Please note: the provisions and fees illustrated below are some of the most common and not a complete listing. All financial figures come from the Franchise Disclosure Document (FDD) of each respective franchise dated 2015. Please review the FDD of a franchise for all of the provisions and fees related to investing in that particular franchise.
Below is an overview of a few topics to consider when buying a personnel franchise, including a summary of costs.
What Kind of Person Would Do Best In This Industry?
When you boil the industry down to its basic function, franchises in this industry are B2B sales and consulting companies.
“Franchisees go out and build relationships with other small and medium-sized businesses in the local community, and then help connect job seekers to those good jobs companies with people seeking people looking for work,” according to David Lewis, vice president of Express Employment Professionals. “So what we’re looking for is a relationship builder. Someone’s who’s not scared of the ‘sales’ word.”
And previous human resources (HR) experience can be a hurdle to overcome…
“We’re not necessarily looking for HR folks because we handle all of the back office while the franchisee focuses on just the relationship side of the business. Candidly, [HR experience] can work against someone if they fashion themselves a HR ‘wonk’ and they want to deal with the administration all day because that’s not the franchisee spends their time doing,” David says. “They’re connecting people. We are fancy matchmakers. We just do it with jobs instead of love.”
Franchisees are primarily responsible for making sure they are in compliance with all local, state, and federal laws that apply to the operation of a personnel services franchise, including for example government regulations relating to EEOC, OSHA, discrimination, employment, and sexual harassment. In addition, some states require the licensing and/or bonding of agencies in this field along with the agencies’ consultants. Here are some other laws you might have to adhere to as a personnel service franchisee:
- The Federal civil rights laws, including the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) prohibit unlawful discrimination in classifying and referring applicants for employment. Many state human rights laws have similar regulations.
- The Fair Labor Standards Act, federal, state and municipal minimum wage laws, the Occupational Safety and Health and Immigration laws will apply to the franchise.
- The Federal Immigration Reform and Control Act prohibits companies in the industry from knowingly referring an illegal alien for employment in the United States.
- The Federal Fair Credit Reporting Act has regulations on reference checking applicants for employment.
Franchisees should consult with an attorney concerning these and other local laws and ordinances that may affect the operation of their franchise.
How Long Does It Take To Open
Of course, the start-up time varies from franchise to franchise. The research process before making a franchise decision should typically be the longest portion of a person’s journey from prospective franchisee to franchisee.
However, once the decision is made, agreement signing to opening can be relatively short.
In the case of Express Employment, for example, franchisees “will spend about 90 days from the time they’re awarded the franchise ‘til they open the doors,” David says. “The whole time is training, but not in a traditional classroom sense. Everything is online these days, so they’ll do a lot of pre-training followed by two weeks in Oklahoma City, which is where we’re headquartered. Opening week we send two people, at our expense, to go work in their office with the owner and that’s an extension of the training to make sure everything’s coming together.”
When it comes to investing in a franchise finding the right concept is dependent on not only the type of the franchise, but also the money needed. Below we’ve compiled the initial investment and royalty payments listed in the Franchise Disclosure Documents (FDD) for the start-up of five personnel franchises (no conversions). While these figures only give a small glimpse into what the costs are for owning a franchise, they are a good starting point for thinking about your budget.
The amount necessary to open a franchise varies depending on the unique business system and execution requirements. The following charts demonstrate, by comparison, estimated initial investment ranges associated with opening one of the sample franchises presented.
Initial costs associated with opening a franchise include the franchise fee, land and building costs, training expenses (such as travel and living expenses, not the actual training courses), grand opening advertising and marketing costs, and more.
Don’t forget about the ongoing fees when setting your franchise budget. Throughout the length of the agreement there are costs for being a part of the franchisor’s business system. Common ongoing fees include royalty fees, which are assessed for the continued use of the franchisor’s trademarks and patented processes. Other regular ongoing fees include advertising (they also can be referred to as marketing or brand development costs), software and technology costs.
40% of the gross margin; a minimum gross margin applies
3.25% of Medicare and Medicaid sales per week; 5.25% of all other sales; minimum weekly payment of $100.
8% of gross billings or 34-42% of gross margin, whichever is greater
MRI Network (costs without taxes)
The royalty fee is 9% on the first 500,000 of Net Cash-In; 7% on Net Cash-In from $500,001 to $1,000,000; 5% on Net Cash-In from $1,000,001 to $2,000,000; and 3% on Net Cash-In that exceeds $2,000,000. There is a minimum royalty obligation beginning in the 3rd full year of operation of $12,000 adjusted for changes in the CPI.
N/A; However, a temporary sales fee and full-time placement fee apply.
In looking at the royalties (specifically, Express and Link above), you’ll see a term that isn’t a part of franchise royalties in many other industries, “gross margin.” Gross margin is the amount remaining after employee costs (wages, payroll taxes, workers’ compensation, and more) are deducted from gross billings. This fee is more prevalent in the personnel services industry because sometimes clients will send payments to a franchise’s corporate accounting department directly in order to streamline and make processes less complicated for franchisees.
In addition to regularly assessed fees, there are other fees are charged on an “as needed” basis such as audit fees, or costs for additional, non-mandatory, training. Prior to investing, prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs.
For more information on a number of franchises related to staffing and employment services, please see our listing of personnel services franchise opportunities.