Franchises in Your Price Range
When people consider whether they should go into franchising, they naturally have some fear and reservations that comes from making such a major career decision. Do they possess the skills and leadership abilities to run their own business? Will they get enough training and support from the franchise system? They also often wonder if they have enough money and can get the financing to purchase a franchise.
Sometimes people may believe they must be independently wealthy to afford a franchise and the investments all cost $500,000 to $1,000,000 or more. That may be the case with certain retail franchises that operate with a storefront location, such as a restaurant or clothing store. In addition to the physical location, the most expensive operations also have ongoing expenses such as rent, a large number of employees and marketing programs that make it more expensive than other businesses.
Luckily, not all franchises operate from a brick and mortar location, and many are available at a much more affordable price. The least expensive businesses are often home-based and are predominately sales-driven as opposed to marketing-driven. These lower-cost businesses are mostly home service franchises, as well as personal service franchises.
Home service businesses bring their services directly to the customer and perform a unique and valuable function that saves time and money for busy homeowners. Some examples of these businesses are ones that specialize in window-washing, painting, plumbing, flooring, handyman services, or disaster remediation. There are many home service concepts currently operating, all of which can be quite successful if it is with the right franchisor.
There has been an increased need for these types of services in recent years. Most homes will require regular maintenance inside or around the house, and the work is often very time consuming or requires specialized tools or training. Whether it is a busy family needing to take their kids to weekend activities or an older couple no longer able to keep up with repairs, there is a considerable demand from homeowners to hire businesses that can handle these maintenance duties.
By taking the service directly to the customer, home service franchisees do not require a physical business location and are able to save a great deal of money in startup costs and ongoing expenses. They can often open their business from their home or a small office.
When we talk about the expense of these low-investment franchises, many cost between $75,000 and $150,000. An important distinction to know, however, is that some people make the mistake of looking only at the franchise fee and think that is the final cost. To determine the actual cost of a franchise, I always recommend to look at Item 7 of the Financial Disclosure Document (FDD).
Item 7 of the FDD is called the Estimated Initial Investment, which is a comprehensive list of expenses that go towards opening a franchise. It includes everything to get the business open and operating, along with the cast-flow requirements for the first three months. If a franchise fee is $25,000, careful examination of Item 7 will show the true cost of owning and operating the franchise may be closer to $150,000.
As a franchise coach, I work with many people who are operating with a tighter personal budget and are exploring lower investment franchises. One of their primary concerns is being able to finance a franchise opportunity. The SBA Express Program grants loans up to $350,000. If people have good credit, they can get a loan to cover most of the cost of a franchise purchase. A SBA Express loan is a great option for many people to quickly secure the money needed to own and operate a franchise.
One advantage to operating a home-service franchise is that they tend to be less impacted by a potential economic downturn than many other retail businesses. While people may cut back on discretionary spending habits like going out to dinner or a trip to the movie theatre during a recession, they will still need to repair and maintain their home the same way, regardless of the economic climate.
Another benefit of these home-based franchises that do not require a storefront location is the ability to open the business much faster than others. That is very important to some people, particularly those who have left a job to become a franchise owner and can’t afford to wait nine months to secure a lease and build a location. With these types of businesses, people can sign an agreement, go into training one month later and open their business a month after that.
Although there are many positives to low-cost franchises, it doesn’t mean they are easy to operate and will always be successful. Home service franchises require a lot of work from the owner and are not manager-run businesses. You can’t just buy the franchise, hire someone to run it and hope it will be successful. The first couple of years require a lot of focus, determination and effort from the franchise owner. Over time, they can earn freedom and flexibility with their schedule.
I believe the outlook for service-based businesses is very positive. It used to be that many franchises were storefront businesses. Now, advances in technology allow a franchisor to deliver significant advantages to help a home service franchise be as successful as possible. That includes CRM (Customer Relationship Management) systems that can control scheduling, billing, routing software and marketing platforms.
These systems make it possible for people to grow their home service businesses much larger and more effectively than they had in the past. In some cases, these businesses with low initial investments can grow into franchises that make millions of dollars each year. The demand for their services and advances in technology will continue to allow franchisees to have a competitive position in the marketplace, outperform their competition and be successful as a result.
Rick Bisio is a leading franchise coach with FranChoice, the creator of the FDD Exchange and the Franchise Glossary and the co-host of Rick Bisio’s Franchise Focus. Since becoming a franchise coach in 2002, Bisio has assisted thousands of aspiring entrepreneurs nationwide explore the dream of business ownership.