Low-Cost, High Return
Identifying the Best Budget-Friendly Franchising Opportunities
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If you’ve always wanted to have a business of your own, there are a variety of low-cost franchises to choose from. These franchises offer the potential for financial independence, with the advantage of providing you with a proven playbook for success. According to research firm FRANdata, there are currently 668 franchise opportunities covering 29 industries with investment requirements of under $100,000. FRANdata based its findings on three years’ worth of data from 2013 to 2015. The median investment for our top franchises in this report is $67,130.
Not all low-cost franchise concepts are created equal. Startup costs, market demand for the product or service, franchise fees, potential revenue, and contract provisions are just some of the factors you should carefully consider. Sifting through hundreds of opportunities to figure out which one is most likely to meet your financial and personal objectives can be tedious and tricky. That’s where Franchise Business Review comes in. We surveyed over 9,200 franchisees from 132 different brands, to identify the top low-cost franchises with the most satisfied franchisees. If you’re interested in purchasing a low-cost franchise that will enable you to be your own boss or to diversify your investments, our List on page 8 is a great place to begin.
A few of the franchises featured in this report hold the honor of making our Low-Cost List each year since Franchise Business Review launched a decade ago. They are Heaven’s Best Carpet Cleaning, Our Town America, Miracle Method, ActionCOACH and JumpBunch. Each has shown consistently superior performance. Making an appearance on our List for the first time are ImageOne, S.T.O.P., and Mosquito Authority.
One of the most unique concepts that caught our attention is The Traveling Photo Booth. By giving clients the instant gratification of being able to take and share photos, it is benefitting from the “selfie” and social media trend. In addition to letting people instantly share their photos via its mobile app, clients are given a printed photograph, which is an appreciated rarity in our digital world.
Low-cost franchises offer a variety of benefits over more costly franchise opportunities. This is reflected by the satisfaction of low-cost franchisees being 11% more than higher cost opportunities.
Faster Potential Profitability
If you’ve already started researching franchises, you know that many can cost hundreds of thousands or even millions of dollars. Low-cost franchises, however, are a financially viable way for you to own your own business. Less debt, combined with lower start up costs, can result in faster profitability. When we compared the average annual pre-tax income of Low-Cost Franchises vs. All Franchises, we found it was $75,217 for Low-Cost Franchises1 and $86,9402 for All Franchises.
Even though profitability may occur faster with low-cost franchises, all businesses take time to be profitable. It is important that you have adequate funds to carry you until your business is generating enough revenue to be self-sustaining. Do your due diligence in order to figure out the amount of money you should set aside since every franchise opportunity is different and your personal financial situation unique.
“When I converted my three-year-old landscaping business, which focused on design and installation, to a U.S. Lawns franchise in January 2002 I was doing $250,000 in sales,” says New Albany, MS franchisee, Mike Kirk.
“We saw an immediate financial benefit from U.S. Lawns’ full service maintenance model. We are budgeting $2.4 million in sales this year.” Kirk holds a degree in accounting and entered the green industry, which he always had a passion for, in 1998 after having worked in manufacturing for 13 years and being downsized when the company he worked for was acquired.
“We suggest that new franchisees have 12 months of living expenses in the bank,” says Todd Hopkins, founder and CEO of Office Pride Commercial Cleaning Services.
Often Home-Office/Mobile Based
Since most low-cost franchises take their products and services directly to customers, many can be run out of your home or a small rented office or trailer. Some, such as those in the green space, may need to expand to a larger location as business grows in order to accommodate equipment and vehicles.
“I work out of my home,” says Stacey Black, who owns Rhea Lana’s Frisco/McKinney, TX territory. “When holding events I, like most Rhea Lana’s franchisees, either rent an empty retail location or event location for them.”
Since many low-cost franchise concepts do not necessitate owners being present at a particular location for a set period of time, they offer more flexible schedules than a retail outlet or restaurant. Many can even be operated part-time.
“Traveling is in our name and being able to work remotely has always been a priority. From any smart phone, franchisees can manage leads and clients, change online pricing, personalize automated emails, and even answer questions in real-time from leads using the ‘live chat’ feature on our website,” says Founder of The Traveling Photo Booth, Jacob Stewart. Most of The Traveling Photo Booth’s franchisees have other jobs in addition to running their franchise, although Stewart says this can and does change based on franchisees’ personal goals, the market they serve, how long they’ve been a franchisee, and their skills as an operator.
“I purchased a Rhea Lana’s franchise because I wanted to be able to work around my children’s schedules for most of the year,” says Black. “I work hard for two months prior to my event, although still around my kids’ schedules, and then two weeks straight during my events. Essentially during my events it’s as though I am away on a business trip. Since I only have two events a year, I have a great work-life balance.” She notes that if she had to rely on her business, which had sales of $300,000 last year, 10X more than her first year (2009) sales, that it would be challenging to support her family in the lifestyle they’ve become accustomed to with a dual income. “We could make it work if we had to though,” says Black. “I know of one woman who is doing so.” That’s impressive for a business that requires working on average five months a year.
Low-cost franchises also offer many benefits that higher cost franchises do, but that starting your own business from scratch does not.
1 Based on independent surveys of 9,214 franchise operators representing over 130 low-cost franchise brands (defined as franchise businesses with an average startup investment under $100K) conducted by Franchise Business Review between January 2014 and April 2015. Franchise operators were asked to report their annual pre-tax income provided by their franchise business. Franchise operators that were in the “startup period” of their business (defined as the first two years of a new franchise business) were excluded. Only low-cost franchise brands with a minimum of 50 operating units were considered in this research.
2 Based on independent surveys of 26,140 franchise operators representing 364 franchise brands, across all sectors and investment levels, completed by Franchise Business Review between January 2014 and April 2015. Franchise operators were asked to report their annual pre-tax income provided by their franchise business. Franchise operators that were in the “startup period” of their business (defined as the first two years of a new franchise business) were not included.
Plug & Play
A franchise provides you with an out-of-thebox business model that is ready to be implemented as soon as you have gone through your training. All you have to do is to adhere to the established guidelines.
“When we had our own landscaping company, we were on an island on our own and made a lot of mistakes,” says Kirk. “By buying a U.S. Lawns franchise, we bought a business that already had all the kinks worked out of it.”
You’re Not Flying Solo
You’ll receive your franchisor’s support in a variety of crucial areas including training and operating procedures as well as marketing.
“We provide a full week of classroom training for new franchisees followed by in-market sales and operations training,” says Hopkins of Office Pride. “After their initial training is completed, our new franchisees are placed into peer groups, which allows them to get to know other owners, share best practices and more.”
In addition, you have a network of fellow franchisees to learn from and work with.
“Our Franchise Advisors spend quality time with owners. We’re also big fans of group and regional franchisee meetings which provide a forum for franchisees to seek advice from and share best practices with each other,” says Ken Hutcheson, President of U.S. Lawns.
“We hold a best practices competition at our annual conference,” says CEO & Founder of Visiting Angels, Larry Meigs. “Franchisees compete to win one of three categories such as Palliative Care, Caregiver Retention and Converting Leads into Clients. The categories change each year. The winners present their best practices at the conference, which benefits all who attend.”
Since the franchise brand is already recognized by customers they know that it offers consistency and appreciate the comfort its familiarity provides.
If you have done extensive due diligence including reviewing the FDD and talking to franchisees in order to identify a strong franchise brand with a proven business model, your chances of building a successful business are greater than if you were starting one from scratch.
Prospective investors tend to favor known brands. Franchises typically fetch a higher resale price than a mom and pop business, and most franchisors will assist you in finding a buyer.
Like all businesses, low-cost franchises come with risk. Here are some things to keep in mind prior to taking the franchise plunge.
Managing a Business
If you are like many franchisees, you may have no prior business ownership experience. Ask the franchisor what business skills you’ll need to be successful, and what they will train you to do. You should seek outside assistance from accountants, attorneys, and other business professionals that have expertise in your areas of weakness.
“We spend three days teaching our franchisees the basics they need to run their business including how to read and strategically act upon Profit & Loss statements,” says JumpBunch CEO, Thomas Bunchman.
Although the idea of working from home is appealing and a benefit many low-cost franchise opportunities offer, it can be challenging for some since it requires a lot of self-discipline. Home-based business owners have to learn to set limits not only for themselves, but also for family members who may feel inclined to interrupt them or expect them to take care of non-work related tasks during working hours. It’s a good idea to set business hours at home and to make your family members aware of them and the importance of respecting them. This will help you stay focused and productive.
“Although we provide our franchisees with a system, roadmap and lots of training on how to execute, they no longer have someone looking over their shoulder. They are their own boss, which means that at the end of the day, they have to follow through and be relentless if they want their business to get them where they want to go,” says Hopkins of Office Pride.
“Results do not magically happen,” says Black of Rhea Lana’s. “You have to be a self-motivator. The reality of working hard and not seeing a profit for the first two years was difficult at times even though corporate told me it would probably be three years before I saw a profit. It was seeing the success of other Rhea Lana’s franchisees who had persevered that kept me going.”
Many franchisees initially can be overwhelmed and find it difficult to focus on what is important at the right time. It can be easy to get sucked into the minute details of the business.
“Our Franchise Advisors help our operators stay on task,” says Hutcheson of U.S. Lawns. “They help them set actionable goals and prioritize them so they can hit each one. If you don’t have goals then you are just doing stuff, but most likely not making progress.”
Hiring and Managing Others
For many franchisees, finding the right staff and training them is one of the most challenging aspects of their business. Doing so is a worthwhile investment since it will prevent you from having to consistently spend precious time hiring and training new employees due to turnover.
“One of the biggest frustrations for our franchisees is hiring and keeping good staff,” says Bunchman of JumpBunch. “We offer them tools to manage their employees, as well as universal background checks and online programs that help them to train their coaches.”
“When interviewing, you have to have a good instinctual feeling for a candidate and understand what their expectations are,” says ShelfGenie franchisee Ric Trahan. “I look for people with a solid values system, who are team players, good at customer service, and able to effectively communicate.”
HOW TO BEGIN YOUR QUEST FOR A LOW-COST FRANCHISE
By reading this report, you are already off to a great start in your search for a proven franchise that suits your personal and financial goals. Doing the following may help clarify the direction you should take.
Identify Your Interests
For every interest, there is a low-cost opportunity available such as cleaning, business services, recreation, art, health and travel. While some franchisees invest in a concept they have had prior experience with, many do not.
“Our top five performers were tired of the rat race and joined us in order to have more time to be with their families,” says Bunchman of JumpBunch. “Two have an IT background, one was a lobbyist, one was an ad executive and the other managed a large sales team.”
Assess Your Skills
Understand your strengths and your weaknesses and how they relate to what the business requires to be successful. In some cases you can hire for your weaknesses, (bookkeepers, etc.) as mentioned earlier. Even so, you will most likely have to do the bulk of the hands-on work while getting started, so it’s a good idea to invest in a concept you are very comfortable with.
Set a Budget
How much can you afford to invest in the business and still be able to live the way you are accustomed to until it is profitable? Be sure to ask if the franchise you are interested in offers any discounts for minorities or veterans if you qualify.
Focus Your Search
After deciding which franchise concepts interest you most and fit your budget, you’re ready to begin narrowing down your choices. An experienced franchise consultant can help you
do so by analyzing whether or not you are a good fit for a particular business opportunity.
Connect With the Franchisor
Contact the brand’s corporate office to find out what the investment requirements are and what kind of training and support you would receive. It’s a good idea to also ask what they feel makes
their top franchisees successful as well as what their advantages are over competitors.
Scrutinize the FDD
Read the Franchise Disclosure Document (FDD) very carefully. It clearly defines what the franchisor will do for you and what they expect of you. There are 23 sections to review, so we suggest that you consult an established franchise attorney. He can ensure you understand every aspect of the FDD and alert you to any red flags. An in-depth breakdown of the FDD, presented as on-demand video segments, is featured in our Franchise Buyer’s Toolkit. It is available at www.FranchiseBusinessReview.com/Toolkit.
Interview Franchise Owners
The best feedback will come from those who know the most about the franchise opportunity you are considering—those who own it.
“It’s essential to find out how supportive the franchise is of the concerns and needs of franchisees,” says Kirk.
Even though our List features low-cost opportunities with the most satisfied franchisees, you should still take the time to speak with at least a dozen current franchise owners. Once a franchisor determines you are a qualified candidate, you’ll be provided with franchisees’ contact information. Don’t start calling franchisees prior to having a franchisor’s approval, since you may seem
incapable of following a system. When you do start reaching out to franchisees, keep in mind that they are busy. Try sending them a brief e-mail outlining why you are contacting them that asks if there is a good time for you to call. Remember, they don’t have to get back to you, so it is important to keep your tone friendly, professional and appreciative. It is worth being persistent since you will obtain insight regarding whether or not the franchise can meet your goals via your conversations. You can also ask a few owners if they would be willing to have you job-shadow them so you see what running the franchise is really like.
You can obtain funding via a bank or less traditional methods such as:
- Security-backed loans: Enable you to take a loan using a financial portfolio, such as a mutual fund, as collateral. There are several potential advantages to doing so. First, you can leave your portfolio in place, which enables it to grow. Second, because the loan is backed by your portfolio’s value, the interest charged will be lower than for an unsecured loan. It is important to note that the risk of borrowing against the value of your securities is that if your investments fall in value, the money borrowed will emphasize your losses.
- Rollovers as Business Start Up (ROBS): You can invest up to 100% of your retirement funds into a franchise without taxes, penalties or a loan via ROBS. You must have at least $50k in eligible retirement accounts such as an IRA, 401(k), or 403(b). Your retirement funds can be combined with a spouse’s, partner’s or traditional business loans. Since the money is yours interest free, ROBS can increase your chances of being profitable sooner. That said, there are setup fees, and on-going maintenance fees associated with doing a ROBS transaction. Consult with your tax professional to determine if this the best option for you.
“About half of our new franchisees use their 401K to fund their franchise fee,” says Hopkins of Office Pride. “The rest pay for it in cash.”
“We funded our U.S. Lawns franchise using our 401K and savings after which we had no cushion. It was very unsettling, but worth the discomfort to be where we are today,” says Kirk.
ACHIEVING SUCCESS IN FRANCHISING
One of the biggest advantages to franchising is that you can get your business off the ground faster since you are implementing a proven business model. Your franchisor already went through the typically painful and expensive period of trial and error to establish it. We’ve spoken to a lot of franchisors and franchisees over the years, and hear time and time again that franchisees who do not appreciate this fact and “go cowboy”, meaning they do not follow the system, always face unnecessary challenges as a result.
In addition to adhering to the business model, successful franchising requires diligence, motivation and commitment. When you first start your business, you’ll have to work hard to strategically promote it via marketing, participating in community events, networking and other means in order to be noticed in your market. Once you have customers, you’ll have to meet or exceed their expectations.
“To be a successful franchisee, you don’t need a fancy-pants business degree, but you need to be likable, have a strong entrepreneurial spirit and an incredible work ethic, be a great problem solver, have a hankering to be your own boss and the desire to find financial freedom and generate real wealth,” says Stewart of The Traveling Photo Booth.
As you begin exploring franchise concepts, please keep in mind that a franchise is not a get-rich-quick scheme. It necessitates just as much dedication as any small business. Be sure you understand every aspect needed to run it successfully. A good place to begin your search is our List. Check to see if any of the brands you are interested in share their franchisee satisfaction reports at www.FranchiseBusinessReview.com. If they do, you’ll learn a lot about their leadership, culture, training and support, and financial outlook.