How Franchisors Can Design Programs for Budget-Conscious Franchisees

susan_grueneberg_1.jpgThe explosive growth of franchising as a method of distributing products and services has sparked a great deal of creativity. More and more people are considering franchise purchases as a path to independence. For many reasons, these prospects may think that buying a franchise is beyond their means. These reasons range from lingering student debt to the high cost of housing.  Tapping into this potential  market can open up mutually beneficial opportunities for franchisors and franchisees. This article provides some pointers on how to design a franchise program that is accessible to prospective franchisees with limited capital.        

Alternative franchise programs.  Some industries have different tiers of operations.  For example, a restaurant concept may have a fine dining concept, a casual dining option, an express facility and food trucks.  Planned carefully from both operational and legal perspectives, these types of locations can operate in a complementary manner to grow the brand, even in the same market.  Franchisees without the capital to invest in a full scale restaurant could start out with the brand by operating a food truck or an express kiosk.  The overall cost will be much less than buying a restaurant franchise due to a more limited menu, fewer staffing requirements, less necessary equipment and smaller inventory demands.

Mobile franchises.  Another method of creating low cost franchises is to eliminate the need for an office or a physical location of any kind.  Expensive rent and build out requirements can send the cost of a franchise rocketing.  Instead, some franchise systems have based their businesses on the operation of mobile vehicles that can travel from place to place.  A food truck is one example.

Another type of mobile franchise is a towable party game truck that can be hired for birthday parties and corporate events. Franchisors can also take advantage of the demand for in-home services. Instead of a nail salon, the franchisee can travel to a client’s home to provide nail care or waxing. Instead of building and maintaining a spa, a massage therapist can provide massage services in a client’s home. These may be adjuncts to a brick-and-mortar business or stand-alone franchises.

While these types of concepts are primarily service-based, they can also apply to product sales.  One example might be a franchise that involves stocking convenience store shelves with the franchisor’s products.

Side Gigs.  What millennial these days doesn’t have at least one side gig? Many new entrants into the workforce do not make enough money to pay their bills with just one job, especially in large urban areas with higher rent. They may not even be directly employed by the companies for which they work. Rather, the company contracts with a staffing company for their services.  Interjecting another layer in the employment paradigm further reduces the take home pay of these workers. Prevalent part-time supplementary side gigs range from rideshare driver to pet walker, from DJ to yoga instructor. Designing an affordable part-time franchise program can be appealing to these, primarily younger, potential franchisees and can even eventually morph into a full-time gig. 

Step up brands.  A variant on the idea of designing tiered levels of franchises, establishing “step up” brands can bring in franchisees with lower investment requirements. As the franchisee gains experience, he or she can step up to acquire a franchise in the more expensive categories.  Lodging companies have done a good job of creating this with multiple brands ranging from economy motels to luxury world-class 5-star properties. All take advantage of the same reservation system and rewards program and the other perks of a large franchise system with many resources.

SBA Financing.  Last, but not least, many franchisees seek financing for their franchises through loans guaranteed by the Small Business Administration. The SBA maintains a directory of franchise programs and a program must be listed in order to be eligible for SBA assistance.  There is no fee to be listed on the SBA’s Franchise Directory, but a franchisor must submit its Franchise Agreement and Franchise Disclosure Document to the SBA for review and an eligibility determination, as well as other documents that the SBA may require. The SBA has a form Addendum that franchisors must use if a franchisee obtains a SBA-guaranteed loan.  See https://www.sba.gov/document/support—sba-franchise-directory. Having this process available to franchisees is often a big plus for a franchise program.

As franchising expands even further in the national and international economy, more affordable alternatives will be increasingly available.  Rather than placing their entire savings (and often even their homes) at risk, more and more franchisees want to start a business that costs less to start but still presents a good rate of return.  They are often willing to pay higher continuing fees as a trade-off for a reduced initial investment.  That creates opportunities for both franchisors and franchisees.

Susan Grueneberg has been working with franchisors in industries ranging from food and beverage to transportation, fitness, senior care, health care, pet services, real estate, children’s activities, automotive care and construction for the past 30 years. She assists franchisors in setting up franchise systems and expanding them nationally and internationally. To learn more, you can reach Susan at 213-892-7996 or sgrueneberg@cozen.com.

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