Opening Doors Blog

The Inside Scoop on Low Cost Franchises

Monday, March 06, 2017

Every year, there are lists of the “best” low cost franchises. The most reputable being Franchise Business Review and Entrepreneur Magazine lists.  Franchise Business Review is based on franchisee satisfaction, something they survey and measure. I always peruse the list and often am surprised by two things: one, what is categorized as “low cost” and two, what the heck could they possibly mean by “best?”

Let’s start with the basics. Low cost is generally considered to be under $100,000 (in the case of Franchise Business Review) and $50,000 (to make Entrepreneur’s list) “all in.” All in means the total out of pocket expenses you are likely to incur in getting your business up and running. That would include (among other things): the franchise fee, the marketing costs to promote your opening, any cost of initial equipment needed – usually leased, etc. 

In order for a business to fall into this investment range it will almost always, by definition, be home based. This is because you are eliminating the need to lease space, build out that space, and buy expensive equipment. These are going to be service businesses which rely more on you, the owner, to build it with your marketing savvy, or just plain grit in going out and building your business. Sometimes these business will require cold calling to really get going, usually a lot of marketing dollars, and ALWAYS involve getting out into your community and networking your little fanny off. 

So are these the “best” businesses? I would say they are best for certain people, with certain skill sets and in certain situations. Someone with high sales and marketing acumen and a desire for a home based business (which means a lot of flexibility in terms of how and when you work) is a good fit for some of these.

What’s important in doing the due diligence around these businesses, is when making calls to existing franchisees – something a good franchise consultant (ahem) will coach you how to do – is to find out how soon before they got their first client, how long it took to ramp up (to make regular income), and what have they found to be the best marketing strategy. Another good question is: “How much are you spending to market your business?” The best way to fail in any new business strategy is to go in undercapitalized, thinking somehow you will have clients when you “open your doors”. Marketing will be your single biggest expense in these kinds of businesses and are critical to your success. Be sure the “all in” figures disclosed in the franchise disclosure documents you are reviewing is validated by the owners that you call, and is a reasonable figure of what you will go through until you are cash flowing.

BIO

Previously with a large Wall Street firm, Jane Stein was a Certified Financial Planner for over 25 years, and provided comprehensive wealth management solutions for a large base of families – representing over 250 million in assets. She wrote an investment column, and established a program called “Money Matters for Women”, in an effort to empower women to take charge of their investments. Now she helps men and women achieve financial security through business ownership, which is far more empowering.  With her financial background, she is uniquely qualified to guide you through the process to identify and evaluate the right business model, and then later can help you secure funding to open your business.

Check out Jane's LinkedIn page here and her website here.

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