Achieving financial freedom has long been a cornerstone of the American dream.
For generations, countless Americans have gone the entrepreneurial route and forged a new path for themselves by becoming their own boss. Increasingly, more and more entrepreneurs have turned to franchising due to its many advantages.
Financing a franchise has always seemed daunting to many entrepreneurs, understandably. However, it’s easier than you probably think! This comprehensive franchise investment guide breaks down everything you need to know in detail, including the advantages of investing in a franchise, how much franchisees typically earn, how to attract franchise investors and finance a franchise successfully, and some low cost franchise opportunities available right now. Let’s take a closer look!
Franchise Investment Questions to Ask Yourself
Buying a franchise is a major investment for any entrepreneur that requires careful consideration. Before you actually invest in a franchise, it’s important to think about your financial status, goals, and abilities. Be sure to ask yourself questions such as:
- How much money do you currently have to invest in a franchise?
- Do you need financing?
- Do you have an adequate amount of savings right now?
- Do you need partners to help with your franchise investment?
- What’s your credit score?
- What unique skills and abilities do you have as an entrepreneur?
- Are you aiming for a specific amount of annual income or franchise unit revenue?
- Are you interested in purchasing multiple franchise units?
- Do you want to be a passive franchise owner or actively involved in the day-to-day operations?
Once you ask these questions and more and answer them honestly, you’ll be better prepared to proceed with your franchise investment.
What to Consider Before Investing in a Franchise
In addition to these questions, there’s more to consider before starting the franchise investment process. Always be sure to:
- Review the Franchise Disclosure Document (FDD) very carefully and ask the franchisor any outstanding questions you may have
- Investigate the franchisor’s background closely, taking a look at their recent financial information, competition, regulations, vendor restrictions, special permits or licenses that may be needed, and the like
- Consider if the company has any bankruptcy or litigation history
- Take a close look at any initial and ongoing costs, such as the initial franchise fee, royalty fees, insurance premiums, legal and marketing fees, and others
What are the Advantages of Investing in a Franchise?
Part of the beauty of franchising lies in its flexibility. Some entrepreneurs may choose to buy a franchise to hone their business skills and chart a new path as their own boss. Others may simply want to turn a tidy profit. Either way of thinking is perfectly fine!
No matter what your line of thinking is, there are certainly many advantages when it comes to investing in a franchise. Below are just a few to consider.
Having a Turnkey Business at Your Fingertips
One of the biggest advantages of investing in a franchise is that you’ll have a ready-made business at your fingertips. With franchising, there’s no need to start a business from scratch – the heavy lifting has already been done for you!
Access to a Proven Business Model
Similarly, franchising means having a proven business model at your disposal. This frees entrepreneurs from having to fine tune their business, allowing them to focus on turning a profit.
Broad Brand Recognition
With franchising, entrepreneurs can access a brand that consumers already know and love. This makes it easier to focus on generating revenue to turn a profit rather than market the business, create a brand name from scratch, and generate customer loyalty.
Statistically, franchises enjoy a higher success rate than independent businesses, ultimately making them a less risky investment for entrepreneurs.
From initial training to marketing to help with business operations, franchisors offer their franchisees the ongoing support they need to succeed.
How to Finance a Franchise
Ready to move forward with your franchise investment? Great! Now it’s time to start looking at how to finance a franchise effectively.
This part may seem intimidating for many entrepreneurs, but there’s actually a lot of proven franchise investment methods available today. Here are some ways to finance a franchise and successfully attract franchise investors!
One franchise investment method that’s grown quickly in popularity in recent years are angel investors. These are investors who invest in a new or small business venture to provide capital for its growth and, ideally, generate better returns compared to more traditional investments.
Angel.co is one of several options to consider if you decide to look for angel investors to help finance a franchise.
Investment Portfolio Loans
Security-backed loans offered by brokerage firms are other franchise financing options to consider. Though these can be somewhat risky, they do offer diversified portfolios that typically include a healthy mix of stocks, bonds, mutual funds, and other investments.
Small Business Administration (SBA) Loans
SBA loans are a very popular way of financing a franchise that many entrepreneurs turn to.
These loans are up to $5 million in value, lent by banks, and guaranteed by the SBA, making them fairly easy to obtain. The SBA’s Franchise Registry makes securing a loan simpler and faster, as franchisors supply their information to the government in advance with this method.
Another little-known yet effective franchise investment method is through the Rollovers as Business Startups (ROBS) program, which allows entrepreneurs to invest up to 100% of their retirement funds into a franchise without any taxes or penalties.
To qualify, entrepreneurs need to have at least $50,000 in an eligible retirement account such as a 401(k), 403(b), or IRA. These funds may also be combined with a spouse’s or partner’s account as well as traditional business loans.
Banks and Credit Unions
Good, old fashioned banks and credit unions also do the trick when it comes to financing a franchise too!
Working with them offers the advantage of obtaining a loan through an established institution that’s a known quantity. Improving your credit score and having a solid business plan in place is key, though. Putting your own money into the franchise investment deal, such as around 20%, is also seen as very favorable by a bank or credit union.
Franchisor Financing Options
In more good news for entrepreneurs, many franchisors also offer their own financing options.
In fact, just about every franchisor in the U.S. has some type of debt financing program available which should always be explored by prospective franchisees. Others may also provide financing options like balloon payment options, no principal loans, direct financing on their behalf, and financing plans specifically for operational and equipment costs.
Bottom line – always look to the franchisor itself for help first and foremost!
Another franchise investment option is to find a business partner to split the financing costs with. Be sure to always create a detailed business plan that lays out who will manage the daily operations of the franchise unit, how the profits will be divided, and the like.
Borrowing from Friends, Family, and Neighbors
If you want to avoid paying high interest rates on bank loans and are also unsure if a formal business partnership is right for you, consider borrowing funds from friends, family members, and neighbors. By financing a franchise this way, you can create your own payment plan that better suits your own personal financial situation and likely have an easier time changing the payment plan based on any changes to your financial situation in the future.
Yet another franchise investment option that’s gained a lot of popular in recent years is crowdsourcing.
Crowdsourcing has become commonplace for charitable causes and as a way to raise funds for business ventures and creative projects. Increasingly, many entrepreneurs have also tapped it as a way to pool the financial resources of large groups of people together efficiently in order to raise funds for financing a franchise unit.
Wall Street can also lend a hand!
Investments in stocks, bonds, and various mutual funds can be used to finance buying a franchise or in order to provide money towards a loan.
Using a home as collateral has also become an increasingly common franchise investment option. First, you need to ensure that your home has maintained or increased in value in order to access an equity loan. This is often an effective way for financing a franchise, but does involve some risk and needs to be done very carefully.
What are Some Affordable Franchise Opportunities?
Even if you’re limited by a strict budget or have only a short amount of time to find financing for a franchise, there are plenty of low cost franchises available to choose from. Below are just a few franchises that are accessible to just about any entrepreneur!
Initial Franchise Fee: $0
Startup Costs: $22,000 – $45,000
ClaimTek is a home-based medical billing company that offers both affordable franchise investment costs as well as strong brand name recognition. Franchisees work closely with doctors and other medical professionals all across the country to handle all aspects of their medical billing operations. This franchise is not only very accessible to entrepreneurs in terms of cost, but also offers the comfort of working from home, flexibility, and a position as a market leader in a fast-growing industry.
American Business Systems
Initial Franchise Fee: $26,990
Startup Costs: $0
American Business Systems is another leading name in the lucrative medical billing industry. Operating on a simple and flexible business model, franchisees assist medical professionals with bill collection, information filing, coding, auditing, and more. This franchise offers many advantages, just a few of which include no royalty fees, low costs, strong brand recognition, and sustained franchisor support.
Initial Franchise Fee: $495 – $9,800
Startup Costs: $3,245 – $21,850
The CruiseOne travel agency is a franchise that’s long been a major player in the global travel and tourism industry. Franchisees assist clients with various aspects of travel planning, including selecting the right destination and finding any special deals or discounts. CruiseOne offers benefits for its franchisees, including the ability to work remotely, work-life balance, and superb brand recognition.
Touching Hearts at Home
Initial Franchise Fee: 22,500
Startup Costs: $33,950 – $50,000
Another affordable franchise is Touching Hearts at Home. This senior care franchise offers non-medical companion services for disabled and elderly clients, assisting with everything from meal prep to transportation and other services. Touching Hearts at Home offers solid brand recognition in the booming elder care market, a proven business model, and the potential to turn a tidy profit.
Initial Franchise Fee: $695 – $10,995
Startup Costs: $2,295 – $23,617
Yet another low cost franchise is Cruise Planners. This home-based travel agency sees franchisees help vacationers plan the excursion of their dreams down to the finest details. A great option for travel enthusiasts, this franchise also offers the ability to work from home, work-life balance, and a leading position in the massive global travel and tourism market.
Skyhawks Sports Academy
Initial Franchise Fee: $15,500 – $32,500
Startup Costs: $30,800 – $71,750
Skyhawk Sports Academy is another option for entrepreneurs looking for affordable franchise investment choices. This youth sports organization runs athletic programs that include baseball, flag football, soccer, and many other sports at camps, after-school programs, and parties for children between the ages of two and 16. This franchise is ideal for entrepreneurs interested in both the fitness and children’s services industries and also offers an established business model, great brand exposure across the United States, and excellent training and support for franchisees.
These are just a few ideas to consider, but don’t feel the need to limit yourself to just these franchises. There’s plenty of other affordable franchise opportunities out there to explore!
See How Investing in a Franchise Can Be an Investment in Your Future!
Financing a franchise doesn’t have to be nearly as complex and overwhelming as it initially seems. By understanding how to finance a franchise and knowing some of the affordable franchise opportunities available, you can better position yourself to succeed in franchise investment.
Don’t put your dreams of becoming your own boss on hold because you’re intimidated when it comes to financing a franchise. Start looking for franchising opportunities today and chart a new path for yourself as a franchisee!