There are always new franchise opportunities coming and as a result it leads to various trends. This can include fitness crazes, residential services, or categories of food (tried a sushi burrito yet?)—it is endless.
This article will discuss one of the continuous trends in franchising: the popularity of lower investment opportunities.
There are many reasons to proceed carefully into an unproven category, or with an inexperienced franchisor. Terms like low or high investment will mean various things to people. That said, this article focuses on two investment categories: $50,000 to $100,000 and $100,000 to $200,000—inclusive of franchise fee, start-up investment, and working capital.
These findings are based on the behaviours and actions of the author’s clients over the past decade. Ideally, franchisees should determine a workable budget and stay within the range. Fortunately, there are many great options to look at.
Often, a potential owner becomes enamoured with the idea of buying into a particular franchise system, only to become disillusioned when they learn the true investment requirements. After such disappointment, franchise candidates will often adjust their focus to come up with an investment they are comfortable making and will try to stick with their budget. That is not always easy to do. It usually takes a bit of research to learn the true investment required for a business.
Lower cost franchises put the reality of business ownership within reach. Having a budget of $100,000 will provide many options for the owner to explore; however, they cannot expect many of the choices to have a front door (not the type of business one typically associates with franchising, such as food and retail). Therefore, a proprietor needs to be prepared for a slightly different search than they anticipated.
Most of the author’s clients allow their investment preferences drive their budget instead of capacity. It is very common to see franchisees opt for lower investment options as a means of limiting their exposure. Those in the U.S. tend to make bolder investments—where their franchise winds up being 50 to 60 per cent of their personal net worth. In Canada, the author generally sees people are inclined to invest between 10 and 30 per cent of their personal net worth.
In early 2019, FranNet Western Canada co-hosted an event for prospective franchise investors with one of the larger Canadian banks. The organization was fortunate to have a leading panelist in franchising heading the discussion. The speaker offered the following advice, “Do not go all-in on your first franchise. Even if we will lend it to you.”
Lower investment businesses start small in scale, but do not necessarily stay there for long. Service-based businesses would be a perfect example. These companies are usually built by adding staff or resources (such as vehicles) on an as-needed basis.
Many home service businesses start with the minimal staff (like two people). When the franchise is consistently busy and at risk of turning away business, the owner typically increases the number of employees. This is the opposite of a restaurant—where a franchisee might need to have 20 to 60 staff members on the payroll.