Franchises spend $1.2 billion a year on marketing. They have Discovery Days with free steak dinners. They have polished sales reps who’ve closed a thousand deals.

The guy selling his plumbing company? He’s got a QuickBooks printout and coffee breath.

Guess which one is usually the better deal?

I’m going to show you exactly how to evaluate both options using real numbers from real deals. By the end, you’ll know which path makes you richer – not in theory, but in your actual bank account.

The Tale of Two $150K Investments

Let me tell you about Marcus and David. Both wanted out of corporate. Both had $150K to invest. Both wanted a service business in the same city.

Marcus bought a lawn care franchise. Brand recognition, proven system, training included.

David bought a 4-year-old independent lawn care company from a guy who wanted to retire.

Year 1:

Marcus (Franchise):

• Revenue: $85,000 (starting from zero, building customer base)
• Royalties: $5,100
• Ad fund: $1,700
• Required software/equipment: $6,200
• Marketing (required minimum): $4,500
• Net to Marcus: -$23,000 (lost money, still building)

David (Acquisition):

• Revenue: $310,000 (inherited customers)
• Operating costs: $185,000
• No royalties, no ad fund, no required purchases
• Net to David: $125,000

“But Marcus is building something,” the franchise defenders say. Okay, let’s keep going.

Year 3:

Marcus (Franchise):

• Revenue: $290,000 (finally gaining traction)
• Royalties: $17,400
• Ad fund: $5,800
• Required purchases/tech: $8,400
• Net to Marcus: $61,000

David (Acquisition):

• Revenue: $380,000 (grew 22% with better marketing)
• Operating costs: $228,000
• Net to David: $152,000

Year 5:

Marcus (Franchise):

• Revenue: $410,000 (hit his stride)
• Royalties: $24,600
• Ad fund: $8,200
• Required purchases/tech: $11,000
• Net to Marcus: $94,000

David (Acquisition):

• Revenue: $520,000
• Operating costs: $286,000
• Net to David: $234,000

5-Year Totals:

Marcus made approximately $285,000 over five years. David made approximately $798,000 over five years.

Same starting capital. Same city. Same industry.

Difference: $513,000.

Marcus is still paying royalties. David owns everything outright.

“But I’m Buying a System!”

Every franchise buyer says this. Let me tell you what you’re actually buying:

The “System” You Pay $35,000+ For:

• An operations manual (that you can’t deviate from)
• Training videos (that you’ll watch once)
• Marketing templates (that every other franchisee uses too)
• Territory rights (that protect the franchisor, not you)
• Ongoing “support” (that’s actually oversight)

The System You Get When You Buy a Running Business for $0 Extra:

• Actual customers who pay every month
• Employees who know what they’re doing
• Equipment that works
• Vendor relationships already negotiated
• Reputation in the community
• Cash flow from day one

One is theory. The other is reality.

How to Find Businesses for Sale That Don’t Suck

Here’s where I give you the playbook.

Source 1: BizBuySell.com

Filter for:

• Your metro area
• Service businesses
• Cash flow $75,000-$300,000 (sweet spot for SBA financing)
• Asking price under 3x cash flow

Ignore anything that says “potential” or “with the right owner” – that’s code for “currently unprofitable.”

Source 2: Direct Outreach to Owners

This is where the real deals are. Businesses that aren’t listed because the owner hasn’t decided to sell yet.

Here’s the exact email I’ve seen work:

Subject: Would you ever consider selling [Business Name]?

Hi [Owner First Name],

I’m looking to acquire a [lawn care / cleaning / HVAC] business in [City] and I’ve heard good things about your company.

I’m not a competitor or tire-kicker – I’m a serious buyer with financing ready to go. I’ve helped purchase several service businesses and I understand what makes them valuable.

If you’ve ever thought about retiring, cutting back, or just curious what your business might be worth, I’d love to buy you a coffee and chat. No pressure, no pitch.

Either way, compliments on what you’ve built.

[Your Name] [Phone]

Send 50 of these to businesses in your target industry. You’ll get 5-10 responses. 2-3 will be real conversations. 1 might become a deal.

Why does this work? Because 60% of small business owners are over 55. They think about selling constantly. But listing feels overwhelming. A simple email from a real human cuts through.

Source 3: Commercial Bankers

SBA lenders see deals before they hit the market. The owner comes in asking about loan payoff, mentions selling, and the banker knows buyers.

Call every SBA-active bank in your area. Say this:

“Hi, I’m looking to acquire a service business in [City] using SBA financing. Do you ever hear about businesses coming to market before they’re publicly listed? I’d like to be on your radar as a serious buyer.”

Leave your info. Follow up monthly. Deals surface.

The Due Diligence That Saves Your Ass

Buying an existing business has risk. You could buy someone else’s problems. Here’s exactly how to avoid that.

Step 1: Bank Statement Verification

Ask for 24 months of business bank statements. Compare deposits to the revenue numbers on their tax returns and P&L.

If deposits are 20% less than reported revenue, they’re either lying or doing unreported cash deals (which is its own problem – you can’t value or finance revenue you can’t prove).

If deposits are higher than reported revenue, ask why. Sometimes it’s owner loans or transfers. Sometimes it’s unreported income. Either way, dig in.

Step 2: Customer Concentration

Get the customer list with revenue by customer. If any single customer is more than 20% of revenue, you have concentration risk.

Ask to meet the top 5 customers before closing. Introduce yourself. Ask: “If ownership changed, would you continue using this service?”

If they hesitate, you have a problem. If they’ve been meaning to switch anyway, you really have a problem.

Step 3: Employee Retention

Talk to every employee before you close. Not with the owner present. Ask:

“If the business sold and the new owner kept everything the same, would you stay?”

Key employees leaving = customers following them out the door. In service businesses, the relationship is often with the person, not the company.

If a critical employee is planning to leave, factor that into your price. Or walk.

Step 4: Equipment Condition

Get a list of every piece of equipment with purchase date and maintenance records.

Hire a mechanic or technician to inspect the key equipment. I’ve seen deals where the “fleet of trucks” needed $40,000 in repairs. That comes off the purchase price.

Step 5: The Seller’s Real Motivation

Everyone says they’re selling to “retire” or “pursue other opportunities.” Sometimes that’s true. Sometimes they’re running from something.

Ask these questions:

• “What would make you decide not to sell?”
• “If the sale doesn’t happen, what’s your plan?”
• “What’s the hardest part of running this business?”
• “Is there anything about this business that keeps you up at night?”

Watch their face, not their words. Hesitation tells you everything.

Also check: Any lawsuits? Any tax liens? Any pending regulatory issues? These come with the business.

How to Structure the Deal So You Win

The purchase price is negotiable. So is everything else.

Seller Financing: Always Ask

“Would you be open to carrying a note for part of the purchase price?”

Here’s why you want this:

1. It reduces how much cash you need upfront
2. It keeps the seller invested in your success (if you fail, they don’t get paid)
3. It signals the seller’s confidence (if they refuse all seller financing, ask why)

Typical structure: 70% SBA loan, 10-20% seller note, 10-20% your cash.

Earnouts: Protect Against Uncertainty

If the seller says revenue will grow 20% next year, put it in the contract.

“We’ll pay $200,000 at closing, plus an additional $30,000 if revenue exceeds $350,000 in year one.”

Now their optimistic projections become your protection.

Transition Period: Non-Negotiable

The seller must work alongside you for 30-90 days after closing. Not “available for calls.” Actually present.

This is when you learn:

• How to do the work (if you’re not already skilled)
• Where the bodies are buried
• Which customers need hand-holding
• Which employees cause problems

Get this in writing. Daily presence for the first two weeks, then weekly for the next 60 days. Tie final payments to completion of the transition.

Non-Compete: Obvious But Often Forgotten

3-5 year non-compete, 50+ mile radius, covering the same industry.

Without this, the seller can take your money, retire for 6 months, and then open a competing business and call all “their” old customers.

When a Franchise Actually Makes Sense

I’m not saying franchises are always wrong. They make sense when:

1. Brand recognition creates actual revenue you couldn’t get otherwise

A Chick-fil-A franchise has people lining up because of the brand. Your cleaning franchise? Nobody’s picking you because of the franchise name. They’re picking you because you showed up when you said you would.

For service businesses, brand rarely matters. For retail/food, it sometimes does.

2. You need a visa

E-2 investor visas require “substantial” investment. Franchises with higher capital requirements can qualify you for immigration purposes when buying a small independent business might not.

If your goal is immigration status first and profit second, franchises serve a purpose.

3. You’re buying an existing franchise location (resale)

A franchise resale is different from a startup franchise. You’re buying:

• Existing customer base
• Proven revenue
• Trained employees
• Past the ramp-up phase

You still pay royalties forever, but at least you’re buying cash flow, not a startup dressed up in corporate clothing.

Run the numbers the same way you’d evaluate an independent business. Just factor in the ongoing franchise costs.

The Math That Should Make You Angry

Let’s add up what franchises cost over 10 years on a business doing $400,000/year in revenue:

Franchise fee (one-time): $40,000 Royalties (6% x 10 years): $240,000 Ad fund (2% x 10 years): $80,000 Required purchases markup (est. $6K/year): $60,000 Technology fees (est. $3K/year): $30,000 Renewal fee (year 5): $15,000

Total 10-year franchise cost: $465,000

That’s $465,000 that would have stayed in your pocket with an independent business.

Invested at 8% returns instead of sent to a franchisor, that’s $680,000+ in wealth you gave up.

“But I couldn’t have done $400K in revenue without them!”

Maybe. But the guy who bought a running independent business did that revenue from day one. Without the training wheels. Without the fees.

The Play

Here’s exactly what to do:

If you want to buy a business in the next 6 months:

1. Define your target: Industry, geography, revenue range
2. Set up BizBuySell alerts for that criteria
3. Send 50 direct outreach emails to businesses you’d want to own
4. Tell 3 SBA lenders you’re a buyer
5. Tell every business person you know you’re looking
6. When a deal appears, run the numbers I showed you
7. If it pencils, make an offer
8. Close and operate

If you’re being courted by a franchise:

1. Demand Item 19 financial performance data
2. Call 10 random franchisees (not the ones they recommend)
3. Ask each one: “Knowing what you know now, would you do it again?”
4. Calculate total 10-year cost including all fees
5. Search BizBuySell for independent businesses in that industry at that price
6. Compare the acquisition (with cash flow) to the franchise (without)
7. Make the decision that makes you richer

The franchise system is built to make the franchisor rich.

The independent acquisition path is built to make you rich.

Choose accordingly.

Azgari Foundation helps people acquire service businesses without franchise handcuffs. We find the deals, run the diligence, structure the financing, and get you operating. Book a call if you’re ready to stop paying royalties to someone else’s dream.

Frequently Asked Questions

Is it better to buy a franchise or start an independent business?

Independent businesses offer more control, no royalty fees (typically 5-8% of revenue), and flexibility. Franchises provide systems and brand recognition but limit autonomy. For most service businesses, independent ownership often provides better ROI.

How much do franchise royalties cost?

Franchise royalties typically range from 5-8% of gross revenue, plus 1-3% for marketing fees. On $500,000 in revenue, you’d pay $30,000-$55,000 annually in fees—money that stays in your pocket with an independent business.

What are the hidden costs of buying a franchise?

Hidden franchise costs include required vendor purchases at premium prices, technology fees, training costs, renewal fees, transfer fees if you sell, and mandatory upgrades. Total ongoing costs often exceed the stated royalty rate.

Can I be successful without buying a franchise?

Absolutely. Many independent service business owners outperform franchisees because they keep royalty savings, adapt quickly to local markets, and aren’t restricted by franchise rules. Proven business systems exist without franchise fees.

What do franchises provide that I can’t get independently?

Franchises provide brand recognition, operating systems, training, and group purchasing. However, consultants like Azgari Foundation provide similar guidance for independent businesses without ongoing royalties or restrictions.

What’s the failure rate for franchises vs independent businesses?

Despite marketing claims, franchise failure rates are similar to independent businesses when compared apples-to-apples. Success depends more on the owner, market, and execution than whether you’re franchised.

Related Reading

• Complete Guide to Service Business Startup Costs
• Hidden Costs of Buying a Franchise
• How to Get an SBA Loan for a Service Business

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