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Deal Breakdown: The $3.8M Franchise Business Generating $1.1M Cash That Sophisticated Buyers Won't Touch

Everyone in the acquisition space has an opinion on franchises.

"You don't really own the business." "The franchisor controls everything." "Royalty fees kill your margins." "No exit multiple."

Meanwhile, franchise businesses with proven systems, protected territories, and 28% net margins are trading at 3-4x EBITDA while "real businesses" trade at 6-8x.

The difference? Most buyers confuse "following a system" with "not owning an asset."

Let me show you a deal where our client bought what everyone called "just a franchise" and turned it into a $12M exit in 30 months.

The Deal That Made Buyers Uncomfortable

Business: Multi-unit residential cleaning franchise (7 territories)
Purchase Price: $3.8M
Annual Revenue: $4.2M
EBITDA: $1.18M (28% margin)
Multiple: 3.2x EBITDA
Territories: 7 protected (population 840,000)
Recurring Clients: 1,247 (87% of revenue)
Average Client Value: $2,935/year
Employees: 42 cleaners + 3 admin + 1 operations manager
Franchise: Major national brand (think Molly Maid, Merry Maids tier)
Franchise Royalty: 6% of gross revenue

Why 8 Buyers Passed:

• "Franchise fees eat margins" (6% royalty + 2% marketing fund)

• "Don't own the brand" (everything is licensed)

• "Franchisor can terminate you" (contractual control)

• "Can't sell for good multiple" (franchise limitation myth)

• "Service business with employees" (management intensive)

• "Commoditized industry" (anyone can clean houses)

The seller got frustrated after 5 months on market with only lowball offers.

Our client closed at $3.8M and is now fielding offers at $12M+ after 30 months.

Here's what 8 buyers completely missed.

The Margin Structure Everyone Misunderstands

28% EBITDA margin with 8% going to franchise fees.

Every buyer sees this and thinks: "Without the franchise fees, this would be 36% margin. I'm getting screwed."

Let me show you why that's backwards thinking:

Monthly P&L Breakdown:

Revenue: $350,000

• Labor (cleaners): $140,000 (40%)

• Cleaning supplies: $17,500 (5%)

• Vehicle costs (gas, maintenance): $14,000 (4%)

• Insurance: $10,500 (3%)

• Franchise royalty: $21,000 (6%)

• Marketing fund: $7,000 (2%)

• Admin salaries: $21,000 (6%)

• Rent/utilities: $8,400 (2.4%)

• Software/tools: $3,500 (1%)

• Misc: $5,600 (1.6%)

• EBITDA: $101,500 (29%)

Now let's imagine you built this without the franchise:

Independent Cleaning Business Economics:

Revenue: $350,000

• Labor: $140,000 (40%)

• Supplies: $17,500 (5%)

• Vehicles: $14,000 (4%)

• Insurance: $14,000 (4% - higher without franchise group buying power)

• Marketing: $35,000 (10% - you need to generate your own leads)

• Admin: $21,000 (6%)

• Rent/utilities: $8,400 (2.4%)

• Software/tools: $7,000 (2% - you're buying retail, not franchise rates)

• Brand building: $10,500 (3% - website, logo, reputation)

• Misc: $5,600 (1.6%)

• EBITDA: $77,000 (22%)

With franchise: 29% EBITDA
Without franchise: 22% EBITDA

The franchise fee isn't a cost. It's a margin multiplier.

What You Actually Get for That 8%:

1. Lead Generation: Franchise spends $18M annually on national marketing. You get local leads at 2% vs 10-15% doing it yourself.

2. Brand Recognition: "I've heard of them" = 3x conversion rate vs "Bob's Cleaning Service"

3. Systems: Hiring, training, scheduling, pricing, quality control - all documented and proven.

4. Software: $7,000/year included. Building equivalent would cost $150K+ and years of debugging.

5. Buying Power: 30-40% discount on supplies, insurance, vehicles through group purchasing.

6. Training: Ongoing training for you and staff. Independent? You figure it out yourself.

The 8% franchise fee returns 7 percentage points in margin improvement.

That's an 88% ROI on the franchise fee.

The "Don't Own The Brand" Myth That Costs Millions

Every buyer says: "You don't own the brand. You're just licensing it."

Here's the reality check:

What happens when you sell a franchise business:

You sell:

• The franchise rights (transferable with franchisor approval)

• The customer list (yours, not the franchisor's)

• The equipment and vehicles (yours)

• The team (yours)

• The systems you've built on top of franchise systems (yours)

• The territory rights (yours, protected by franchise agreement)

Franchisor approval rate for qualified buyers: 94%+

What happens when you sell an independent cleaning business:

You sell:

• Your brand (that nobody's heard of)

• The customer list (if they stick around post-sale)

• The equipment (yours)

• The team (if they stay)

• Your systems (if you documented them, which you probably didn't)

• Your territory (unprotected - competitors can move in tomorrow)

Franchise businesses sell faster and at higher multiples than comparable independents.

Data from actual sales:

Independent cleaning businesses: 2.2-2.8x EBITDA, 8-14 month sale process
Franchise cleaning businesses: 3.0-4.0x EBITDA, 3-6 month sale process

Why?

Buyers trust the franchise system more than they trust your homegrown operation.

They know exactly what they're buying (franchise disclosure document spells it all out).

They know the business works (franchise has 200+ other operators proving the model).

The "you don't own the brand" thing is a feature, not a bug.

The Protected Territory Worth More Than The Business

This deal included 7 franchise territories covering 840,000 population.

Here's what everyone missed:

Franchise Territory Economics:

Each territory has population protection:

• Minimum: 80,000 population per territory

• This deal: 120,000 average per territory

• Protected forever (in franchise agreement)

Current penetration:

• Households in territories: 319,000

• Target households (income $75K+): 197,000

• Current clients: 1,247

• Penetration: 0.63%

Industry benchmark penetration: 2-4%

At 2% penetration (conservative):

• Target customers: 3,940

• At $2,935 average value: $11.57M revenue

• At 28% EBITDA: $3.24M profit

• At 3.5x: $11.3M enterprise value

The territories alone are worth $11M+ at industry-standard penetration.

Our client paid $3.8M for the whole business.

The Territory Moat:

Nobody can compete with you in your territory. Not other franchisees. Not the franchisor.

Try building that moat as an independent operator.

Competitive Scenario:

Independent cleaning company tries to enter your territory:

• They can compete for the same customers

• They can undercut on price

• They can poach your employees

• They can copy your marketing

Franchise-protected territory:

• Other franchisees legally cannot operate there

• Franchisor cannot sell to anyone else

• You own the exclusive rights forever (as long as you maintain standards)

That protection is worth millions.

The Recurring Revenue Nobody Valued

1,247 clients. 87% of revenue is recurring (weekly, bi-weekly, or monthly cleaning).

Current Client Metrics:

Average client value: $2,935/year
Average client lifetime: 4.7 years
Client LTV: $13,795
Client acquisition cost: $185
LTV:CAC ratio: 74:1

Compare to other business models:

• Good SaaS: 5:1 LTV:CAC

• Great e-commerce: 3:1 LTV:CAC

• This franchise: 74:1 LTV:CAC

Why is LTV:CAC so insane?

1. Franchise handles national marketing (you don't pay directly)

2. 61% of clients come from referrals (word of mouth)

3. Once someone lets you in their home, switching cost is high

The Retention Analysis:

Monthly churn: 3.8%
Annual retention: 54% (seems low, right?)

But here's the cohort breakdown:

Clients 0-6 months: 11% monthly churn (trying out service)
Clients 6-12 months: 4.2% monthly churn
Clients 12+ months: 1.8% monthly churn

785 clients (63% of base) have been customers 12+ months.

Those 785 clients have 1.8% monthly churn = 56-month average lifetime.

785 customers × $2,935 × 4.7 years = $10.8M in future revenue

Sitting in the client base right now.

You're buying $10.8M in contracted future cash flows for $3.8M.

The Employee Management System Nobody Understood

42 cleaners. 3 admin. 1 operations manager.

Every buyer sees this and thinks: "Employee management nightmare."

Here's what the franchise system actually provides:

Hiring System:

• Job posting templates (proven to attract right candidates)

• Interview scripts (weed out bad fits in 15 minutes)

• Background check process (integrated with franchise vendor)

• Skills assessment (standardized test every candidate takes)

Time to hire: 8 days average (vs 30-45 days independent)

Training System:

• 3-day onboarding program (video + in-person)

• Certification process (cleaners must pass quality standards)

• Ongoing training (monthly sessions on new techniques)

• Mentorship (pair new cleaners with veterans)

Time to productivity: 12 days (vs 45-60 days figuring it out yourself)

Retention System:

• Performance reviews (quarterly, standardized)

• Incentive programs (franchise-designed, proven to work)

• Career progression (cleaner → team lead → supervisor → manager)

• Recognition programs (franchise coordinates)

Average employee tenure: 2.8 years (industry average: 11 months)

The Result:

Our client spends 6 hours per week on employee management.

An independent operator with 42 employees? 25-30 hours per week minimum.

The franchise system saves 80-100 hours per month in management time.

At $150/hour opportunity cost, that's $12K-15K monthly value.

Or $144K-180K annually.

The franchise fee is $21K monthly. The time savings alone is worth $12K-15K.

Net franchise cost after time savings: $6K-9K/month vs the value provided.

The Scaling Opportunity Hiding In Plain Sight

The franchise agreement allows for unlimited territory acquisition.

Current situation:

• 7 territories owned

• 53 territories available in surrounding metro areas

• Population per territory: 80K-150K

Territory Economics:

Cost to acquire adjacent territory: $45K franchise fee
Expected revenue per territory at maturity: $520K
Expected EBITDA per territory: $145K
Payback period: 3.7 months

The Expansion Play:

Year 1: Acquire 3 adjacent territories ($135K)

• Add to existing operational infrastructure (minimal incremental cost)

• Hire 9 additional cleaners

• Expected year 1 revenue from new territories: $420K

• Expected year 1 EBITDA from new territories: $88K

Year 2: Acquire 4 more territories ($180K)
Year 3: Acquire 5 more territories ($225K)

3-Year Projection:

Start: 7 territories, $4.2M revenue, $1.18M EBITDA
End: 19 territories, $10.4M revenue, $2.91M EBITDA

At 3.5x EBITDA: $10.2M enterprise value

Investment required: $540K in franchise fees + $890K in working capital = $1.43M

Return: $6.4M value creation on $1.43M invested = 448% ROI

And the franchise system handles the playbook for expansion.

You're not figuring out how to scale. You're executing their proven replication model.

The Exit Multiple Nobody Believes

"Franchises don't sell for good multiples."

Let me show you actual data:

Franchise Resale Market (last 24 months):

Single-territory franchise businesses: 2.8-3.5x EBITDA
Multi-territory franchise businesses (5+): 3.5-4.5x EBITDA
Platform operators (15+ territories): 4.5-5.5x EBITDA

Why do multiples go up with scale?

1. Buyer pool expands (PE firms enter at $2M+ EBITDA)

2. Infrastructure leverage (same admin supports 3x the territories)

3. Market dominance (owning region = pricing power)

4. Add-on acquisition (existing platforms need to grow)

Our client's actual path:

Purchase: $3.8M (3.2x EBITDA on $1.18M)
30 months later: Offers at $12M+ (3.8x EBITDA on $3.2M)
Current EBITDA: $3.2M (grew from $1.18M)

How?

• Acquired 8 additional territories ($360K investment)

• Improved operations (reduced labor cost 2 percentage points)

• Raised prices 12% over 30 months (minimal client loss)

• Implemented referral program (doubled referral rate)

Exit multiple went from 3.2x to 3.8x.

Buyers paid premium for scale and growth trajectory.

The Franchisor Relationship That's Actually An Asset

"The franchisor can terminate you."

Let's look at actual termination rates:

This franchise brand: 0.8% annual termination rate
Industry average: 1.2% annual termination rate

Reasons for termination:

• Fraud/theft: 42%

• Consistent quality failures: 31%

• Non-payment of royalties: 18%

• Other: 9%

Translation: Don't steal, maintain quality standards, pay your fees, and you'll never be terminated.

What the franchisor actually provides:

Business Development Support:

• Quarterly business reviews (identify growth opportunities)

• Benchmarking data (how you compare to other franchisees)

• Best practice sharing (learn from top performers)

• Territory analysis (where to expand next)

Operational Support:

• Software updates (continuous improvement)

• Vendor negotiations (lower costs as franchise grows)

• Quality control audits (they help you maintain standards)

• Crisis management (when something goes wrong, they have playbooks)

Network Effects:

• 200+ other franchisees (peer learning)

• Annual conference (latest strategies, vendor deals)

• Regional groups (local market insights)

• Online forums (real-time problem solving)

Our client's experience:

"The franchisor relationship is like having a $500K/year consultant for $21K/month. They want us to succeed because our royalties pay their bills. The incentives are perfectly aligned."

The Competitive Moat That Compounds

Independent cleaning companies: 8,400 in this metro area
Franchise cleaning companies: 23 operators

Market share:

• All independents combined: 43%

• All franchises combined: 57%

Why do franchises dominate?

Brand Trust:

Survey of 1,000 homeowners in area:

• "Would hire a franchise cleaning company": 73%

• "Would hire independent cleaner": 27%

Why? Insurance, background checks, quality guarantees, brand recognition.

Marketing Efficiency:

Independent cleaner: $85 customer acquisition cost (Google Ads, Yelp, Nextdoor)
This franchise: $185 customer acquisition cost (includes national brand spend)

Wait, franchise CAC is higher?

But look at LTV:

Independent cleaner LTV: $4,200 (1.4 year average customer)
This franchise LTV: $13,795 (4.7 year average customer)

LTV:CAC:

• Independent: 49:1

• Franchise: 74:1

The franchise brand creates 3.3x longer customer lifetime.

That's worth the higher CAC.

The Compounding Effect:

Year 1: Franchise has 51% better LTV:CAC
Year 3: Brand recognition improves, CAC drops to $165
Year 5: LTV increases to $15,200 as quality reputation spreads
Year 5 LTV:CAC: 92:1

The longer you operate, the more valuable the franchise becomes.

Independent operators don't get this compounding effect.

The Operator Profile (Who Shouldn't Touch This)

This deal is NOT for:

• People who hate following systems (franchises require compliance)

• Control freaks who need to "do it their way" (you signed a franchise agreement)

• Anyone who resents paying royalties (wrong mindset)

• People allergic to managing employees (42 cleaners need management)

This deal IS for:

• Operators who value proven systems over innovation

• People who understand leverage (franchise system = force multiplier)

• Anyone who can hire and manage teams

• Buyers who want protected territories and expansion rights

Required Skills:

1. People management (hiring, training, retaining)

2. Operations (scheduling, quality control, efficiency)

3. Basic marketing (executing franchise playbook)

4. Financial discipline (franchise reporting is strict)

The Deal Structure (How Our Client Bought This)

Seller wanted $3.8M. Ready to retire at 63.

Our Client's Offer:

Structure: SBA + Seller Note

• $3.7M total (small discount for seller note)

• $1.1M down payment (30%)

• $1.85M SBA loan at 7.5% (10-year, $21,900/month)

• $750K seller note at 5% (5-year, $14,100/month)

Monthly Economics:

• EBITDA: $98,300

• SBA payment: $21,900

• Seller note: $14,100

• Net cash flow: $62,300/month = $748K annually

Client's $1.1M investment pays back in 17.7 months from cash flow.

Why This Structure Worked:

1. SBA loves franchises (proven business model, lower risk)

2. Seller got 97% of asking (felt like a win)

3. Seller note provides additional security (seller invested in buyer's success)

4. Cash flow covers debt with cushion (50%+ margin of safety)

Financing Strategy:

Franchises are the easiest businesses to get SBA loans for:

• Franchise Disclosure Document (FDD) = full transparency

• Proven unit economics across 200+ locations

• Franchisor provides validation to bank

• Historical financials are clean and standardized

Banks LOVE franchise deals.

Independent cleaning business? Good luck getting 50% LTV.
Franchise? 70-75% LTV is standard.

The 30-Month Value Creation Roadmap

Here's how our client turned $3.8M into $12M+ in 30 months:

Months 1-6: Stabilize & Learn

• Don't change anything (learn the franchise system)

• Meet with franchisor (understand support available)

• Interview top performers in franchise network

• Optimize scheduling (reduce drive time between clients)

• Implement employee incentive program (reduce turnover)

Result: $4.4M revenue, $1.31M EBITDA

Months 7-12: First Expansion

• Acquire 3 adjacent territories ($135K)

• Hire 9 additional cleaners

• Leverage existing admin (no incremental admin costs)

• Raise prices 5% (lost only 3% of clients)

Result: $5.8M revenue, $1.82M EBITDA

Months 13-24: Scale What Works

• Acquire 5 more territories ($225K)

• Hire operations manager #2 (needed for scale)

• Implement referral program (franchise best practice)

• Improve labor efficiency 2 percentage points

• Raise prices another 7%

Result: $8.9M revenue, $2.68M EBITDA

Months 25-30: Exit Prep & Final Push

• Acquire final 3 territories to complete region ($135K)

• Document all systems beyond franchise requirements

• Lock in key employees with retention bonuses

• Clean up financials for sale

• Hit $11.2M revenue run rate

Result: $10.8M revenue, $3.2M EBITDA

Exit Multiple: 3.8x EBITDA (premium for scale, growth, regional dominance)

Exit Value: $12.16M

Client's Return:

• Purchase price: $3.8M

• Cash invested: $1.1M (down payment) + $495K (territory acquisitions) = $1.595M total

• Distributions taken: $1.68M (over 30 months)

• Exit proceeds after debt: $9.2M

• Total: $10.88M net on $1.595M invested

That's 682% return in 30 months.

Plus the franchise system provided the entire roadmap.

Our client didn't invent any of this. He executed the franchise playbook for multi-territory expansion.

The Risks (What Could Go Wrong)

Risk 1: Franchise Increases Royalties (15% Probability)

Franchisor raises royalty from 6% to 8% (has happened in some systems).

Mitigation:

• Franchise agreement locks rates for 10 years (standard)

• Even at 8%, still profitable (26% EBITDA vs 28%)

• Raise prices 2% to offset (customers won't notice)

• Improved operations can recover margin loss

Risk 2: Key Employee Exodus (35% Probability)

Lose operations manager and 5 top cleaners simultaneously.

Mitigation:

• Franchise training system can replace anyone in 30 days

• Pay above market (you have margin to do it)

• Retention bonuses for key staff

• Franchise network can loan employees during crisis

Risk 3: Territory Saturation (25% Probability)

Hit market penetration ceiling, can't grow further.

Mitigation:

• Currently at 0.63% penetration (industry standard is 2-4%)

• 6x growth possible before saturation concerns

• Can acquire additional territories in new regions

• Focus on premium services (higher value per customer)

Risk 4: Economic Recession (40% Probability)

Recession hits, customers cut home cleaning from budget.

Mitigation:

• Cleaning is semi-essential (people still need it)

• Target upper-middle income ($150K+ households, less affected)

• Offer payment plans to retain customers

• 28% margins provide cushion to weather downturn

Risk 5: Franchisor Quality Issues (10% Probability)

National brand gets bad press, affects all franchisees.

Mitigation:

• This brand has 30-year track record (very stable)

• Local reputation matters more than national brand

• Can lean on individual location reputation

• Franchise system helps with crisis management

The Verdict: Why Franchises Are Misunderstood Assets

Here's the truth about franchises:

They're not for everyone. If you need to innovate and "do things your way," don't buy one.

But if you want:

• Proven systems (battle-tested across hundreds of locations)

• Protected territories (legal moat)

• Operational playbooks (don't reinvent the wheel)

• Scale roadmap (franchise shows you exactly how)

• Exit strategy (franchises sell faster and at higher multiples)

Then franchises are genius investments.

The Three Questions:

1. What's the downside?

Worst case: No expansion. Maintain current operations.

You make $748K annually on $1.595M total invested. That's 47% annual return.

Plus you have a protected territory worth millions.

2. What's the upside?

Best case: Execute full expansion, hit $3.2M EBITDA, exit at 3.8x = $12.16M.

Return: $10.88M net on $1.595M = 682% in 30 months.

3. What's realistic?

Realistic: Execute 70% of plan. $2.4M EBITDA, exit at 3.5x = $8.4M.

Return: $7.1M net on $1.595M = 445% in 30 months.

All three scenarios are excellent returns.

Plus you're executing a proven franchise playbook, not inventing strategy from scratch.

Stop Avoiding Franchises Because Of Myths

The acquisition world is full of myths about franchises:

❌ "You don't really own it" (You own the cash flow, territory rights, and customer list)
❌ "Royalties kill margins" (Franchise systems improve margins vs independent)
❌ "No exit multiple" (Franchises often get better multiples than independents)
❌ "Franchisor controls everything" (They provide systems, you execute)
❌ "Can't scale" (Multi-territory franchises scale faster than starting from scratch)

Meanwhile, smart operators buy franchises at 3-4x EBITDA while everyone else chases "real businesses" at 6-8x.

That's what The Continental helps you find.

We source profitable franchise opportunities that sophisticated buyers overlook:

• Multi-territory platforms ready for consolidation

• Under-penetrated territories with expansion rights

• Strong cash flow with proven scaling playbooks

• Protected territories worth more than current operations

What You Get:

• 2-3 pre-vetted opportunities monthly in your criteria

• Deep analysis showing why "franchise limitations" are actually advantages

• Direct connections to motivated sellers

• Support through diligence, SBA process, and closing

We focus on finding asymmetric opportunities.

While everyone else avoids franchises because of myths, we show you the franchise deals printing cash at discounted multiples.

Ready to see opportunities others are missing?

Upgrade to The Continental or schedule a call with our team.

While everyone else overpays for "real businesses," we'll show you the franchise opportunities they're ignoring.

This Business Was Acquired Through The Continental

This deal closed in August 2023 through our private deal sourcing service.

The seller was frustrated after 5 months on market with only lowball offers from buyers who didn't understand franchise economics. We connected him with a client from our network who had experience with multi-location service businesses.

Deal structure: $3.7M total ($1.1M down, $1.85M SBA, $750K seller note at 5%)

Current status (30 months post-acquisition): Revenue grew from $4.2M to $10.8M through territory expansion. EBITDA grew from $1.18M to $3.2M. Client recently received multiple acquisition offers at $12M+ from private equity groups building regional platforms.

The client followed the franchise expansion playbook exactly. No innovation required.

Sometimes the best strategy is just executing what's already proven to work.

Want access to franchise deals like this before they hit the market?

Join The Continental and see what we're sourcing for our private network.

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