Opening a business is the dream for many Americans, but the reality is, opening a business can be tough. Beyond just having a good idea, you need to establish every aspect of the business from the ground up: building a brand, finding customers, hiring employees, building a technology infrastructure, marketing- this list goes on and on.
Franchising, however, offers a path to business ownership without having to start from scratch. A franchise provides the backbone of the business for you. The franchisor has already built a brand, established a set of proven processes and systems and developed marketing and technology to help you grow. This allows you to get to market quicker and minimizes much of the risk compared to starting a brand-new business.
While there are many benefits to opening a franchise, traditional franchises can be prohibitively expensive. A restaurant franchise, for example, can require an initial investment of hundreds of thousands to millions of dollars.
Fortunately, there are many low-cost franchises that have initial investments as low as $10,000. A low-cost franchise can provide many of the same benefits as their more expensive counterparts, but at a fraction of the cost.
Low-cost franchises provide an excellent opportunity for business ownership that is affordable and profitable. It is important to note though, not all low-cost franchises are created equally. Some franchises are a bargain for a reason, while others provide value well beyond the cost of the initial fee. Before purchasing a low-cost franchise, you should understand fully what you will get for your investment. Will training be provided? How much support will you get? What are the additional ongoing costs? What is the full initial investment?
The following guide will walk you through the things you should consider when evaluating low-cost franchises so you can find the best low-cost franchise for you.
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“Franchising can be defined as a method of distributing products or services. At least two levels of people are involved in a franchise system: (1) the franchisor, who establishes the brand’s trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system.”
In simple terms, the franchisor supplies the business model and the franchisee executes it. While the franchisee may have some flexibility to make certain operating decisions, they will typically have to stay within guidelines set forth by the franchisor ensuring brand consistency. Knowing the expectations set forth by the franchisor is important before investing in any franchise.
In addition to the already established brand, processes and systems, low-cost franchises provide many other benefits that make them appealing business opportunities.
With initial franchise fees as low as $10,000, low-cost franchises require far less startup capital compared to traditional franchises. Because of this, you don’t have to rely upon loans to get your business up and running. And although there is risk involved in starting any business, by putting less money down, you are greatly mitigating your risk.
In addition to mitigating risk, by taking less debt on at the start, you can reinvest more money into your business for things like marketing and hiring staff. This allows you to ramp up quickly and potentially see a faster return on your investment.
Many low-cost franchises are home-based, eliminating the need for brick-and-mortar locations and greatly reducing overhead costs. With a home-based business, you don’t have to pay rent, build-out costs, utilities and other payments associated with brick-and-mortar locations. Additionally, most home-based franchises don’t require you to hire much staff, if any. All of this greatly reduces ongoing costs associated with running your business.
Although not the case with all low-cost franchises, several allow you to set your own hours, meaning you can work part-time or full-time. This gives you the flexibility to work a schedule that fits your lifestyle, whether you are a work-from-home parent or looking for a career in retirement.
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Not all low-cost franchises are created equally. Some may have a low initial fee, but the ongoing fees and royalties are so high that it isn’t that affordable in the end. Others might be affordable but don’t provide much in terms of support or infrastructure. When evaluating low-cost franchises, there are seven questions you can ask to make sure you find the best franchise for you.
When you purchase a franchise, there is an expectation the franchisor will train you on their systems and model, and in turn, you will represent the brand in a positive way and become a productive owner.
The level of training you will receive will vary widely depending on the franchise. When you are considering a low-cost franchise, determine how much training you want, the depth of training and where its available to you.
The best low-cost franchises should be invested in your success and offer robust initial training as well as ongoing training opportunities to ensure you have the knowledge and confidence to grow your business.
Franchises are mutually beneficial businesses. The franchisee benefits from the success and recognition of the franchisor, and the franchisor benefits from the success of its franchises. In that regard, it is in the franchisor’s best interest to support their franchisees and help them grow their business. However, the level of support provided may differ depending on the franchisor.
Do your research and ask about the level of support your franchisor will provide you. Some franchisors have limited hours, long call waiting times, frustrating communication methods or offer no formal support at all.
The best low-cost franchises will provide proactive outbound support to help you grow your business and have inbound communication channels for when you have a quick question or something urgent arises.
Whether it’s a low-cost franchise or a franchise with high capital investment, technology is key to the success of your business. It is important to understand what technology your franchisor will provide to you, how it will help you run your business and if there is anything you will be expected to source on your own.
Costs can add up quickly if you are expected to build your own website, source your own customer relationship management tool and pay for your own email automation platform. The best low-cost franchises will supply these tools to you and have in-house technology teams dedicated to creating new tools to help you drive sales.
Marketing is important for any business’s success. You need to get your name in front of potential customers with an effective strategy. How will your franchise help you do this, what marketing, if any, will your franchisor do on your behalf and how much will be left up to you?
The best low-cost franchises will have marketing teams who create engaging content such as emails, print collateral and social media posts to help promote your brand and drive sales.
Current franchise owners can provide a lot of insight and give an honest opinion of what it’s really like to run the business. Seek out reviews or talk with current franchise owners directly to see how they feel about the brand and what it’s like to be a franchisee.
While the initial franchise fee may be low for many low-cost franchises, it is important to be aware of any additional fees or costs required to open the business and any ongoing royalties that need to be paid to the franchisor.
Make sure to closely read the Franchise Disclosure Document (FDD) so you fully understand all the fees you will be responsible for.
If you’re going to be investing money into a business and working at that business every day, it should be something you are passionate about. There are lots of great low-cost franchises out there, but if you are not passionate about the product you are selling and the work you are doing, it is going to be hard to find success.
As mandated by the Federal Trade Commission, a franchisor must provide you with a Franchise Disclosure Document (FDD) at least two weeks before you are able to sign a franchise agreement. This document has 23 sections and provides critical information about the franchise including financial health, what you can expect to earn and any fees you will be required to pay.
Here are some of the most important sections to look for:
This may be the most important section of the FDD as it provides information about how much current franchisees are earning. As valuable as that information is, it is not required, and only about 30-40 percent of franchises include it.
Item 21 shows audited financial statements. This will give you a good picture of the franchise’s overall health. Pay attention to the franchisor’s primary source of income. Good franchises will earn the bulk of their money from royalties, not franchise sales.
This section shows any lawsuits the franchisor has been involved in over the last 5 years. It’s not uncommon for large companies to be involved in a small number of lawsuits, but if you notice several franchisees complaining about the same issue, like fraud or misrepresentation, that should be a big red flag.
These three sections will outline the initial fee required to be paid to the franchisor, the ongoing fees and royalties required to operate the business, and the expenses needed to open and operate your business for the first three months. In short, these sections will help you understand everything you will be required to pay.
The FDD is dense and often hundreds of pages long, but it is important to understand everything inside it, so you are fully aware of the investment you are making. It is a good idea to review the Franchise Disclosure Document with your franchise lawyer.
Low-cost franchises provide an excellent opportunity for business ownership that is affordable and profitable. While there are lots of great low-cost franchise options out there, not all of them are created equally. Before purchasing a low-cost franchise, you should understand fully what you will get for your investment, so you can find the best low-cost franchise for you.
Cruise Planners is a home-based travel agency franchise company with over 2,500 franchise owners across the country. With an initial franchise fee of just $10,995, Cruise Planners is among the lowest cost franchises to own, but low-cost does not mean low value. Cruise Planners provides franchise owners with comprehensive in-person training at our STAR University, a dedicated business development coach to help you start a business from home. We help you grow your business with innovative tech tools built by an in-house technology team that were designed to drive sales, and robust marketing programs to get your name out there. Plus, as a home-based travel business, overhead costs stay low.