What Else Do You Plan To Do In Life To Make A Comparable Amount Of Money?
“If you are not willing to risk the unusual, you will have to settle for the ordinary.” — Jim Rohn
Once again, I would like to share some of my thoughts with you this morning. Thoughts I’ve been having and experiencing for a while now as I sit here in Philadelphia on what was a quiet and peaceful Sunday afternoon. These feelings are for uneasiness, disregard and hesitancy towards my career in the financial services industry. Some of us full-time workers call this the Sunday blues. However, on the other end, I am overwhelmed with appreciation, joy, enthusiasm, and an overall well-being for the people in my life, family members I got to see over the weekend, business partners I grind with, as well as individuals I have yet to meet in my life.
I came to the conclusion at some point in 2015, and again recently, that working a job for someone else’s success and dreams simply didn’t fit into my DNA or description for my long-term plan. Naturally, I knew it was something I must do to financially provide for myself, put food in my mouth, pay for rent in Philadelphia, student loans, and other necessities. But that didn’t mean that line needed to abruptly end there. Yes I could make enough to provide for myself working in Corporate America but I couldn’t also help my parents out as they approached retirement.
Moving forward, gratitude is a feeling that was once foreign to me. Unfamiliar like Eastern Europe, New Zealand or Tokyo but thanks to plenty of friends and mentors who preach this practice consistently that doesn’t seem like the case anymore. Most days I am grateful to be working full-time in the financial services industry because I’m aware of plenty of individuals who cannot find jobs in their respective fields of study. The startup environment allows me to be a firsthand witness to experiencing the evolutionary process of creating and scaling a business, creating customer bases and happy clients, and meeting expectations for ceo’s and partners. However, the day to day grind slowly but surely beats you down. Yes, burnout is a real feeling many people experience.
At one point in time I wanted to pass my securities exams (Series 7, 65, 66), become a fiduciary, build my own book of business by helping add value to family members and friends money under management, and see future long-term success with positive returns. But from the traditional sense, and practically speaking, that motivation simply isn’t there anymore.
Don’t confuse my words. I am still incredibly passionate about personal finance, teaching financial literacy to the youth and millennials, and so much more from a business, psychological, neuroeconomics and overall health-conscious standpoint. The mere blending of all these topics, interests and points have conversed together. Overall, my passion has now been aligned with making people genuinely happy, healthy, and wealthy through expressing and doing their very best. So what exactly does that mean?
It means the traditional business path isn’t for me. I’d prefer a more unorthodox and path less traveled. Long term I’d love to do more consulting work, coaching and public speaking around financial literacy and personal health care because I feel they all go hand and hand, yet I recognize that will take more time and deep practice. Also, I’ve been educated and have done my personal research on the labor, time, equity, large investments and headaches that occur from running and starting any business, let alone a traditional business. I feel as if a lot of value could be taken away from any readers out there who have ever considered business as a viable option for themselves yet first wanted to weigh the pros and the cons.
Any traditional business can be defined as a store which offers its products or services to its local customers. It is a set-up where customers will physically have to visit the store to buy the products. That sounds boring and outdated in 2017 terms. I’m going to be direct, in this picture I’ll paint you will never live a dreamland life working for someone else’s success or beating your own head down in hopes of one day selling a large and successful business.
The sheer time and capital involvement is unimaginable so allow me to explain. An initial investment if you’re looking to net over $100,000 per year will normally cost you five times the net income. That’s $500,000 down! Have fun mortgaging your life away with that one. The same holds true for more schooling, masters degrees or Ph.D’s. Trust me, four years in undergraduate was enough for me! Doctors, physicians and lawyers are looking at eight to twelve years with a big bill at the end to foot. Not to mention working and spending half of their careers to pay it all back!
Moreover, inventory and clearly financing the inventory in a normal business digs people a twenty foot hole and throws the dirt back on top of them. Half of their homes, offices, warehouses, and garages are completely filled with products or services. Why do you think so many brick and mortar stores are going out of business? It just makes more sense to have an online business in today’s economy!
Now let’s talk about renting out an office space or even a building. When it comes down to utilities and upkeep of any building, whose pocket do you think this comes out of? YOU the owner! Paperwork is definitely another burden in any other business. Trust me, the paperwork I’ve had to stare at in finance is overwhelming. You have to hire an administrative staff or outsource the work just to keep it all off of your desk. Then when it comes down to hiring accountants and lawyers to manage everything from the books to the legal side of the business that’s a very high expense! I’d much rather prefer online filing and automation as opposed to the alternative. Lastly, we have equipment. What happens when your espresso machine or $2,400 Xerox machine breaks down? I’d hate to be writing the check for that bill…
What kind of guarantee do you have operating a traditional restaurant, financial services business, coffee chain, dentist office, manufacturing plant, car dealership or law firm? Well it really boils down to work, work, work, work, work, getting paid, stressing about finances and employees, not being around your family because you’re working 60–80 hours per week and then working some more weekends. Then, hopefully in 10, 20 or 30 years you’ll negotiate and convince investors, VCs or a willing soul to buy out your client base or book of business from you. That sounds promising and incredibly stable to me. Even IF you manage to sell your business you’re only going to receive one large lump-sum and then what? Your income drops down to NOTHING.
Next, with a traditional business, we have security and slippage problems. People come and go and more times than not it’s with stuff. Some things paid for and others not so much. Items leave and go missing. You’ll end up paying tens of thousands of dollars for security systems and employees to prevent these problems from happening. Check off another bill right there.
Furthermore, when it comes down to time flexibility there isn’t much of it. The hours of any traditional business will control you and your life at first. You’re essentially married to the business. There’s no real time for more than a weeks vacation or time with family and friends when you’re 100% attached to the business, clients and brand. The second you aren’t cracking backs, cleaning teeth, servicing customers and making people happy you’re not getting paid.
Now we get to the final 30 or 40 year marathon where you decide to slow down or retire. If you run a successful restaurant or any great operation/practice YOU are the business or establishment. If the system was built around YOU, you must be there to smile, say hello to customers, place and execute on orders and ultimately sell the brand. Are you counting on the next owner to immediately come right in and duplicate what you have been successfully doing for years and years? That’s why many business owners work into their 60’s and 70’s before retiring. The concept of an early retirement is completely foreign to them.
Franchising originated from the French word “Franchir”, which means “for free”. It is a marketing concept or an innovative method of distributing goods and services. It is not a business itself, but a method of doing business, wherein the franchisor license trademarks, and tried and proven methods of doing business to a franchisee, in exchange for a recurring payment, and usually a % piece of gross sales or gross profits, as well as the annual fees. Let’s dive into what it will take to start a franchising establishment.
The following is the startup cost to obtain franchising rights and open up these restaurants in the United States: Taco Bell — $1,200,000 to $2,500,000, Wendy’s — $2,000,000 to $3,500,000, KFC — $$1,300,000 to $2,500,000, McDonald's — $955,408 to $2,300,000 and Pizza Hut — $295,000 to $422,000. That investment is to solely have the identity and allows you to be apart of, and sell, that establishments branded items, food and services. If you have that amount of money you probably aren’t reading this blog. However, if you are, you’d probably be smart enough to continue reading.
Moving into franchising fees, you as the owner now pay for the right to use the IDENTITY of the franchise and brand. You pay for the right to receive training. For example, Subway’s is $100,000. I’ll tell you right now my training costs don’t even come close to $100k per year between continuing education requirements in finance or to operate my personal online business. Lastly, all other expenses will come out of your pocket. You’re still required to pay hefty rental costs, as well as costs to hire employees. We’re all aware they’re wonderful! Then, and only then, will you keep the remainder of sales and profits. That’s why it’s called net income, after everything else and the other bullshit is paid for, you get paid.
Think of the relationship between a franchisee and a franchisor like a country club and its golfers. You pay an initial fee to get in and from there you have ongoing membership costs. Royalties or ongoing franchise fees work the same way. Franchisees usually pay an ongoing franchise fee or royalty. This fee is normally expressed as a % of the gross revenue of the franchised business but can also be a fixed periodic amount such as $500/month, regardless of revenue. The average or typical royalty % in a franchise is 5% to 6% of volume, but these fees can range from a small fraction of 1% to 50% or more of revenue, depending on the specific franchise.
Then we get into marketing fees. Franchises often require participation in a common advertising or marketing fund. This fund is frequently a national program, but it can also have a regional or local market focus. As with royalty fees, this can be a fixed contribution, but is more often a % of revenue in the 1% to 4% range. Now we get into required purchases of products or services. Some franchisors require that a franchisee purchase certain required products or services either from the franchisor or from affiliated entities of the franchise company. The thing to watch for in this situation is whether the pricing is competitive or not. Regardless, you’ll essentially be shipped products or services whether you’ll like them or not. How’s that sound?
Lastly, there are geographic limitations on franchises. Your customers are only going to be willing to come from a 15–20 minute driving radius. Why do you think there are so many Starbucks, McDonald’s and Chick-fil-a’s around us? Also, you’re completely vulnerable to anything that happens in that area (hurricanes, floods, fires, etc). How do you think the areas around Houston, South Florida, Puerto Rico and other locations are feeling?
Before I continue, please understand I’m not bashing the real estate industry. I’m aware of plenty of mentors, good friends of mine and many others who have entered this career field and are doing incredibly well for themselves. They value their time and money and want to create additional streams of income for themselves. That I applaud them for but more times than not we are never warned or truly told of the upfront work it’ll take to succeed. I recognize it takes work to see success in any field of endeavor but at least brace me for the ups and downs I’m going to partake in. Heck even some individuals who pass their real estate exam never go on to sell a single home or unit in their lives. Can you picture that?
Nevertheless, let’s take for example a $150,000 or $250,000 multi-home. Say you’re renting these two units out to a friend or small family, two tenants. At $750 per month you’re making $1,500 per month, on a passive basis. However, that $1,500/month is before any of the following things I’m about to mention potentially occurring. 1) You have home owners insurance costs on the home. 2) Property taxes. At an average rate of 1.211% in Pennsylvania for an assessed home value of $250k your annual property taxes would be $3,027. 3) Unoccupied or vacant tenants. What happens when someone moves and now you’re only bringing in $750/month? Is that enough for you? 4) Utilities and maintenance. Whose pocket do you think this is coming out of? 5) Bad tenants. What happens when they break something or don’t pay their rent on time? 6) Lawsuits. That sounds lovely! Refer to the prior statement I made. 7) Rodents/Pests/Animal damage to the land. That’s not cheap to repair, is it? 8) repairs/damage. Need I say more…9) Bad economy. We live in a cyclical environment and global economy today. What goes up will eventually correct itself and go back down similar to 2007–2009. History does tend to repeat itself. 10) Lastly, you have neighbors. Pray you both get along well!
Have you ever truly stopped to consider all of that? So the original $150k or $250k, and much more today since I’m being conservative, would take you upwards of 8.4 years to break even on your investment. Do you or anyone else you know have that much time to hope that ROI happens?
With today’s online and global economy, I’d much rather focus my time, energy, efforts and passions to an online business with infinite reach. Why would I want ungodly levels of inventory? I’d rather keep my overhead as low as possible and only need a small inventory of products or services on hand. That sounds like less of a headache and more of an enjoyment to run a people’s business. Real estate isn’t truly leveraged residual income. You’re only as good as your next sale or pending closing. I’d rather have ongoing residual income that’s built right with multi-generational wealth and the ability to pass it down to create a future legacy for my family. Wouldn’t you?
With all of that being said, let’s bring this in for a landing. After discussing traditional business, franchises, and briefly real estate, seriously ask yourself, “What else do you plan to do in this life to make a comparable amount of money?” I’m under the assumption that most of you reading this blog are either already making over $100,000 per year, or close to that in your respective career field, and if you aren’t yet, you’re at least striving for that moment in time. I’ve always wanted to be in the top 5% financially but growing my mindset was the first thing that needed to be done. Trust me, it’s not all about the money because I actually want to get that burden of money and debt out of the way. It’s about freeing my parents from working and seeing them live a happy, healthy and wealthy retirement within the next few years.
In closing, I’ve come to realize infusing my work with purpose and meaning, however, is a two-way street. Yes, we hear it all the time, “Love what you do”, but your company, business, franchisor, tenants or employees should love you back. Last time I checked that’s not the case for many individuals. I dare you to find a vehicle, team, mentor, coach or group of individuals striving for more in their life’s too. Defeat the Sunday blues, fire your boss and step away from Corporate America’s shackles and experience the life you were put on this Earth to live. That my friends is the ultimate goal: to be genuinely happy, healthy, and wealthy through expressing and doing your very best with whatever career path that may be.
My Very Best,