on?

Speaker 2:

So it's an interesting year, like I'm sure we've all seen in Rent to Own, but it's a little bit more exemplified in the franchising business. I always relate it to real estate. When you see trends of real estate, you typically see trends with franchising too, because the biggest purchase most people will make, number one is their home and then number two is typically a franchise. And I live in Texas so I follow trends of real estate, and recently a DFW poll came out where there's 500,000 more sellers than buyers Ouch yeah. So just think of that exemplified into franchising Right now. Getting financing, it's a little bit different than it was five years ago, even. Right, yeah, percentage points of 3%, 4%, 5% are now 10%, 11%, 12% on some deals, so it's slowed down a little bit, but I feel like we are in the valley, so to speak and I feel we are coming on the other side, but overall, just probably, like you've seen some industry trends, it's been a little bit harder, but I feel that it is on the bounce back.

Speaker 1:

So when you're saying that now it's like a buyer's market and franchising kind of follows suit, how often do those trends lead right? It's not like hey, today is a buyer's market, tomorrow is a seller's market. How often does that cycle take to effect Like hey is transitioning? Is it six months? Is it a year?

Speaker 2:

I would say typically it's a two to three year transition of the overall cycle. But you don't feel it till you feel it, if you know what I mean. Like you know I'm selling, things are good, I'm. You know we're doing this, that and the other. I might be looking for a vacation with some success, and the next thing, you know, it hits you in the face and you're looking at next quarter like, okay, things have changed, but overall that cycle typically is two to three years.

Speaker 2:

In my role and you can take this to rent-to-own operators as well you really have to pivot and figure out what's going to be that niche thing or something that you can take to elevate that business. Right At the start of COVID, most people were renewing their appliances and washers and dryers right, and you know, playstations were huge in that time too. But then after that you kind of had to pivot and push some other products to help increase that. Me personally, when I was, you know, in the thick of it, we were all doing new builds, right, new franchisees, new stores. But, as you know, in the thick of it we were all doing new builds, right, new franchisees, new stores.

Speaker 2:

But, as you know, covid hit supply chain turned some things around and, you know, construction costs rose as well with higher interest rates and financing. I needed to look to get a little bit more creative. So we were looking to push a little bit more acquisition opportunities where I would broker some deals and bring them to franchisees or new prospects to look to convert those stores into buddies as well. So just looking to continue to grow our brand, continue to grow our business, whether it's through new build or acquisition, but was looking to pivot at the time too to help continue our business growth.

Speaker 1:

So when you say acquisition, we're saying we're going to go out and somebody has something already. And they're either looking to get out, they want to change their life, or whatever the case is, and they're saying, mitchell, I'm going to change my ways today, I'm going to sell cars or do whatever. How do they come to you and say this is what I got to do. And then how do you turn around and tell somebody else you know this, john, joe, jay is like you know, hey, he's coming out. Because if I'm buying, why would I want to buy something that somebody's getting out of?

Speaker 2:

right, I mean, that's a thought process.

Speaker 1:

It's like you know this guy's getting out of it. He's been in for a while. Well, I know I want to put my hat on that.

Speaker 2:

Yeah, how does that sell? Great question, and it's a little bit of a long answer, but I will take you that business. And in some point in time they handed off to the sons, no matter that timeline. Well, we're now in a third cycle where those fathers are now trying to hand it to their kids and their kids don't want any part of it. Right, and so we.

Speaker 1:

You know I did. I did say on the podcast out there long ago man, I'm starting to see a decline of that, that generational. I have this and come down Now on the show. We do have a lot of people that say that when you say on the show, when you talk about the amount of people that are on the show versus the amount of people outside of the show, I've heard a lot of people go, yeah, this is not my cup of tea, it's not what I want to do.

Speaker 2:

Listen, it is a very rewarding business, but you got to put in the work, especially when you open a new store. Right, when you open a store, you're making zero dollars. We're not like Chick-fil-A where we open the door day one and we have lines out the door. No, you got to put in the work, the blood, sweat and tears and you're going to reap the benefits on the back end with a mature store. But that just doesn't happen one day, one month, one year. You got to continue to put in that work, but on the benefits of selling that business. And that's why we do tons of marketing with both a pro as well as through some friend. I say friend of marketing, just franchise development marketing, letting people, hey, whether you want to sell, convert, expand, whatever you want to do, buddies, is an Avenue and an option for you.

Speaker 2:

We are around 300 locations now and 80 plus percent of our stores are franchising. We're really the only ones in our space that is truly led by our franchisees, and so I want people to know that, hey, when you're coming in, you're not coming into a company that is more corporate heavy compared to franchise heavy. We are franchise heavy and we are led by our franchisees, so we do tons of marketing that way. But getting back to that point I was making is, when people want to sell, I let them know. Reach out to me, call me. I can broker deals for you, either internally or externally. So the one thing I'll mention, though, is typically, when I get all the documentation, I evaluate the business. That's where we have to have some hard conversations right oh okay.

Speaker 2:

Yeah, I know you're a pretty girl, but you might not be the prettiest girl in the bar, right.

Speaker 1:

And so we got to find out how much it costs to take you home, and there's got to be some really hard, heavy conversations where you're letting somebody know, hey, it might be nice and dear to you, but it's not nice and dear in a pocketbook. And we got to make the right call.

Speaker 2:

Mr and Mrs Seller, I know you want 1.5 million, but for me to get this deal across we need to be in the ballpark of 6,800,000. And when you tell people that for something that they have literally put blood, sweat and tears in and it's might've tiptoed a little bit off of where it was, that's hard. But I also have to protect the future franchisee coming into our business as well. If they overpay for that business and then they possibly might get financing on top of that, then they're going to be put in a terrible position to look to grow and make money for themselves and turn hurting a store and business for us down the road. So okay, okay.

Speaker 1:

So what are the top three things that help determine? I mean, we don't want to go down that rabbit hole but like if I'm selling and I have a buddies and I'm like, hey man, I just need to get out, for whatever reason, you know, I broke my leg, don't want to do this anymore. What are the top three areas that you look at? And of course we got to remember that's not all the areas, but you know some of the areas and say these are going to be pretty much the key indicators. That says this is the ballpark you're going to land in no-transcript.

Speaker 2:

all the drywall because it was wet because of mold, so that is one kind of extenuating circumstance, but when it gets down to it, the meat and potatoes. What are we doing today? And so I have to evaluate the accounts where they're at, percent collected, all of those things. And there's two really important ways to evaluate businesses these days. In rent to own, there's more of an old school way of monthly rental revenue and multiplying out by that, and then you can add in some inventory, some vehicles and get you a number, or you can do EBITDA. That's more the new school Right. But if you're asking me, if I'm on a phone with somebody and I'm just looking at a quick range, I'm always going to focus back on that monthly rental revenue, because that's all about this business, right Accounts and inventory, and that's what we're always going to look at, the core of this business.

Speaker 1:

Accounts, not a customer account.

Speaker 2:

It depends, depends on some people. Let me rephrase Some stores are more heavily on betting, some are more focused on appliances. With our stores we're typically 60% 70% mixed with betting couches the deal. And some people are a little bit in smaller markets where they might push retail mattresses right and so although they have a business that does 700,000, half of their business is retail.

Speaker 2:

So how do you evaluate that right? So I might bring in a third party company that helps me with brokering some deals and we'll actually give a true evaluation outside of that because, again, we're in rent to own, we're not in retail. It's a different customer right. So I have some third party services I use to try to get true evaluations and also help me market to potentially bring in some outside people that do want to get a rent to own as well. So it is a conversation and a deal that can happen in two months, but I will tell you most deals from first time I call to close is over a year, because it takes a lot of time to get you in an understanding process of A wanting to truly do it and understanding how much it's truly worth and then lining also up somebody on the back end and essentially a marriage, to take over that deal, that business, and look to grow it as well too.

Speaker 1:

So you know I have a lot of people ask me. I'm a podcaster and I'm going to tell you exactly what. I think I've been here for 20 years but that doesn't mean that I know the intricacies of every part of this business. I just know what part of the business right and I have a lot of people ask me. You know, like, hey, you ever thought about going into business yourself? Every day, every day, I think about opening up a location. Like why wouldn't I? I've been doing a long time. I think I got a little bit of you know, history and knowledge and operational skills behind me. You might be building a little something here right now.

Speaker 2:

That's what we're doing.

Speaker 1:

But then I turn around and say you know, the big question is always if you had the ability to do it for yourself, would you do it for yourself or would you go into franchise? That's like the number one thing that comes up every time we talk about it. And so you know, I have a lot of people out there and I'm going to. When I say a lot, we're right at a 50% line, right? They're like man, I don't want to pay anybody. I'm going to come up with my own logo, I'm going to come up with my own graphics, I'm going to come up with my own way to run the software. I'm going to come up with my own because I want to save it. And the other end you've never done that, it's not walking.

Speaker 1:

Day one and you figure it out, and day two it's there, it's. I'm going through months of training material. I'm going through months of how do I do this? How do I do that? I don't know if I like that logo on the truck. This truck is it's. So you know it's either hit the ground rolling with a franchise or hit the ground. And if you know how to do it, you know how to do it, but if you don't, you don't, what is the selling point to tell somebody that you have the ability to go out there and do it by yourself, but this is the better way to do it.

Speaker 2:

It's about managing your time right, because when you are starting your own business non-buddies, non-franchise you just went through what a million different things there and that's going to take one to two years to truly iron out and figure out. You can pay for those mistakes and you can still turn your store, your one store you're going to build into a great foundational store for whatever you want to do. Keep it, build it whatever, but in the same amount of time you could do that. You can already strap on to a business that's been in 64 years franchising since 2009. So what? 15, 16 years? Now that's done it time and time and time and time and time again. Right, and already has an operations manual, already has marketing set up, already has supply chain and purchasing. So, in the thick of it, are you going to save a couple of percentage points doing it on your own? Yes, but we're talking about time. How much is important to you? If it's important to you to be the quarterback, go be the quarterback. If you want to lead one team and be that quarterback, so be it. You want to be the head coach? You want to be the general manager? That's a different conversation. So it's just about what you want to do and what you want to pursue.

Speaker 2:

If you are all for, I want to do one store, I want to grow one store, I want to be overseeing everything. We might not be the best fit right, because 86% of our franchisees own multiple units. Our average units per franchisee, depending on what model you're looking at, is between 8 to 12 units per franchisee. Wow, really yes. So we're very heavy on the multi-unit side. If you want to be a one-unit operator, that's fine, that's okay.

Speaker 2:

Because, guess what, you might go through all those headaches and those pain points and get tired of dealing with supply chain and purchasing and invoicing and everything else and say, hey, I want to go to buddies because they have a purchasing program. They handle all of those things the negotiated rates, the buying power, the invoicing, the uh, the net 60 terms, a rolling line of credit. I want to tap into that and I'm tired of doing it on my own. And so we actually, again, I turned somebody away three, four months ago. I said what you want is you want to run your own store. We're not your best fit and that's okay. And guess what? He called me up again the other day and said hey, I might actually seriously consider this, because I don't know if I want to do all those things.

Speaker 1:

I mean, in case anybody's Thinking about jumping into it, that is a lot to go into. I mean, there is a lot to really start thinking about. Just the operational software is it support enough on the back end? Are you getting the accounting out of it? Are you getting the inventory out of it? Can you really dial into the reports that you really want? Is it going to give you everything that you need? And man, I've seen everything out there from and I'm not trying to say anything about it and Lord knows it's going to come back and bite me but I've seen anything as old as R triple S, all the way up to something like Versa, right when it's.

Speaker 1:

You know one's with a mouse and one. You have to figure out the F function. That's not the same. They're just not the same. So you know if somebody comes in because on the other side of the whole getting off the ground rolling, once it's done, it's done right, you're open, you're solid and you're set, whether you took the long road or the short road. But if somebody said, I want to take the short road, I want to be able to use all the resources that are available to me through this avenue, but I still want to be somewhat individual. I don't want to just be another fold in this army of stores, because I still want to be able to look at my customers and go. There is a unique way to deal with me, yep.

Speaker 2:

How do you answer that? It's a great question because we have franchisees as large as 50, 60 units and some that are just opening their first store, right? What I love about our business is, because of our buddies purchasing program, that one unit franchisee gets the same as every other person, no matter how many stores they have, so they can come in and be a part of the buying power with buddies immediately and get all of those benefits already talked about. Number one. Number two we have, yes, a franchise model that you follow, right. We want our stores to be neutral colored, right. Whites, grays, blues, buddies colors, et cetera right. If you want to go in and paint the walls orange, do you think we're going to let you do that? No, because that makes zero sense with buddies branding and buddies colors Right. But we give you freedom and flexibility in our business model in ways that make sense.

Speaker 2:

We have buddies suggested pricing Right. We use in Tampa and Florida and Orlando in our stores. We recommend, depending on states, to use that because it can fit most of America and our customer base. However, we learned over time our stores in Washington State, pennsylvania and other places there needs to be a second tier pricing. So we came up with a second tier pricing for those stores to try to hit same revenues and profitabilities.

Speaker 2:

Right, we learned that through a franchise model, right? Guess what? Mcdonald's didn't create the Filet-O-Fish, it was a customer because, you know, couldn't eat certain meats at certain times with the religion, right. And so that's what's a beautiful thing about a franchise model it continues to evolve and it continues to grow. We suggest our pricing, but guess what?

Speaker 2:

You can still set your own pricing, right, and there's other things we do in our model that makes you have more freedom, right? If you have a vendor that you love, well, we need to vouch for that vendor to make sure that they're a legit vendor, that they can handle the supply chain, they can handle the demand and they also have good quality too, because they're going to be in our customers homes for 12 to 24 months, right. So we also, we will bring on new vendors, pending that they meet all of Buddy's brand standards as well too. So again, do we have a franchise model? Yes. Do we want people to be in the sandbox altogether? Yes, but we also are looking to expand and continue to make that sandbox better so everybody can reap those benefits safe bet to say we are shooting for this.

Speaker 1:

You know, everybody's got this model like, hey, what are you going to do? I'm going to have 301 next year and then, after you, have 302. That's not a great model. Yeah, well, we're, you know. So we've gotten to this point, we're at 300 stores, we've been around the block, there's a lot going on at buddies and you say you know what? This is where I think we can be, or where we want to be, or we should be, by 20 to of 2026. What does a one-year model look like from now to then?

Speaker 2:

That's a great question. I can never know what's going to come down the pipeline in acquisitions that can really change things right, and it all depends on what leadership wants to do and what our investment firm wants to do. But if it was a perfect world man I'd say give me all the money, Let me go buy a bunch of stores and let's get them internally with our brand. Fortunately they don't pay me to make those decisions right. All that's above my pay grade. What I can look to do is bring on, you know, 20 to 30 new units a year in opening and then or in sales, and then look hopefully for those to open in the next year or two for those 20 or 30 units. So I would love I think we're right below 300 right now I love to cross that 300 unit threshold first. And wherever we land in a year is wherever we land, because sometimes there's things outside of our control, right? A bad real estate deal, a landlord that won't get back to us to open a new store, Maybe a store has to close, you never know some situations. So there might be some attrition and some losses in that. But man, if we could be at and let's see, we're almost through 2025. If we could be around, you know, 310 and then 320 and anything in between that are growing more than that. I think that would be good.

Speaker 2:

And that's what I love about our brand, too, is we're not going to. You know, there's some of these other food franchises out there that open 100 and 200 a year. God bless them. I don't know how they do it. I mean, it blows my mind, and most times you see kind of a fallback off that too, because they're outselling what they can support, Right.

Speaker 2:

And that's what I love about our team, especially Michael leading the charges. We are always going to make sure we have more support. Michael leading the charges, we are always going to make sure we have more support. We talk about it up front and we're proactive rather than reactive. If a franchise consultant is getting pointed, getting tapped out, we're already hiring that next one before we get to that breaking point, right, and you see that on our supply chain and purchasing side as well too. So we're always going to be staffed correctly, but, again, we're not going to be a front of our ski, so to speak. We're always going to be strategic in when we open and how we open to hopefully continue to just grow a little bit every single year.

Speaker 1:

I'm going to throw in a little something. You mentioned Michael. We're talking about Michael Bennett, right? You know had a great conversation with Mike before we got here. Very much into business. But you know, one thing I always loved about dealing with Mike is he has like a little bit of a I don't want to say a comedic streak in there, but you know he's always he loves his zingers.

Speaker 2:

Right, he loves his zingers.

Speaker 1:

But okay. So, talking about the cyclical data because you said that it's about 12 months rolling good, bad or indifferent I'm going to throw this question at you now how does the forecast look going into 2026, based on the cyclical data that we've had coming out of what we just did? So everybody's going to say the tariffs are coming. The tariffs are coming. I feel like somebody should be riding with a red shirt and a horse Okay, they're not here yet, but they might be. That might affect somebody from saying I want to open up a franchise, but if I open today at $20 a unit, now, all of a sudden now I've got to sell things at an average of $30 a unit because things have gone up. That might not work for me.

Speaker 1:

Or you've got a situation now where in the last, let's say, 18, 24 months, you've had kind of like this wave of what's going on with our spending ability, our purchasing power. Inflation has kind of made it so that sometimes our money works for us and sometimes it doesn't, and we're trying to figure it all out Based on all that. That's a lot. How does 2026 look? Is it look, is it look? And you know what I'm not trying to, I'm not trying to put anybody in a bad spot, but I see like man, it can be a little rough out there um, well, first I'm going to do a michael bennett hijack.

Speaker 2:

Um, and you did mention michael and I didn't get a chance, so I'm going to actually say um, when I I was. So I've been in franchise sales and development now for eight, going on nine years. I was in food franchising first COVID happened. I took a year working for a conversion brand in automotive services and our recruiter reached out to me and was like hey, you ever heard of Buddies or Rent to Own? I was like no, I've never heard of this. I come from a middle-class family, just enough to get by.

Speaker 1:

But we didn't do that we never had to use that.

Speaker 2:

Yeah, just never crossed my mind. And in one week I talked to Michael Bennett three times and if you know Michael, those conversations turned into two hours.

Speaker 1:

Oh, I do. And three conversations If he wants to get to know you. Before you know it, you're 30, 45 minutes into a conversation.

Speaker 2:

Yeah, so, man, I again didn't know anything was taking a leap of faith and, man, I've loved every second of working for Michael. He is my boss directly and he's one of my best peers, mentors, friends and I anybody in this space and anywhere else find somebody that is somebody like that that you can continue to look to grow and have fun with as your boss, as your friend, and I will tell you, he's one of the best minds and people I've ever been around in my short life so far in business. So I just want to give that shout out to Michael Bennett, and also, too, you call him Mike, obviously, but there's a Michael Bennett, a Mike Zager and a Mitchell Lee. So we got all the M's covered on our executive team.

Speaker 1:

We're an M&M factory.

Speaker 2:

Yeah, so Michael, mike and Mitchell. But getting back to the question, so I'm optimistic. I know my job is to be sales and glass half full, but, man, we went through some hard times. We've been through some hard times both in our stores and, obviously, franchising, and I also think we got a little blessed from 2020, 2021, and 2022.

Speaker 2:

Yes, we got spoiled With a very good economy, with everybody buying stuff, and then when we printed money, what we thought was good obviously was duct tape on a boat, right. So, as I mentioned, for us and I think, the industry and the economy, we're in the bottom of that valley. From a political side. I think there's going to be pressure to bring interest rates down and other things that are going to help our business. I think, again, the real estate market's going to come back even better and I'm starting to see interest rates not be as high on financing deals. So I think all those things are showing promise for 2026, as well as pressure for the feds to do those things, Jerome.

Speaker 1:

Paul, we're looking at you, we're looking at you, jerome, I'm telling you right now, right here.

Speaker 2:

We need a break. Where are we? Omaha, nebraska, that's it. I was about to say that we're going to get a snake and hope that you drop the break.

Speaker 1:

So I mean, yeah, it's, it's, it's been, it's been a year. You know talking about it from the operation standpoint, and can I?

Speaker 2:

add one more thing to that, no sure. So when prospects asked me that question, right of what are you seeing? Well, first off, that's why I love our purchasing team because, yes, we do not fully. You know, we both. We buy both internally and externally here in the States and overseas. So our team can make a pivot. If there's rumblings about tariffs and other things, we can push more of our in-state vendors to help with that, alleviate some of that cost.

Speaker 2:

Additionally, what I tell people too is like hey, when you go to Walmart you're going to buy a TV for 300 bucks or 350. They bought it for 300. They're going to make 50 bucks. That's the total money they make, right.

Speaker 2:

But in rent to own, it's different right. Number one, because a customer is paying over 12 to 24 months on average, right. And when they're paying that over time, well, guess what? You alleviate that cost on your burden over time to the customer, so that 15 bucks a week or a month or whatever it is, only turns into a little bit more. And so I tell a prospect that is concerned with that that it shouldn't be an issue because we can pivot with our vendors depending on the tariffs. But also our customer doesn't feel that bill right off the bat. They feel it over 12 to 24 months. So it's a little bit of a sting compared to a big jab in the side, like if you and I go to Domino's and get a pizza now for $19.99, which is crazy, right? Remember they used to sell $5.99 pizzas 1999, which is crazy, right?

Speaker 1:

Remember, they used to sell 599 pizzas, man. I remember when I used to walk to the streets of New York and I can get a slice of pizza.

Speaker 2:

That was like 18 inches long for a buck. Yeah, there's no more dollar spots, man. There's two and three dollars. Now the dollar tree had to come and turn around.

Speaker 1:

Listen, we're not the dollar tree.

Speaker 2:

We're the dollar plus tree. I'll be by the dollar tree, though Put me by a dollar tree and a dollar general, so $300 general you know.

Speaker 1:

So when we're talking about, you know the things that have happened the buying power, the spending power, the, not the, this, the that. Has it been harder to qualify people for those franchises because of what's been going on recently?

Speaker 2:

Simple answers. Yes, I go to a lot of franchising shows. I think that's something that I've said to you and I've heard you say it. I do listen to some podcasts. I have a face for radio. I know I do. My FranDev marketing team pushes me way too much out there, but I'm proud of it because when we started what's called what APRO does for the RTO world which is funny I say that IFA is to franchising, the International Franchise Association, us R&R, I think Aaron's and Renison have been involved in the past I don't know if they're actively now, but we go to these shows and we're involved and just how for the RTO world they walk for Capitol Hill. I do that for IFA too. So Michael is a little bit more involved, obviously on the RTO side. I'm a little bit more involved on the franchising side. So I go to a lot of franchising shows across the board.

Speaker 2:

Again, food retail, non-retail, service-based brands, whatever the case may be. And it's exactly to the point that you're making is how do we get good leads anymore? And this is a specific for Andev marketing thing, but it used to be $100 per lead that we used to buy. Now we're up to 200 bucks for buying one Good night. Budgets are going from literally in our business from a hundred thousand to 200, 250,000 just on buying leads and enfranchising. You only typically sell about 1% of the people you talk to. For me, so I get told no 99 times a day and maybe told yes once, just to take another meeting.

Speaker 1:

You guys know how difficult it is to get a sale.

Speaker 2:

But here's the thing, though, too, is people are buying $600,000 to $800,000 franchises, right. Right, this is more than their home, their car. This is the biggest purchase they'll ever make, and I take a lot of pride and responsibility in that, making sure that I take them through a path and a process that makes sense. Right, I'm going to get you with my executive team. We're going to probably go visit a store, whether it's in your neck of the woods or mine. We're going to get down to Orlando and meet my executive team in person.

Speaker 2:

I'm going to have you talk to our franchisees, right, because you need to talk to the people that have their own stories to tell as well. Right, what people call validation in this business, you need to validate the brand. You need to review all the documents I send you. It's a big, big purchase, and I take a lot of pride in making sure that anybody comes in our business. Whether they're going to tell me yes or no, at least I know and have a clear peace of mind that when they make their decision, they are fully informed, whether they do it or not.

Speaker 1:

I mean God when you say that like that's a lot of money going into it and investing and saying you know this is what I want to do. Okay, so then let's talk bucks, let's talk money. If I want to get into this, an average person with an average store, we're not saying, despite how many stores they might ever have, we're going to look at an individual situation and say, if I was to meet all the requirements, put this down and work on the level as everybody else does, I'm not going to say I'm going to be an overachiever, I'm not going to be an underachiever On the level, what does the money return look like? What does a profit percentage look like if I just own one store and I did what I was supposed to do?

Speaker 2:

Great question. So I love that this podcast is in this business. So when I say these numbers, they can kind of self-validate it too, because they're doing it every day For new prospects. It's a little bit harder because, again, a food place that's doing a million might only make $80,000 net right 8% but they're happy with that right, which is crazy and mind-blowing. That's what I used to sell. I loved coming over here and seeing this industry and this business and what it can do. Again, work hard to get there, but you can reap benefits and have higher nets.

Speaker 2:

For four years of data. What we have is called a franchise disclosure document, an FDD. Anybody that sells franchises has this, and in one of those items there's 23 items. One of them is an item 19. It's the FPR, the financial performance representation. Franchisors can decide to put financial data in there and they have the power to not. So if you are looking at any franchise out there, if they don't have financial data run because it's a red flag, they are not proud enough to put their sales in there to show you a return.

Speaker 1:

Yeah, we know you would make it a lot. No, no, you can't verify that Now.

Speaker 2:

The only the one caveat is if they're a new franchise and you're an early adapter and they don't have enough years to put in there, like if it's a new concept to put in there, like if it's a new concept, 18 months in they don't have data that the state's going to allow for these FDDs to put in there, but in four years of data our average stores do. Now I can only speak corporately. I can't speak for franchises. Right, we're using the C word now.

Speaker 1:

Yeah, see, there it is. There comes the C word Big bad corporate.

Speaker 2:

But our stores on the corporate side average around a million dollars in revenue and it's ranged. I've seen them average 25% net profit pre-COVID and in the hard, hard years two, three years ago I saw 12% net profit right Because, again, all about buying inventory and in those COVID times the supply chain we bought a lot more inventory right Now we didn't have to and it showed 12% net profit. But guess what? Our inventory was higher in that 25, 30% range because we were protecting our stores.

Speaker 2:

But if you're saying, hey, what are we shooting for? We're shooting for a million dollars in revenue, 20% net profit. That shows a healthy store on average. Now we could get in the 1.4, 1.5 per million top quartile 25% net profit. Take home, you can do the math off that. But I always talk averages because my averages in the food space would typically be top quartile stores and you know I want to bring more people to rent, to own, especially food franchises of other brands that are large operators because they get it right, they're going to plug and play, they're going to go find people to do that and they're not going to be in the day to day. That's a different conversation than a 20 year vet that's been a district manager or regional manager at big brands. And then they want to come and do only one store because either a that's what they can afford, or B, that's what they want to do.

Speaker 1:

So so what would you say to somebody who comes in? Because I would imagine that if you can afford to have a franchise, you're in a certain part of your life. Okay, I know that when I was in my early twenties, that was never, ever. I mean, it was like when my next bowl of ramen noodle for dinner is going to happen. Yeah. But you know, now we're talking hey, you have the ability to spend a few hundred thousand dollars to start a one-store franchise. We're just saying that right now, okay, and I say listen, mitch, I'm all good about this, but I don't want to work. I don't want to.

Speaker 1:

I mean, I don't mind owning it, I don't mind running it from an outside standpoint, like you know. Hey, I, I, I'm going to improve this amount of inventory purchase. I'm going to say we're going to do this marketing and maybe we'll do, you know, a special deal every once in a while or whatever, but I don't want to be the guy behind the counter, cause that's just not me. I, I love the sound of it. You know, $1 million revenue 20% is average. I can do better than average. I think I'm good. What do you say to the guy who, or gal who is like I want to have it but I don't want to run the operations of it? Is that is?

Speaker 2:

it's possible. I have to. We're going to have to be in a full trust level that if you're going to do that and if you're going to sign up, I either need to already know who's going to be your salary general manager number one or number two. You need to have a really good understanding of who's it going to be, because guess what If that general manager heaven forbid passes away, moves on, quits, who's going to do it? Somebody's got to do it, somebody's got to. If you're going to put the assistant general manager that isn't ready, what's going to happen? They're not going to be able to manage the inventory and the customers and the employees what's going to happen, ladies and gentlemen?

Speaker 1:

I mean it's, it's going to be rough, yeah.

Speaker 2:

So we you and I need to be in lockstep of saying I'm cool with you not doing the day-to-day, I'm cool with you being a thousand feet up and if you already have that person, I might not sign you up because we have a committee that approves all of our deals too. Okay. So it's a. It's like when you get pre-approved for a house you know it's looking good, but we're not there yet to a close right. Same thing in my friend of Mark or my friend my franchise development. So I get all the documentation, make sure we is financing locked in. What are we looking at? Are they running the store? If not, who's going to run the store? We need to put a full package together to make sure that this deal is going to work. Because, listen, over the last four or five years, we've learned to, we've grown, we've probably done a couple deals that we probably shouldn't have done at the time. We're learning. That didn't work so well, yeah, but things were told to me as well that this was going to happen, this was going to happen, this was going to happen, and we trusted them and it didn't right. So we're trying to continue to better ourselves too, to make sure that we don't get in that situation again.

Speaker 2:

Right? Is your financing good? Let me see all the documentation. Perfect. Is your general manager good? Who is it? If you don't need to have a yes yet because it's not a business, but who are you looking at? Who's going to be option one, two and three? So we try to do all that upfront because I listen, I don't want you to be in the store screwed over in any way. Right, if you want to go in the store, go check on the store, but be in lockstep with the general manager. Talk every day, every other day, whatever. Have a weekly call with your franchise consultant. Just do the things that you need to do to have a successful business.

Speaker 2:

And guess what, if something happens at general manager, you better have a backup plan because, if not, we're going to be having harsh conversations because that million dollar store is probably an $800,000 store, right?

Speaker 1:

And it typically doesn't go back up before it goes back down. You know what I mean 20%.

Speaker 2:

So you just have to have those hard conversations.

Speaker 1:

So this is new, and if you told me before, I apologize, but there's a committee that says so. After you get the 1% of the 99 that you've gone, and then 100th one, you finally got it, you get all your dominoes in a row and now you're going to get an approval, yep, Okay. So now we're in a step process here. How many people are on the committee?

Speaker 2:

I don't tell a lot of people this, but I'll tell you and the world. So it's a committee of, it's a committee of four. Okay, so that doesn't add up sometimes. I was just about to say that's kind of like I'm the fifth on the committee and I'm always getting an automatic yes technically.

Speaker 1:

So I I was going to say usually it's an odd number, just so that you don't get locked in.

Speaker 2:

Well, we're a lean and mean operating machine team over here. But perfect example. I'm working a deal right now. We have a gentleman that's looking to retire move on has a couple stores, got a deal lined up. He's looking to buy the stores. He's doing a great deal with the seller. But the deal came to us. I presented the deal to my committee and that deal upfront got rejected because they want to see that prospect bring in $300,000 of additional capital to make sure that they can support the long-term of the business. Right, these people know this. You burn cash buying inventory and getting a business and growing it. Right, you know it, you know it and they know it too.

Speaker 1:

Well, I'm just letting you guys know. Now you know it, Listen, and if anybody doesn't know, I mean rent-to-own is kind of like a cash-intensive business. At first it's not something that you're just going to start throwing pennies at and hopefully it'll turn into nickels and then quarters. It's more like you're throwing dollars and then quarters and then nickels and it really depends because you have your cycles where sometimes you're flush with inventory because it's summertime, you get some returns, something like that, and then you've got the wintertime where I sold everything. Damn, I've got to get a couple of loads of furniture come in, not only to fill the showroom but to fill the homes of whoever.

Speaker 2:

I'm sending it to Pete, if you and I start a car dealership, what do we have to buy? We got to buy a lot of cars. And guess what, if we have a, can we cuss on this? We don't. Generally, I was going to say we have a whole load of cars, do we have to go? Do we got to go buy more cars? Right, and so this is something we learned over time too.

Speaker 2:

As I brought in some finance brokers to work with us, it was hard to finance the deals at first, because we were trying to finance a loan and then a lot, you know, a line of credit all into one, and it got harder. But I worked with a bank that said hey, we're going to do the baseline of the development, of the construction of everything, and then do a line of credit on top, a revolving line of credit for that inventory too, and it alleviated some of a all-in cost to our franchisees. So we've learned over time right, in your store, you're going to have $100,000 of inventory when you start. Right, if you have a really good grand opening, you got to buy another $100,000 of inventory. So you're going to buy between $200,000 and $400,000 of inventory for that store in the first three to six months right.

Speaker 2:

Wow, yeah, yeah, and so you need to be set up for that. And that's why my committee came back and saying, no, we need to see him have 300K more of additional capital so he's going to be able to be in it for the long run, because we don't want to be in the same position two years from now, having to sell the store again because either A he ran out of cash or, b he's just so strapped amongst his means because he never got set up the right way. So it's hard conversations with the committee because again, I did everything I could to bring this deal to get to close and they're telling me, no, go do this back. Right, but I know where it's coming from is good intentions.

Speaker 2:

It still pisses me off sometimes but I know that it comes back and I have to go back to that prospect and say, hey, we're so close, we're round in third. Third, let's get this and let's knock it out.

Speaker 1:

So so do they take your file and have this big red stamp that they just no get no, for camera purposes and dramatic purposes absolutely and it sounds like. It sounds like a big gavel, just what no?

Speaker 1:

it's just an email with the committee and back and forth an email, so it quieted down so when we have these people who are doing all this right and you're setting it up, you're letting them know hey, this is a straight conversation. You might have this, you might not have that. We don't need to talk about this. We have to talk about what's the fall off rate of somebody going. You know what? I started it. It looked good. We came back from the committee. I tried again. The committee said, hey, there's something else. And look, don't know if I can do this, great question.

Speaker 2:

Most deals I take to committee get closed.

Speaker 2:

He's going to say that I take the good deals, no. So here's why I say what I said is, you know, in my early years of franchising, especially in the food side of it, man, we were just I hate to say it, but we were signing anybody up, we could right. It was literally up until five, six years ago. It was wild, wild west of franchising. There's been some more laws and regulations and the company I used to work for is going through some things. But, all that to be said, I knew that no matter where I went to next, I'm going to make sure that I do everything in my power to set them up for success. Because if I'm putting my name on this deal, this deal is going to be, you know it's got. I'm either going to. You know, I'm the one that brought them in. I'm so I carry a lot of pride with that. And so if I take a deal to committee, I've I've tried to think of everything possible that's going to come up now again, an acquisition is always a little bit different than a new store, right?

Speaker 2:

Because new store it's a dream and a vision and everybody's happy. But when you're selling stores, it's typically some pros and cons, some good things, some headaches and other things. So when you're selling existing stores, there's always a million different, more things compared to just a new store, which is a dream and a vision at that point. So new stores again, I'm batting 100% on. I'm confident because if I take a new store to a committee, I'm not going to over leverage that person.

Speaker 2:

They can afford two stores or run into two stores. I'm not going to sell them four stores because they need that capital for that, for that inventory right and everything else. But typically they will come back on existing stores because it's already a store in our system. It's already been a franchisee that's leaving and somebody new that's coming in and we don't want to be dealt with. We don't want to put that buyer in a bad hand right off the bat or the seller being pissed off as they go out. Oh God, you don't want that. You don't want that. We're not trying to divorce, we're trying to start a new marriage that everybody's going to be happy.

Speaker 1:

Not like one of these 2025 divorces where you get married and then divorce in three months. But how much? Because the pricing has definitely gone up. How much does it cost to have a build out? I don't have what's a typical store size right now 6,000 square feet. 7,000 square feet.

Speaker 2:

Four to six. Four to six, that's 80% of our stores. We do have stores as small as 3,000 and some as large as 12,000 plus, but, if you're asking me, a core between four and 6,000. Okay.

Speaker 1:

So we got a four. So let's say five, right? So we got a 5, 500 square foot of office space. How much does a build-out cost nowadays? To say, I don't have a location that looks anything like it's supposed to and I'm not saying we're turning a restaurant into it, but it's just a store that we've got to make right. I've got to get the right paint, I've got to get my signage up. And, guys, when I ask this, it doesn't matter what sign you put up it could be a buddy sign, it could be your own sign you still got to put a sign up. You still got to put some stickers on the window. You're still going to have to put the overhead. You're still going to have to wrap at least one vehicle. You're going to have to do some type of paint. Whether it is the orange you talked about or it's not, somebody's going to roll a new carpet.

Speaker 2:

It's a great question and every time I tell this number to people that are in the business they get shocked. But when I break it down they're like, oh, that actually makes sense. Because when we talk all in cost again, a sales guy at another brand might just tell you the startup cost to open here at Buddies. We talk about from the time you pay us a franchise fee of $40,000 to the time of three months of being in business because we want to make sure you understand that there's additional rounds of inventory. And also, guess what? We're not the Chick-fil-A that open our doors that day and make money. No, right, we're a little snowball at the top of the mountain that's going to go down and compound and get bigger, right, and we want to all get we want to get to that mailbox money and have all those. I have a number in my head.

Speaker 2:

Right now you sign a lease and it's a former retail store, then that's going to be 20, $30,000 compared to if we go into a really awesome location that, uh, is a former restaurant and we have to do 50 K and demo loan and get permitting and other things. So that's why it's such a big ranges because I don't know what your real estate looks like. I don't know if you're going to buy the vehicles or lease them right. You can save a hundred thousand dollars that way. Instead of buying a new box truck and a van, right, we have a buddies program internally, rather than buying a pile on sign and an external sign, which could be anywhere from 20 to $40,000. You can lease it through buddies over 60 months on 10% simple interest too.

Speaker 2:

So there's some things we can do to save on vehicle and signage cost. But again, another $200,000, $400,000 in inventory, another $100,000, $150,000. You need for cash on the side to support the business as it gets its boots off the ground. So I can see a range from anywhere from $500,000 to $800,000. To $500,000 to $800,000. Okay, typically, all right. So I always try to be worst, worst case on the other side because, again, if we're going to get a financing package, I'd rather you get more than get less. Getting a finance loan and then trying to get more money three months from now is very hard to do, so I'd rather you have more cash save and then use it as you so choose, or use it to pay off your loan. So we try to get it more on the worst case scenario.

Speaker 1:

I'm going to ask you a really weird question. We'll see if you can answer this question. So let's say you got some person, because I kind of remember that there are ladies out there who are just as good as and I don't want to say any guys, but y'all know some of our best general managers are women, right?

Speaker 2:

so for some reason the guys sometimes pick up the phone more. For the women I'm going to tell you.

Speaker 1:

I'm going to tell you right now, like when, when I saw the people who are walking the stage last year, I even looked at some of my guys and I'm like do you see how many ladies are up there? We got work to do, guys. So if you ever had somebody come in and they're you're having that conversation you really got to think in your head. You really probably don't need me to be here. You've kind of got it all set out. Why are you here? Or? Or is it one of those? Nope, they always come to you because they have 100% need. It's not somebody who's like really established.

Speaker 2:

So are you talking like a mom and pop owner? That comes to me.

Speaker 1:

Like is there, yeah Well, whether it might be on pop or whatever, and like they kind of have the whereabouts to get it done themselves and you just kind of like is that why you want to like? Why do you want to be here?

Speaker 2:

versus yes. So when, especially, we have some veterans in this rent to own business that have maybe sold 10 to 15 years ago and of course they're in a non-compete but then they retire, maybe get into real estate storage units, maybe go to another brand like r&r tire, right?

Speaker 1:

or move out of state or whatever shouts more on our tire.

Speaker 2:

People love y'all um, but you know, there's people that come back and I, as much as I want to be excited that, hey, this is going to be an awesome slam dunk deal, there's always something pulling me back of. Are they trying to pull information from me so they can do it on their own? And I hate to think like that, but when you've been burned once, it sometimes hurts a little bit, right, I believe. And so, yes, I've had conversations with people recently of saying, man, you've done this before, 15 years ago you did all these things. You still know these people in this space. You could go open two or three right now, adding on to the other businesses you do. Why do you need me? And it actually goes back to something we already talked about because I don't want to build my own brand again.

Speaker 1:

You know that makes sense though, because mind you, we pay.

Speaker 2:

You know we have a 6% royalty right Now. First six months is 0%, remember that. But month seven is a 6% royalty. How much of time matters to you? Is it really matter?

Speaker 2:

6% Now, again, we have a purchasing program and other things. So, given our buying power and some of the things we do, we're going to save you a couple percentage points anyways. So I don't know if that's going to be. You know the difference of one, two, three, 4%. I don't know what it's going to be compared to, again, money you're saving using the buddy's purchasing program, again doing it on your own. But all that to be said, at that point in their life, most of the time they care most about their time and what they do, do they want to go start their own ABC, rent to own and spend millions of dollars of training and operations and marketing and supply chain and building these vendors and talking to these teams and going to all these shows? Or they just want to bootstrap onto something else that they don't have to do any of that hire a general manager, be a thousand feet up and hopefully kick their feedback.

Speaker 1:

Hopefully, hopefully, I've never seen that happen. Hope's not a plan, but that's why.

Speaker 2:

I said hire a general manager right Off the bat. So again that goes exactly back to what we were talking about, is, I have to be curious and cautious, but also when they kind of answer those questions to me, it gives me more confident in selling to them through the process.

Speaker 1:

Well, that's a question I think you guys need to answer. If you guys want to open up a franchise, reach out to Mitchell Lee Now. Buddy's Home Furnishings is one of many, but I can tell you right now they do have this booth set up by 2025 that it looks pretty good at RTO World and it seems like he understands what he's talking about. And if you have any questions about that, reach out Mitchell. How can they reach out to you? How can they reach your?

Speaker 2:

team, absolutely. So feel free to go onto our Buddy's Franchising website. You can enter your information. It's very simple Buddy'sFranchisingcom. My direct line is 813-321-0401, or shoot me an email. It's mynamelee at BuddyRentscom. That's M-I-T-C-H-E-L-L, dot L-E-E at B-U-D-D-Y-R-E-N-T-Scom and Pete.

Speaker 2:

I do want to say one more thing. I love the rent-to-own industry now after the last four or five years, and I love franchising. So again I get told no, a lot more than I get told yes, and I've been told things on the phone that should never anybody ever hear. When I cold call people I love to just talk franchising and rent-to-own and again I have enough wherewithal. I love that word. It's such a hard word to know if you're going to be a good fit for us or not, and I think that's what leadership brings down to me is I don't have to sell every single deal, I have to make sure we're a right fit.

Speaker 2:

So I have some of my franchisees ask me about other concepts they might be interested in. Most people wouldn't talk about that. I reviewed one for one of my franchisees. I read through the FDD, read all their website material. I took two to three hours out of my day or out of my night, not day night to review all those things and give free consultation advice. So feel free to reach out to me. Anything about franchising, anything about what's going on in rent to own franchise development, and I'd love to be a resource for anybody out there.

Speaker 1:

Well, there you go, you can reach out to him and make sure that you ask the honest questions, because he's going to give you an honest answer, and isn't that what we're really looking for? So, guys, we appreciate you staying over here with us and watching out what happens in the franchising world, because it's something we really haven't talked about, except we did last year. We couldn't get it out. So you know we've done that. But listen, if you have any questions and you want to ask me directly, ask me at Pete at TheRTOShowPodcastcom. I'd love to talk to you. Also, dm me at Facebook, instagram, linkedin and YouTube where you're going to see this, and I will tell you guys. As always, mitchell, great to have you on the show. You kind of shed a whole lot of light on a whole lot of subjects. I'm glad that we can finally get this through one more time and I will tell you guys, as

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