A home-based franchise is a great way to start a new business without taking on the added cost of finding commercial space. For example, you could start your own green car wash, travel agency, or office cleaning business, all of which can be home-based. To begin, you need to identify potential franchise opportunities and then investigate the franchise. Once you are ready to buy in, you should secure financing and start meeting potential clients.
Finding Home-Based Franchise Opportunities
Consider your interests. You should start a business in a field that interests you. Becoming a business owner is a lot of work, and you’ll need to enjoy the work you are doing otherwise the franchise probably won’t succeed. Consider your interests. Common home-based franchises include:
- Commercial cleaning
- Travel agencies
- Home repair
.Research franchise opportunities You can get a handbook from the library on franchise opportunities, which you can read to find what is available.You can also look online. The websites Franchise Gator, Franchise Direct, and Franchise Solutions also provide information on different franchising opportunities.
- You also might want to attend a franchise exposition, if one is held nearby. Attending an expo allows you to get immediate answers to your questions and to compare franchises.
Hire a franchise broker. If you are struggling to find a franchise, then you can hire a franchise broker. These people are skilled at finding and analyzing franchises to find one that is a good fit for you. Generally, brokers contract with certain franchisors, who pay them a commission on each franchisee they find. However, some brokers are independent and will work with any franchisor who pays them a fee.
- You can find a franchise broker on the Internet or in business magazines. Before hiring, you should ask how many franchisors they represent.]
Analyze your business skills. Although you may be excited to start a business, you should spend some time analyzing whether you are prepared to start a business on your own. For example, think about the following:
- Do you have the technical expertise to run the franchise? Are you prepared to get additional training?
- Why do you think you would be good at running a business? Have you ever run one before?
- How much money can you afford to lose? What are your financial goals, and can you meet them with the franchise?
- Do you have the time to start a business? Don’t assume that a home-based franchise will be easy to launch. Instead, you can expect to work long hours.]
Studying the Franchise
Submit an application. You will need to provide the franchisor with personal information so that they can decide whether to go forward. For example, you will probably have to provide information about your work history and how much money you have. Often, you can submit this information online.
- By applying, you are not committing to buy the franchise. Instead, you provide the franchisor with enough information about yourself so they can analyze if you are a good fit.
Read the Franchise Disclosure Document (FDD). By law, the franchisor must provide you with an FDD at least 10 business days before you sign a franchise agreement. Ideally, the franchisor should be willing to give this document to you well in advance. It contains a wealth of helpful information, including the following:
- Business background. This section should name the business executives and provide information on their backgrounds. Check to see if they have experience.
- Litigation history and bankruptcy information. The FDD should state whether any officers have been convicted of crimes, such as fraud or violation of franchise laws. The FDD should also explain how many times the franchisor has been sued.
- Costs of starting the franchise. The FDD should identify the initial deposit as well as the costs of initial equipment, inventory, and rentals. The FDD should also explain how much you must pay in continuing royalty payments to use the franchisor’s intellectual property.
- Restrictions on how you run the franchise. The franchisor might restrict which suppliers you purchase from or the territory you can service.
- Termination. The FDD should explain when the franchisor can terminate your franchise and what you must do after termination. This section should also explain how you can sell or renew the franchise.
- Training available. A franchisor should train franchisees in their successful business methods. You should read what training is available and who is eligible for training. Also check how much it costs.
- Advertising information. Typically, franchisees must contribute a percentage of income to an advertising fund. The franchisor then handles advertising. This section should talk about how much you contribute and whether you have any control over the advertising.
- Earning potential. A franchisor does not have to provide information about potential earnings. However, they have the option to include this information so long as they have a reasonable basis for the numbers.
Talk to other franchisees. Often the best way to get information about a franchise is to talk to current or past owners. The FDD should identify current and former franchisees. Call them up and ask if they can answer some questions. You might want to ask:
- How long have they run the franchise?
- What has been their total investment? Were there hidden costs that surprised them?
- How satisfied have they been with training? Has the franchisor provided ongoing assistance?
- Would they recommend someone invest the time and money in this franchise?
- If they left the franchise, why did they leave? Was the franchisor unwilling to address problems?
Attend a discovery day. Many franchises hold discovery days, which interested franchisees can attend. It is usually held at the franchisor’s headquarters. You can tour the facilities and then ask management questions.
- Hopefully, the franchisor gave you the FDD before discovery day, so that you can come prepared to ask questions. However, some only give you the FDD at discovery day. If this is your situation, then make sure to ask who you can call with questions once you leave.
- A discovery day is also an opportunity for the franchisor to evaluate you. They are looking to see your commitment and enthusiasm.
Investigate any complaints against the franchisor. You might be impressed by a franchisor’s discovery day, but you should still perform independent research on the franchise’s reputation. You should check in the following places:
- Check with the Better Business Bureau (BBB) in the city where the franchise has its headquarters. Look for complaints.
- Contact your state’s franchising office. These offices usually collect complaints about franchises. You can call your Attorney General’s office.
Purchasing the Franchise
Secure financing. You will need to purchase equipment and pay upfront franchising fees before you can start. Accordingly, you will need to get financing lined up. The franchise’s FDD should have identified how much money you will need to start the franchise. You have many financing options:
- Franchisor financing. Some franchisors will lend you the money to purchase the franchise. Others might provide only part of the amount that you need, and you will borrow the rest from another source. The FDD should state whether the franchisor offers financing.
- Commercial loan. You can ask a bank to loan you the money to start your franchise. You will need to share financial history information as well as about 20% as a down payment. You also will need a business plan, which should discuss your financing needs, analyze your market, and describe your products or services. The FDD should contain helpful information when drafting your business plan.
- SBA loan. The U.S. Small Business Administration might guarantee a loan if you qualify. This means that SBA will pay the loan if you default. Because of the SBA guarantee, you often get very favorable interest rates and other terms.
- Other options. You can possibly use money saved in a retirement account to fund your business, or you might bring on several business investors.
Review the franchise agreement. You should probably review this document with a franchise lawyer. Make sure that you understand everything in the agreement before signing. The franchise agreement should cover the following topics:
- your obligations to the franchisor
- the franchisor’s obligations to you
- what training you will receive and the cost
- your territory and whether it is exclusive
- the duration of the franchise and how you can renew
- your initial investment
- amount of royalties you must pay
- tax issues
- advertising policies
- how you will settle disputes with the franchisor
- details surrounding cancellation or transfer of the franchise
Negotiate with the franchisor, if possible. You generally can’t negotiate most parts of the franchise agreement. However, the franchisor might be open to negotiating some items. For example, you could discuss the following:
- A reduction of the start-up fee. If the franchisor won’t reduce the fee, then perhaps they could finance the amount.
- A deferral of the initial royalty fee until you are up and on your feet.
- Increase in the size of your franchise territory.
Form a corporation. You should probably hold the franchise as a limited liability company (LLC) or as a corporation. Doing so will protect you from legal liability should anything go wrong in the franchise. If you own the franchise as an individual, then you are personally responsible for business liabilities.This means you may have to sell personal assets if your business is sued.
Obtain necessary licenses and permits. You will need a business license in order to open.] You may also need other licenses and permits. You must apply and pay for them before you open your franchise.
- Your franchisor might know what permits and licenses you will need and can provide help.
- If not, you can use the SBA’s tool here: It has links to all 50 states and U.S. territories.
Dedicate a room to your business. You shouldn’t work all over the house. Instead, find one room you can dedicate entirely to your business. Doing so will allow you to stay focused when you are working.
- Make sure the room is outfitted for a telephone line and Internet connection (if you need them).
- You also need a dedicated office so that you can qualify for a home office tax deduction. If you work all over the house—say, in the kitchen—then you can’t get a home office deduction because the room isn’t used regularly and exclusively for work.
Find clients. No one will come to you, so you need to get outside and start finding people who might want your services. You can start close to home, talking to family and friends. Then you should identify other customers.
- Attend trade shows. You can get your name out there by booking a table at a trade show, or attending one and handing out your business cards.
- Go to social events. For example, if you are starting a dog walking business, then you can attend events put on by your local humane society.
- Start social media accounts. Facebook and Twitter are great ways to increase your visibility. You can allow satisfied customers to add you as a friend.
Convert your vehicle into an advertisement. As the owner of a home-based business, you might have to travel to clients. For example, cleaners must drive to the building they have been hired to clean. It is wise to turn your vehicle into an advertisement. Put your company’s name on your car or truck.
- The franchisor might have ideas about how to decorate your vehicle. Talk to them before you use the franchise’s trademark or name on a vehicle.
6Meet all of your obligations under the franchise agreement. A franchise is not a typical small business. You can use the franchisor’s name and business methods if you pay a royalty as agreed to in the contract. Make sure that you uphold your end of the franchise agreement. If you don’t, then the franchisor could terminate the franchise.
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