For would-be entrepreneurs, franchises offer built-in benefits, such as brand-name recognition and proven formulas upon which to build success. That’s not to say that plunking down a chunk of money will buy you a thriving business: Owning and operating a franchise requires, like any business, an investment of time, as well as the will to succeed.
The downturn in the economy has fuelled an interest in franchise ownership, said Brian Miller, president and chief operating officer of The Entrepreneur Source, which offers franchise and business ownership coaching. “The kind of jobs that build long-term wealth and equity have gone away for many, and a lot of people are looking to take control of their own destiny. Franchising is a residual benefit of that.”
The number of franchise establishments in the U.S. is projected to increase by 1.9 per cent in 2012 to 749,499, according to the International Franchise Association. That’s not as high as the 770,835 franchises that were around in 2007, but after declining for the past four years, franchise ownership is looking up.
“Our forecast for modest growth is good news for the overall economy, given franchising supports 12 per cent of the U.S. private sector workforce,” says Steve Caldeira, IFA president and CEO.
To anyone thinking of buying a franchise, Joel Libava, author of “Become a Franchise Owner,” offers this tip: “Spend a day with the owner of a franchise you are interested in,” he said. “Find out what they really do, and ask about the training program. It’s the least you can do before you commit many thousands of dollars to a business.”
Still think you’re cut out for the franchise world?
Typical franchises: Brightstar, Nurse Next Door
Why it’s popular: Due to advancements in medicine and technology, Americans are living longer. Boomers, already time-stressed, are trying to do the right thing by letting their parents live in their homes as long as they can. But they need help and they are turning to visiting nurse and assisted-care services.
Due diligence: “It’s a competitive sector,” said Miller, and you need to look carefully at the brand, and how it differentiates itself. The services that various franchises offer vary greatly — from companion care to medical care — so it’s important to understand what the business model offers.”
Libava said it’s also important for potential franchisees to understand what their role will be. “You’re not a caregiver, you’re running marketing and operations; it’s about networking,” he said.
Sample startup costs: Brightstar — $100,000; Nurse Next Door — $50,000 to $75,000
Typical franchises: Express Employment Professionals, Spherion Staffing
Why it’s popular: If business owners have learned nothing else during the downturn, it’s that they can do a lot with a contingent work force, said Miller. And, while the economic recovery means companies need more employees, many business owners aren’t ready to commit to hiring full-time staffers. So, it’s 1099 time for a lot of workers.
Due diligence: This is also a competitive market, the pros caution. “This one is for the tigers,” said Libava. “You have to have a thick skin. There’s a lot of cold-calling involved as you try to find companies that are looking to staff. It’s intense.” Miller noted that companies in this category offer diverse services and some specialize in particular niches such as technology and administrative work. Make sure you understand what type of industries you will be dealing with.
The upside? Unlike a lot of other franchises, “it’s mainly a Monday to Friday business,” said Libava.
Sample startup costs: Express Employment Professionals — $50,000; Spherion Staffing — $97,700 to $163,200
Typical franchises: PuroClean, ServiceMaster Clean
Why it’s popular: If a home is damaged by flood or fire, it needs to be fixed. And in most cases, the repairs are covered by insurance, meaning the restoration service owners don’t have to worry about deadbeat clients.
Due diligence: Miller advises potential franchisees to find out if the franchise has agreements with insurance companies and suppliers. Libava added that, in this business, it’s helpful to know the local law enforcement, fire and ambulance crews because these are the people who can recommend your services.
Sample startup costs: PuroClean — $50,000; ServiceMaster Clean — $8,380 to $24,305
Business Coaching and Consulting
Typical franchises: AdviCoach, The Growth Coach
Why it’s popular: People continue to start small businesses, especially in this economy. And their expertise may not always be in running a business. These franchisees help business owners with everything from operational knowledge to helping a growing business move to the next level.
Due diligence: “What is the retention rate of clients?” said Miller. “That’s important, as is knowing what the key differentiator is in executing the business model.”
“People are attracted to it because you can do it out of your home, and a lot of people believe they know how to help businesses,” said Libava. “But you have to be prepared for the sales aspect. Know that business owners aren’t going to just appear on your doorstep asking for help; you have to go find them.”
Sample startup costs: AdviCoach— $73,000 to $83,000; The Growth Coach — $52,000 to $76,400
Typical franchises: Red Mango, Menchies, Pinkberry
Why it’s popular: Frozen yogurt is experiencing a rebirth, with the category growing after it sputtered several years ago. The emphasis now is on healthy options and self-serve toppings bars.
Due diligence: Miller says there are a lot of questions to ask before getting into this category. “What does the brand do to generate traffic to the stores?” he asked. And, with so many players in the category, “What is the brand differentiator?”
“Look for the special sauce: what is the unique thing about the franchise?,” Libava added. “Keep in mind, the locations can be expensive: They need to be high-traffic areas and the rent will cost you. Also, know that this requires late nights and weekends. Are you going to be the one behind the counter? Or more of an operations person? Either one is good, but know what you are getting into.”
Sample startup costs: Menchies — $50,000; Red Mango — $200,000; Pinkberry — NA
Typical franchises: Tutor Doctor, Sylvan Learning
Why it’s popular: If there’s one thing people are still willing to spend money on, it’s their kids. And it’s not just for kids who are having trouble in school. More competitive college admissions standards mean everyone’s looking for an edge.
Due diligence: “The services are broad,” said Miller. “Make sure you know what types of services a particular franchise provides. Do you only work with young children, or do you go all the way up to SAT prep?”
“If you want to be the teacher, don’t do this,” warned Libava. “You hire the teachers. And you will be spending a lot of time networking with the community, looking for business.”
Sample start-up costs: Tutor Doctor — $39,700 to $127,000; Sylvan Learning — $101,000 to $171,000
Typical franchises: Snap Fitness, Massage Envy Spa
Why it’s popular: There’s an emphasis on health and fitness, and, especially among people who are working, a need to blow off some steam. “People who do have discretionary income are also looking for ways to indulge themselves,” said Miller.
Due diligence: “These are membership-based services, and you have to keep filling the pipeline,” said Libava. Also, the startup cost is just the beginning, said Miller. “What is the cost to build out? How quickly can you get up and running? Will the franchisor help you to build up membership?” And, perhaps most important, “What are the membership fees?”
Sample startup costs: Snap Fitness — $50,000 to $100,000; Massage Envy Spa — $75,000 to $100,000
Hair Salons and Services
Typical franchises: SportClips, Great Clips
Why it’s popular: People still need to look good, even as they cut expenses. Chain salons offer quick appointments at reasonable rates.
Due diligence: Ask these questions, said Miller: What does the franchisor do to help you recruit stylists? What is the ramp-up time? Can you own a single unit or are only multi-area developer packages available?
The upside, if you are so inclined, is that these franchises are the closest thing to a semi-absentee business that you will find, Libava said. “Franchisees are not hair stylists, they are business people who are good at operations and management.”
Sample startup costs: SportClips — $100,000; Great Clips — $0 to $50,000
Maid and Personal Services
Typical franchises: Maid Brigade, Molly Maid
Why it’s popular: This is one of the last indulgences people give up in a tough economy, even after they’ve been laid off. And for those people who have jobs, they’re probably working longer hours. This is something that many people have outsourced and are not looking to take back.
Due diligence: There are many franchises to choose from, said Miller. So, get the most from your investment. Find out what assistance you’ll receive to get up and running, and what is the time to break even on your investment?
Libava said this is one case where he’d tell people to not be too quick to say “no.”
“You’re not the one doing the cleaning; you’re managing the crews. You do need to be good at HR; there is high turnover in this industry,” he said. It’s also important to look at the systems behind the brand: “How good is the scheduling software? Green certification helps, as well,” he said.
Sample startup costs: Maid Brigade — $24,995 to $26,995; Molly Maid — $71,525 to $116,200
Typical franchises: Baja Fresh Mexican Grill, Saladworks
Why it’s popular: Food is always a big seller. Now, the emphasis is on quality as well as healthy and natural food.
Due diligence: There is limitless variety in the fast-food arena, but whether you are thinking of quick-serve restaurants such as Subway or a sit-down establishment such as TGI Friday’s, the basic questions are the same. Miller said location is one of the most important things to ask about. “Find out what real estate assistance they provide to franchise candidates,” he said. “And then, what is the cost of build out?”
Libava cautioned to not get caught in the “this is hot” trap. “Is the concept a fad or will it be around for the long haul?” he said. “Pizza and burgers won’t go away, but finding the best of the best can be challenging.”
Sample startup costs: Baja Fresh Mexican Grill — $250,000 to $650,000; Saladworks — $75,000 to $200,000
Typical franchises: Central Bark Doggy Day Care, Pet Supplies Plus
Why it’s popular: Along with kids and cleaning, people continue to spend on their pets, even in a down economy.
Due diligence: Libava said this is one category where a level of passion for the product is helpful. “Being a pet owner can help you understand the business and know what questions to ask,” he said.
Sample startup costs: Central Bark — $125,000 to $175,000; Pet Supplies Plus — $250,000 to $300,000
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