“Small businesses are the heart of the American economy.”
~ President Obama's Comments on AIG and Small Business Owners, March 16, 2009
Home-based businesses are usually small businesses that offer a great impact on local and global economies. These smaller scale operations have a number of incredible benefits and home-based business is the epitome of the American dream. Many huge and well-known corporations once started as home-based businesses.
According to Paychex, a provider of payroll and human resources services to small and medium-sized businesses, small businesses employ roughly a quarter of the American working population. Furthermore, the $11 billion in annual receipts that small businesses generate is about 40 percent of all business receipts in the U.S. That percentage is higher than some companies boasting tens of thousands of employees.1
Fueled in part by a stubborn employment market, running a home-based business is one of the fastest-growing ways for prospective business owners to start. “Over the last three years, interest in our home-based opportunities has greatly increased,” says Erin Crawford of United Franchise Group. “Also, with the depressed job market, we are talking to more people everyday about taking control of their future and owning their own business rather than working for someone else.”
Technology has also spurred growth in the area says Crawford, “As the digital world continues to evolve and offer more mobile solutions, more franchises are offering home-based businesses that allow flexibility while reducing overhead costs of owning a retail storefront or office.”
The U.S. Bureau of Labor Statistics estimates there are just over 18 million home-based businesses, while other organizations say the number is closer to 38 million.2 A large number of these home-based businesses are franchises.
The variety in the home-based franchise industry is immense, including areas such as vending machine operation and event planning. A few of the more common franchise types include cleaning, senior care, and tutoring. This report provides background information on the pros and cons of starting a home-based franchise, along with important franchise investment information and tips for a successful home-based franchise operation.
Potential Benefits of a Home-Based Franchise
There are several reasons why the home-based franchise path to business ownership is attractive.
Lower Financial Investment
One of the top benefits of a home-based franchise is a generally lower financial investment—a considerable advantage when access to funding is limited. Home-based franchisees save on overhead costs such as construction of facilities or building rent, office utility fees, costs associated with uniform and wardrobe requirements, and daily commuting fuel costs.
Costs for a home-based franchise tend to be lower than out-of-home franchise systems yet there are expenses to consider. Like other franchise segments, the range of investment varies according to several factors, including:
- Specific services offered
- Necessary tools to provide services
- Any necessary changes to convert home space into work space
- Business permit costs
- Any necessary vehicle expenses
Less Time Investment
A reduction in the amount of time needed to open for business is an additional potential benefit of a home-based franchise. “A new franchisee could be up and running nearly as soon as their training is complete,” says Crawford.
Operating a home-based franchise can also dramatically reduce, and in many cases eliminate, commute time. Even if the business involves serving others outside the home, such as cleaning services, the ability to maintain a home-based office to carry out administrative and sales duties allows franchisees more time to generate leads and grow their business.
Schedule flexibility is another lauded perk of home-based franchises. Daily life has become increasingly hectic and creating the time to focus on personal non-secular pursuits can be challenging. As a result, many individuals are examining their priorities and altering their lifestyles. Generating income through a home-based franchise allows franchisees to control their time and activities in a way that fits around personal priorities.
Potential Challenges of a Home-Based Franchise
Many of the benefits of a home-based franchise can actually turn out to be challenges for franchisees that haven’t planned ahead with a disciplined strategy. For example, “one of the biggest benefits of operating a home-based business is having the flexibility of making your own schedule,” says Crawford. “At the same time, this is an operating system in which you do not have a store to open or a manager to report to, so discipline is very important. This can also be one of the bigger challenges, if you are not disciplined enough to ignore everyday distractions and focus on your business during the day.”
Another possible challenge is minimal on-site support. Multi-tasking in all capacities of the business is required of most successful franchisees, and this may be far different from the central convergence of responsibilities that is often the case with many forms of employment where job title indicates duties. Franchisees of a home-based business must be prepared to take on the role of CEO, president, secretary, office manager and customer service at the same time and with great flexibility.
Conversely, franchisees wearing many hats as business develops broaden their knowledge base by gaining firsthand experience in marketing, strategic planning, and sales. Along with the benefits of this experience is a support base through the franchisor offering advice and guidance in all aspects of operation which is invaluable for new franchisees to thrive.
Maintaining work-life is another potential hurdle. Operating a home-based franchise does afford franchisees a measure of flexibility concerning location and scheduling as long as the tasks at hand are executed consistently and reliably. When a home-based franchise business first begins, it can be challenging for franchisees to adequately distinguish professional and personal obligations, handling both important areas with diligence.
Isolation is another challenge that affects some home-based business owners. To ensure that social aspects of operating a business are maintained to a reasonable extent, franchisees must establish how and when socializing integrates with their responsibilities and what options exist to broaden out where necessary. Whether this involves professional or personal socializing, home-based franchisees must consider the importance of involving others in both secular and non-secular activities.
Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in a specific franchise.
When properly executed, a home based franchise is a great choice for those who wish to balance work and family life. Check out the information below to find out what potential franchisees must consider when home-based franchise investment is an interest. Organizations such as the Small Business Administration (SBA) also have very useful resources to evaluate home-based business options.
Many prospective franchisees focus on financial aspects when considering a franchise career. There are nevertheless several key factors that go beyond financing which are vital to consider before starting a franchise business. Here is a snapshot of a few of those factors before a brief look at a couple of financial aspects of franchise investment.
How do you know if home-based franchising is for you? Finding the answer is based on circumstances that only individuals performing such an evaluation can know, yet there are helpful general questions that prospective franchisees can ask before deciding if investment is the next step. The following questions cover primary aspects of operating a home-based franchise:
- Have you discussed your home-based business plans with your family and do they fully understand how important this business is to you?
- Do you work well without supervision?
- Do you manage your time well?
- Do you enjoy working by yourself for prolonged periods?
- Are you able to walk away from an unfinished project at the end of the day?
Depending on the specific requirements of a particular franchise system, it is important to consider what factors will influence the franchisee’s experience and what expectations may exist. For example, when recruiting new franchisees, Plan Ahead Events, a franchise of United Franchise Group, places great emphasis on personality. “[Plan Ahead Events] is a very people-oriented business, so our franchisees usually have outgoing personalities. Relationships are key in the events industry and the ability to build relationships makes for great negotiators and service-oriented planners,” according to Crawford. It is therefore important that franchisees understand what qualities they must possess to effectively operate their franchise and how this figures into the screening process of franchisors.
Performing Due Diligence
Many franchise systems do not offer franchisor-based insurance plans due in part to how the unique relationship between franchisors and franchisees is viewed by insurance companies. Most franchisees must resolve their own insurance needs. Individual or group coverage insurance options are usually beneficial for small business owners and are acquired directly from insurance providers or through professional and civic organizations.
Franchisees are ultimately responsible for complying with all local, state and federal laws and regulations applicable to the operation of their franchise. Zoning laws for your residence are of particular importance. Some areas have zoning laws that completely prohibit all businesses from operating in a residential area, but most only limit certain business activities. Home owners associations also may have regulations related to the operation of a home-based business e.g. restrictions on parking or storage.
The range of investment between franchises can be large due to variations in business systems and execution requirements. The following charts demonstrate this by comparing initial costs associated with opening one of the 15 sample franchises presented.
Initial costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), grand opening marketing costs, and more. (Note: In instances of franchise systems that offer non-home based options, the estimate(s) for the home-based option(s) is noted.)
Estimated Initial Investment Ranges for Sample Home-Based Franchises
A significant item within the initial investment is the franchise fee. This part of the overall initial investment grants the franchisee the right to use the franchisor’s trademarks, service marks and other branding. It also gives the franchisee access to the franchisor’s business system, including training opportunities. As illustrated in the chart below, franchise fees can be variable based upon several factors including territory.
Franchise Fees for Sample Home-Based Franchises
The length of the initial franchise agreement term for the 15 sample franchises range from five up to 35 years with 10 years being most common.
Throughout the length of the agreement there will be costs for being a part of the franchisor’s business system. These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee and below is a look at royalty rates for each of the sample franchises.
|ActionCOACH||$1,500 per month per Business Coach and NBC where Gross Revenue for the business is less than $132,999; 9% of Gross Revenue $133,000 to $199,999; 8% of Gross Revenue $200,000 to $319,999; 7% of Gross Revenue $320,000 to $479,000; 6% of Gross Revenue $480,000 to 679,000; 5% of Gross Revenue $680,000+|
|Aussie Pet Mobile||Gross Volume, multiplied by the applicable royalty rate (varies from 4% to 8%). The current Monthly Minimum Payment is $612.|
|Auto Appraisal Network, Inc.||$95 per appraisal|
|CertaPro||The greater of 5% of Gross Sales or the required Minimum Royalty Payment|
|Fresh Healthy Vending||6% of the Monthly Gross Revenue of each Vending Machine that has 100 or more Total Weekly Transactions during any given week of a month|
|Home Helpers||6% down to 4% of Gross Revenues; $300 monthly minimum|
|Lil' Angels Photography||Variable, based off of portrait package sales|
|Maid Simple||25% of Gross Sales|
|Novus Auto Glass||Typically 8% of Gross Revenues|
|Nurse Next Door||5% of Gross Sales|
|Plan Ahead Events||$300 – First 12 months
$450 – Months 13-24
$700 – After 24 months
|Re-Bath||$5 for each wall panel; $14 for replacement tubs and shower bases; and $28 for each bathtub liner or shower base liner you purchase from Re-Bath or an approved supplier|
|Sandler Training||$1,160 per month|
|ServPro||3% to 10% of Monthly Gross Volume with a monthly minimum of $100|
|TeachPro||The greater of 6% of Gross Monthly Revenue percent or $325 per month if the population of the Franchise Territory is up to 50,000 persons; The greater of 6% or $400 per month if the population of the Franchise Territory is from 50,000 to 100,000 persons; the greater of 6% or $475 per month if the population of the Franchise Territory is from 100,000 to 150,000 persons; and the greater of 6% or $500 if the population of the Franchise Territory is above 150,000 persons.|
|TruBlue Total House Care||Greater of 6% of Gross Revenues or $300 per month|
Royalties for Sample Home-Based Franchises
In addition to the regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before investing.
|FDD Profiles for Sample Home-Based Franchises
Aussie Pet Mobile
Fresh Healthy Vending
Lil' Angels Photography
Novus Auto Glass
Nurse Next Door
Plan Ahead Events
TruBlue Total House Care
Tips for Home-Based Franchisees
Erin Crawford, VP of marketing and development for United Franchise Group, offers prospective home-based franchisees four tips to make the best of their franchise opportunity.
1. Have a separate work space in your home that allows you to be free from distractions. If you are not good at staying focused, rent a shared office space.
2. Always meet your clientele in their place of business, as opposed to a café or other location. It’s a great way to learn more about them and give you insight into their organization.
3. Invest in local marketing. As you do not have a store front, it will be more important to make sure that you create a strong presence in your market through online marketing and local PR. Although it’s a “home-based” business, it’s crucial to leave the home and go out into your local market and let people know that you are there.
4. Set a working schedule for yourself that you can follow to stay on track. You may veer slightly, depending on daily meetings and appointments, but having an ideal schedule for your day that dictates when you will be focusing on certain aspects of the business will make sure that you get the job done.