Home-based Franchise Report
Home-based Franchise Report
This report is based on the US home-based franchise industry. The data contained in this report was drawn from Franchise Disclosure Documents (FDD) of a representative sample of 33 home-based franchises and published industry sources.
There are literally hundreds, if not thousands, of home-based businesses to choose from. This offers any potential franchisee a great opportunity to match their strengths and passions with a business that will suit them. As a home-based franchisee you will manage your business from your home and employ a small number of people.
“Small businesses are the heart of the American economy”
President Obama's Comments on AIG and Small Business Owners, March 16, 2009.
There are approximately 25.8 million businesses in the United States and over 99 percent of all employers are small and home-based businesses, according to the U.S. Small Business Administration. Small and home-based businesses and franchises also employ just over half of all private sector employees and generated 64 % of net new jobs over the past 15 years. Home-based and small businesses will also aid in the recovery of the economy over the coming months as entrepreneurs stimulate new innovation.
Advantages of a home-based franchise:
There is a continued interest in home-based franchises and this is partly due to the low initial investment costs (see table 1.A). By purchasing a franchise, you will reduce your expenses in areas such as marketing and advertising as you will be a part of a recognized and well-established brand name. Basing a franchise in your home will also cut out one of the biggest expenses faced by many start-up companies, namely rent. Furthermore you will be eliminating the time and money that would ordinarily be spent on the commute to and from the office allowing more money and time to be invested in the running of the business.
For example, the estimated initial investment fee for Color Glo, an international color restoration and repair company, ranges from $31,000 to $34,800 and the American Poolplayers Association, the largest amateur pool league in the world with over 260,000 members, estimates the initial investment to be between $11,920 and $14,740.
People have come to realize that working from a home-based office can be just as effective and as productive as working from an outside office but without the expensive rents and operational costs. Lower overheads and limited infrastructure requirements means the profit margins with a home-based franchise can be good.
The recession has created a greater demand for home-based businesses and franchises. Many companies have had to make cuts due to the recession and this has led to businesses being understaffed for certain specialized projects. These companies can not afford to re-hire full time staff and so outsource projects to individuals or smaller businesses. This has led to an increase in work for home-based business and franchises. Plus there is still a demand from consumers for home-based business as consumers still require someone to help them manage finances, do home remodeling and repairs or to help them to save energy etc
Daily life has become increasingly hectic and rarely allows an individual time to focus his attention on family, friends or personal pursuits. Within this changing society, people are approaching these times as an opportunity to look at their priorities in life and begin to alter their lifestyles. Working from home means that it is possible to take control of your life. A home-based franchise allows you the freedom to jump into the world of entrepreneurship in such a way that you will not be sacrificing one half of your life in order to succeed in the other.
Many people who faced unemployment over the last few months will gravitate towards owning and operating their own businesses. Bankers, executives, blue collar workers and even people still gainfully employed, but who no longer feel they have any job security, are seeing the move into entrepreneurship as a solid step. A home-based franchise allows you to take the plunge into the entrepreneurial world with the safety net of a tried and tested business system, continued support and low start-up costs.
Challenges facing a home-based franchisee
Access to capital and financing:
2008 was a troubled time for the financial institutions in the US. Lending has been curtailed due to substantial losses in the portfolios of banks and lending institutions. Business borrowing dropped in the fourth quarter of 2008. There was lending to small and home-based business in 2008 by banks and other lending institutions but the few who received loans were required to have higher credit quality then others in 2007 and the loan was under stricter terms and conditions than in 2007.
Some franchisors may offer some form of financing to help perspective franchisees when starting up their home-based franchise but this is entirely at the franchisor’s discretion. For example, Kitchen Tune Up offers financing of the initial start-up package. This installment payment plan is available to any franchisee that has a positive net worth and is payable in monthly installments, at a specified interest rate. The Glass Guru may also offer to finance a portion of the initial franchise fee (not to exceed 49%) if the franchisee meets their credit standards.
U.S. Small Business Administration (SBA) Loans:
The Small Business Association is an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns. The SBA loans generally offer better rates and longer terms than other lending institutions. In a major effort to help small business owners, the SBA offers the Franchise Registry that will expedite the processing of loans to small business franchisees.
Aid from the Government:
As there has been difficulty in accessing start up capital and financing due to the credit market freeze, the US government HAS also increased funding for the U.S. Small Business Administration (SBA) by $730 million in a bid to help people finance their businesses; a significant portion of that increase lowered the fees for SBA-guaranteed loans, thus making financing more attainable for start-up franchisees.
The global market is far more accessible in modern times due to more economical and reliable transport systems for both people and goods. This can be a double-edged sword for home-based businesses and franchises. The globalization of the market makes it easier for home-based franchises and businesses to reach a wider audience and customer base. It also allows home-based business and franchises to source more suppliers for less. It may even provide an opportunity to tap into some niche markets. On the contrary, the drop in the cost of transport and logistics and the growth of the internet means a home-based franchisee or business owner will be faced with a growing amount of competition. A home-based franchisee must ensure that they are represented well in these new markets.
Trends effecting home-based franchises:
- Information and Telecommunication:
The World Wide Web and telecommunications have made it not only possible but also convenient to work and run your franchise from home, as telecommunications have allowed people to communicate clearly and concisely with employees, customers and with representatives from other companies within their industry. It has also cut the costs in certain areas where a start-up business would need to invest funds. For example, the internet has made it possible for businesses to lower their advertisement and promotional costs by making it more convenient and cost-effective to promote products and services to people around the world by web and email based advertising. The growth in the use of telecommunications has also led to a demand for technical support.
Geeks on Call operate a computer support and training businesses. Their services are targeted to residential and small business computer users.
- Changing habits of consumer:
The new technology that is aiding small business can also have a detrimental effect. On one hand, the cost of distance mailing/transporting has been significantly reduced, while mail ordering and electronic shopping are more convenient and user friendly. It is critical to the survival of any business that they maintain competitive representation in these new and expanding markets. But these factors are also intensifying the competition within the global market and making the survival of home-based businesses more difficult
- Women and Home-based franchises:
A home-based franchise gives women the time management flexibility they need to successfully create a happy and healthy work/life. This flexibility is one of the central motivations for many women hoping to start their own franchise from home and why there is an estimated 10 million moms who own a home-based business. It gives stay-at-home parents the chance to re-enter the business world without having to sacrifice their family life in order to achieve it. All About Honeymoons offers a franchise for the participation in the travel industry but in a specific niche category; wedding, honeymoon and leisure travel and would be well suited to women who want to work from home. The market for this type of travel agent is very mature as you will be providing a consulting service that differs from standard travel agency.
- The ageing of the population:
A trend which is having a major effect on the types of franchises that are becoming popular is the ageing of the population as a result of which there is an increased demand for home help and care for the elderly.
Senior Choice Home Care franchise offers an effective solution for senior citizens who prefer to remain at home where the quality of life is enhanced without the stress and hardships of interrupted routines and daily habits. The franchisee will employ individuals who are trained to provide professional and reliable services for senior citizens.