entrepreneur

A franchise is great for people who want to own their own business, but have little or no idea how to start or manage it. Starting as a home-based franchise business can save thousands of dollars in start-up costs and rent payments. You need to find a type of franchise that doesn’t need a store front or a professional office. There are many franchise magazines and books that list available franchises of this type, the start-up investment requirements, and how many are already operating. 

To find several home-based franchise businesses to select from, check the bookstore, magazine racks and your library for the latest opportunities available. There are periodic directories available with many lists to explore. You can also search home-based franchises on the Internet, and you’ll get several sites that list numerous ones to choose from. Each site may have different listings, so check several to get the most choices. There may be so many that you can search by industry type or capital needed. You should contact all that you have an interest in and request some basic literature and information. I always like to see how long it takes for them to respond to a serious inquiry, because that may indicate their response time later to questions and problems. Any franchise business that takes longer than ten days to two weeks to get back to you would get a red flag in my list. 

Buying into a Proven Method

What you are actually buying in a franchise is the method of doing a certain type of business that has proven to be successful in the past. You will also have the right to use the company trade name which may already be recognized in the marketplace. And the better known the brand name, the more it may cost to get started. You will be given training in the product line, selling techniques, and how to keep and submit sales and financial reports. These reports will be a mandatory record of your ongoing business and the basis of your monthly royalty payments. These franchisors were smart enough to base their royalty on sales, not profits, and can range from 5% to 12%, or as high as they can convince franchisees to pay. Not paying the royalty payments on time can trigger a penalty or late fees, and even forfeiture of the franchise in some cases.

Like anything else, there are good and bad franchise companies competing for your investment. So when putting your hard-earned and long-saved money into a franchise, you want to be sure that it’s what you really want to do and that you’ll have a good chance to be successful. A total commitment to your business will be necessary once you start to achieve the goals you have set. And I say your business because it really is yours under the umbrella of the franchisor. And no franchise company will guarantee results (if they do, start running), but you can be reasonably confident if you do your homework with due diligence first. 

Asking the Right Question

Here are some questions you’ll need to have the answers to before you invest:

1.      Are the products or services that your prospective franchise sells something you enjoy personally or have an interest in? This is the beginning of your new business life and you’ll have to learn the industry and work in it regularly. If you’re not happy and don’t enjoy the industry, your chance of success will be reduced.

2.      Is your franchise company a leader in its industry or at least well known? It’s hard to get a new business going if no one has ever heard of the company. How long have they been in business? Have they ever changed their name, and why? Have they ever merged or bought out competitors?

3.      Are the selling prices of their products and services competitive in the marketplace? A high priced product or service at a new business will take more sales effort and time to catch on. Are the prices the same in all areas of the country? Would you buy their products at those prices?

4.      Is the start-up cost within your budget? You can usually add 15% to 20% extra for unexpected expenses. You will also need additional capital for the advertising and promotion of your new business. If you start undercapitalized, your problems may come sooner than you expect.

5.      Do they offer a protected territory or selling area? You will need something in your contract that stops them from opening another franchise or selling within XX miles from your selling area. It’s also nice to have an area where only you can open additional locations or expand your territory for a two or three year period.

6.      Do they have company-owned outlets or territories? Are any near or in your selling area? It will be hard to compete with the home office for business when they have much bigger resources.

7.      Are other franchisees making money? They should readily give you a list of other owners with contact information. Request a list of 50 or more and select at least five to talk to. Don’t let them pick the other franchisees that you will contact, you select them. If they’re reluctant to give you a lot of information, it’s time to look elsewhere for a different franchise.

8.      Can you visit other franchisee locations and observe their operations? You should be able to see if it’s really what you want to do and how it’s done. Any hesitation here by the franchisor and it’s time to hit the road. Meeting a person who already has made the investment in a franchise will tell you a lot. It’s even worth the travel expense to see them out of town.

9.      Can you live with the hours that it takes to run this new business? Are you willing to put your personal time and vacations aside until the business is on its feet and you can hire and train competent personnel? A new business is more time consuming than you may think, and a franchise is no exception.

10. Are there reduced start-up costs if you open more locations or territories? Even a home-based business can have remote locations. If they don’t have a regular policy on this, you can request something in your contract that lessens the fees for additional operations, or no fee at all, just royalty.

11. Are there any restrictions if you decide to resell the franchise? Can you resell at any time to anyone who is financially qualified and of good moral character? Is there a transfer fee and how much is it? What support and training will they give to your buyer? Will you have to personally guarantee the new owner for any length of time?

12. Is the royalty reasonable for the specific industry? You can compare by visiting their competitors’ web sites to see what their percent of sales is for royalty. One or two percent either way is not a big deal, but five percent is. This is a percent of gross sales not profits and must be paid regularly. It should all be spelled out in the formal franchise agreement.

13. What type of initial training do they offer? How long is it and where is it done? How many people can attend the training and who pays for it? Do you receive reference manuals as part of your franchise fee? Do they have a support phone line or email address for additional questions? Can you get help 24/7, or only during certain hours?

14. Do they provide on-site training and supervision when you first open? Will home office people be there to assist you in your first few days or week of operation? You can’t just run to the training manual with every situation in the beginning, you will need experienced on-site help.

15. Are they constantly looking for new products and services to offer? Markets change and so do consumers and business buyers. Have they kept up with changing times in the past? What are they researching and trying to develop now? If you find another product that your customers want to buy, can you sell it?

16. Is the corporate office financially stable? Can you call company suppliers to verify their good relations? Are there any lawsuits pending that would cause concern? Can you get their credit report?

17. Are there restrictions on what products or services that you can sell? Local markets can vary and additional products may sell well in your area. Do you need approval before you add new products? Will they listen to your recommendations for products that need to be added companywide?

18. Do they offer help in financing, if needed? Do they have agreements with any national banks or finance companies that are familiar with the franchise? Can they pre-qualify you before you pay any fees or deposits?

19. What if you want to co-brand and sell two or more non-competing brands from your home-based business? Franchises like handyman services and carpet cleaning go well together and can be done using the same van. One of the co-brands might not be a franchise, so find out in advance.

20. Did you have a business lawyer or CPA review the franchise agreement before you plan to sign it? They can point out things that you will be responsible for and suggest areas to request changes. Some franchisors will make minor changes to the agreement.

21. Do they do national or regional advertising? You may have to pay a small monthly percent for marketing and advertising. How are they using the money and do they account for it? How often is advertising done?

22. Are all franchisees treated equally? Or are the larger ones with several locations getting preferential treatment? You don’t want to be the last in line just because you’re new and have fewer sales. Talk to other small owners and see how they are dealt with. 

A Sure Thing

As far as being a sure thing franchise, well, there may not be a straight answer to that. In life, there are only a few sure things such as taxes, growing old and the fact that a full house beats a flush in a poker game. In business, there are so many factors that go into a success that the words sure thing should not be part of the vocabulary. Under the right conditions with smart and hard work by the franchisee, most will be successful. But the franchisor is not going to hold your hand and do the work for you. They will guide you, train you and answer your questions along the way, but you have to make success happen. Taking the company and concept for granted will only bring results that weren’t expected. Even the biggest and most well known franchises will have some failures for any number of reasons. So when buying a franchise, the only sure thing should be your commitment.

This guide listed a few things you’ll want to consider before writing that non-refundable deposit check and starting a home-based franchise. It sounds like a lot to find out, but remember, you may be investing a lot of your time and much of your life savings. Most franchises are very reputable businesses and should open all the doors to their operations and answer all your questions. To get more information and literature, you can contact the American Association of Franchisees and Dealers at 800-733-9858 which manages owners’ associations and the American Franchisee Association at 800-334-4232.

A home-based franchise can give you a ready-made plan or turnkey operation, which eliminates a lot of the headaches of starting on your own. It can also be a brand name that’s well known in the marketplace. You just need to be sure that it’s what you really want because once you sign the agreement, you’ll be partners for a long time. Check it all out, ask all these questions, and be sure you understand the answers. Double-talk and vague answers are not the sign of a reputable franchise company. Do your homework in advance so you will have the best chance for success. HBM 

By Barry Thomsen—Publisher/Editor of Small Business Marketing Idea-Letter and Book Author. For a free sample of the Idea-Letter, email: or call 877-700-1322.