If you’re considering investing in a low-cost franchise, this report is an ideal place to start your research. All the franchises featured are ranked highly by their franchisees. You’ll also hear from franchisees and franchisors about their experience and learn how to find the best low-cost franchise for you. While most of the content of the report is pasted below, in order to to see the list of 2016’s Top Low-Cost Franchises, you must click on the full report above or download the PDF of the full report and go to page 6. The full report contains a lot of helpful information that is not featured below such as the return on investment for low-cost franchises in various industry sectors on page 13.
Top Low-Cost Franchises That Let You Be Your Own Boss Without Breaking the Bank
A Look at the Top Brands and What it Takes to Be Successful
When you think of franchising, what brands come to mind? Burger King, Jiffy Lube, Motel 6? Their initial investment ranges from several hundred thousand dollars to several million. Thankfully, there are hundreds of low-cost franchise brands available in a variety of business formats with initial investment costs starting at under $100,000. Our 2016 Top Low-Cost Franchises list on page 6 features proven opportunities beginning as low as $2,095. Investing in any one of them will enable you to finally be your own boss with the advantage of having the established systems and support franchising provides.
Some people believe you have to invest a lot of money in order to be successful in franchising. Our franchise research indicates there is not necessarily a correlation between the amount you invest in a franchise and the amount you may earn. In fact, many of the low-cost franchises featured in this report have a very high return on investment based on high average unit sales and lower overall investment requirements. This is outlined in detail within the How Much Money Can You Make? section of our FBR Franchise Buyer’s Toolkit and is illustrated by the fact that 89% of the franchisees we surveyed rated their overall satisfaction with the opportunity provided by their franchise business as above average.
Low-cost franchises have enabled many entrepreneurs to be their own boss and achieve their personal and financial goals. For example, senior services is a hot sector due to the fact that 10,000 people turn 65 every day. The average annual pre-tax income reported by low-cost senior care franchisees we surveyed is $92,300. The start-up investment range for low-cost senior services brands that made our list of top low cost franchises on page 6 including Visiting Angels, Homewatch CareGivers, Amada Senior Care and FirstLight HomeCare is $67,935 to $95,156. Overall, the average annual income of low-cost franchisees is $63,000 verses $82,657 for all franchisees we survey. Please note that not all franchisees we survey provide income data. In addition, there are franchisees who do not achieve the average income figures we provided, while others far exceed them. If you are ready to invest in a low-cost franchise, remember that not all are created equal. Extensive due diligence is a must! The list on page 6, which features low-cost franchises with some of the highest owner satisfaction ratings in their industries, serves as a strategic place to start your research. We compiled it after extensively analyzing data from approximately 11,000 franchisees representing 125 low-cost brands.
UNIQUE ADVANTAGES OF LOW-COST FRANCHISES
A quality low-cost franchise will offer the same benefits all solid brands do including good training, strong leadership, a supportive franchisee community, and proven successful systems. Since you’ll be provided with an out-of-the-box business model, you’ll be in business as soon as you complete training.
“Being a franchisee is very beneficial, particularly when it comes to the processes and procedures of the business model,” says Pete Wilson, owner of a Window Genie franchise in West Chester, OH. “I didn’t have to go out and learn from the school of hard knocks how to figure everything out.”
“I’m able to trust in the systems that Weed Man has put in place and focus on managing and growing my team and building the business,” says Chase Hillenmeyer, who owns his Weed Man lawn care franchises in Lexington, KY and Nashville, TN with his father, Stephen, and brother, Seth. Hillenmeyer, who purchased the Lexington location in 2003 and Nashville location in 2015, projects the gross revenue of his family’s business will be $3 million in 2016. The initial investment required to purchase a Weed Man franchise starts at approximately $68,000.
A positive company culture and supportive franchisee community are two things the best franchise companies have in common. The benefit of being able to tap into franchisees’ knowledge and ideas by both franchisors and fellow franchisees cannot be underestimated.
“We believe franchising is a true partnership between our owners and headquarters. We have a very open and collaborative culture,” says Pinot’s Palette Co-Founder and President, Charles Willis. “We know that to survive as a brand we must continually innovate, so listen to the ideas of our 200+ smart franchise owners.”
“I love my fellow franchisees! They are all willing to talk, share resources, and point me in the right direction so I can be successful,” says Jennifer Hendrickson, who owns a Murphy Business & Financial franchise, a business brokerage firm specializing in buying and selling businesses and franchises, in Cape Girardeau, MO.
“Never at any point during the process have we felt alone or that we couldn’t reach out to others for guidance,” says Hillenmeyer. “We often visit other franchises and are welcomed into their business, where we are able to have open, candid conversations about successes and failures, which has been a great resource.”
While low-cost franchises offer many of the same advantages their more expensive counterparts do, they provide some unique ones too.
Affordability: Many franchises require an initial investment of hundreds of thousands or even millions of dollars. Low-cost franchises enable you to own your own business without a huge investment. The initial investment of the top low-cost franchises that made our list on page 6 ranges from $2,095 to $99,975.
Expedited Profitability and Less Debt: Lower start-up costs combined with less overhead increases your chances of achieving profitability faster. Higher cost franchise opportunities, which are usually more expensive to run and may require larger loans, typically take much longer to generate a return on your investment.
“The low overhead that comes with owning a home-based franchise is a huge advantage,” says Thomas Bunchman, CEO of JumpBunch, which offers sports and fitness activity programs for children. “The funds that would have to be used to pay for rent, electricity, water, and maintenance somewhere else instead go towards direct revenue generation.”
Easier Scalability: If you aren’t buried in debt and are making a good profit, you may well have the funds needed to purchase additional locations or territory. Based on our current research, the median annual pre-tax income of multi-unit franchisees is $88,000, with 29% earning over $150K and 16% earning over $250K. By contrast, only 11% of single-unit franchise owners earn more than $150K and only 4% earn over $250K.
Recession Resistant: Since they typically do not to require expensive overhead and lots of staff, low-cost franchises tend to have a better chance of surviving through challenging economic climates. This is particularly true of those that fulfill non-optional needs such as senior and childcare services, as well as automobile and home maintenance.
More Location Choices: The majority of low-cost franchises are service businesses that can be run out of a home office. Some franchisees can run their business from anywhere with Internet access.
Flexible Hours: Since it’s likely you won’t have a brick-and-mortar location that requires someone to be on-site, you can answer client calls while watching your children play sports and schedule client appointments around other things that are going on in your life. Even though your hours may be flexible, you are going to have to work very hard to make your business a success.
“I put in about 45 hours of office time during the week, go home and coach sports with my kids, then spend a few more hours at night on business activities,” says Wilson of Window Genie. “The first few months of business were much more hectic. I now have a good rhythm to the week.”
WHAT TO CONSIDER PRIOR TO INVESTING IN ANY FRANCHISE
Regardless of the investment range, deciding to invest in a franchise business necessitates extensive due diligence. There are specific things to look for.
“A prospective franchisee should be looking for a franchisor that has a good history or reputation of proven support within their franchise system,” says MaidPro CEO, Mark Kushinsky. “A franchisor should supply their franchisees with personalized business and marketing strategies, industry leading technology, top-of-the-line sales teams for franchisees’ prospective clients, and round-the-clock help for the day-to-day questions.”
“The number one ‘must have’ is fantastic training. The reason you’re buying a franchise is to follow a proven system and the only way to do so is to get the proper knowledge and training that is crucial to succeed once you open your doors for business,” says Dave Claflin, President of Franchise Development at Fastest Labs. “Second is ‘culture’. Every business has its own personality, so you must make sure you fit into the culture of the franchise team. You’re essentially entering a marriage when your purchase a franchise, so you want to make sure that you have fun and can enjoy the next chapter of your working career.”
Talking with existing franchisees and reviewing a brand’s franchisee satisfaction survey results will provide you many insights into a specific franchise company. The following are a few key things you should also consider before signing any franchise agreement. With the exception of franchisee satisfaction insight, the information can be obtained from a franchisor’s Franchise Disclosure Document (FDD), which outlines what the franchisor will do for you, what they will expect of you, financial information, information about franchise performance, and contact information for current franchisees as well as those that have recently exited the system. An in-depth breakdown of an FDD is presented via on-demand video segments within our FBR Franchise Buyer’s Toolkit.
Initial Investment Range: The initial investment range of a franchise business is the estimated costs you will incur starting the business. It typically includes the franchise fee, which is a one-time licensing fee paid for the initial term of the franchise agreement, training costs, equipment, marketing materials, and build-out costs for businesses with a physical location. It may also include some allowance for initial working capital. The initial investment is given as a range as there are many variables that can affect it such as local market conditions, size of location, size of territory, etc. These initial costs will be outlined in Item 7 of the FDD. Every business also requires additional capital investment over time. These costs can be significant and vary dramatically depending on the type of business you are investing in. They may include employee training, equipment upgrades, new signage, updated marketing materials, and office furnishings are not included in the initial investment estimates.
Required Net Worth: Many franchise companies have minimum net worth requirements for their franchisee candidates that can be significantly higher than the initial investment itself. Higher net worth requirements are typically tied to your ability to be approved for financing to cover the initial investment, working capital, or other additional capital should you need it. This is an area where you want to be absolutely sure you are well within the franchise company’s recommendations. No matter how successful a franchise business model, you do not want to go into business undercapitalized.
Litigation: Item 3 of the FDD outlines the details of any current litigation the franchise company is facing or bringing against a franchisee or other parties. A long “wrap sheet” of litigation involving franchisees is a red flag.
Gross Revenue vs. Net Income: It’s really important to do your homework when it comes to the financial opportunity of any franchise investment. Franchise companies are not required by law to disclose the financial performance of their franchise locations, but if they do provide unit-level performance data it will be listed in Item 19 of their FDD. Unfortunately, most numbers provided by franchise companies are simply gross revenue numbers (“top line”), which don’t really provide you with any insight into the potential profitability of the business (“bottom line”). Talking with franchisees about their typical expenses will help you estimate the potential profitability of the business. The best franchise companies disclose both gross and net numbers in their FDD, with averages for their entire system.
Terminations and Transfers: FDDs list changes in units over the past three years. This includes new units opened and those that didn’t renew their franchise agreement, ceased operating for other business reasons, franchise units that were terminated by the franchisor (meaning that the franchise agreement was legally terminated and the franchisee is no longer part of the system), as well as units that were transferred to other franchisees. While reputable franchisors must occasionally terminate the franchise agreement of an individual who is significantly under performing and/or not in compliance with the agreement, a high rate of terminations or transfers within a certain time frame should be considered a big red flag.
Franchisee Satisfaction: As you are aware, Franchise Business Review specializes in franchisee satisfaction research. We believe the overall attitude and satisfaction of current franchisees is one of the most critical factors to consider prior to investing in any franchise. We encourage all franchise companies to survey their franchisees annually, and to share their survey results with franchisee candidates. An independent satisfaction report, like the ones available at FranchiseBusinessReview.com, can help you learn what franchisees think about areas that are crucial to a system’s health including training and support, operations, franchisee-franchisor relations, financial performance, and overall business satisfaction. We also urge you to speak with franchisees to hear first hand what their experience has been. Every franchise company will have some level of discontent, but speaking with many different franchisees will indicate if it is isolated or something the majority of franchisees are experiencing.
“Call franchisees, ask them the same questions, and write their answers down as well as how you felt while speaking with them to review later. You want to talk to at least two franchisees who have owned the franchise for different time frames: less than two years, two to five years, for five to 10 years, and over 10 years,” says Jim Giuffre, owner of two National Property Inspections (NPI) franchises in Carolina. Giuffre says his 2015 gross revenue was $225,000 and that he anticipates it will be $275,000 in 2016. The minimum start up investment for an NPI franchise starts at $43,400.
Are You a Good Fit?: It’s important to conduct a self-analysis to determine if you are a good fit for franchising, and if you are, what type of franchise would best meet your objectives. We asked franchisors to tell us what traits they feel their most successful franchisees share in addition to a willingness to follow proven systems.
“Motivation, internal drive, and a plan is what franchisees need to be successful,” says Michael Plummer, CEO of Our Town America, which specializes in new mover marketing. “Motivation, whether it be wanting to get the kids through college, set up something for a good retirement or simply wanting more money is important. Internal drive gets you through those days when it is tough. Planning is key to measuring when you have arrived at a milestone or goal and where to raise the bar to keep you moving towards your objectives.”
“To start any business you must have courage, tolerance for risk, resilience, and persistence,” says Bunchman of Jumpbunch, “Our model also requires great communication and relationship skills, organization, and of course a high energy level.”
“Our most successful franchisees enjoy personal interaction and work well with others; inspire trust and confidence; understand that technology is important and are willing to invest in systems; are open to new ideas and spend time learning new concepts; have a vision for their business and what type of culture they want to create; are good with numbers and accounting doesn’t scare them; love to be hospitable and think making customers happy is fun; can check the drama at the door; feel that they are lucky; and are coachable,” says Kushinsky of MaidPro.
When it comes to what might be the best franchise for you, it’s a good idea to find one that provides a service or product you can truly get behind. Many brands do not require you to have business experience, a particular skill set, or a formal education since they have developed a proven system you can simply execute after going through their training program. Some, however, would be difficult to succeed in if you are lacking experience in particular areas. It’s important to take the time to really understand the business model to ensure it is a good fit.
“To be successful as a business broker, you need to be good at finance, accounting, reviewing legal documents, multi-tasking, negotiating, and communicating both verbally and in writing. If you are particularly weak in any of these areas, this business could be quite frustrating,” says Hendrickson of Murphy Business & Financial. She feels her 15-year career in corporate banking served as a good platform for transitioning into business brokerage. It appears to be the case since she has been recognized as a multi-million dollar producer for the last two years. The minimum start up investment to open a Murphy Business & Financial franchise begins at $57,525.
“You do not need any artistic talent to be successful in our business. In fact, most of our owners have no art background at all. They love entertaining and are go-getters in the community. They excel at managing people, networking and building partnerships,” says Willis of Pinot’s Palette.
WHAT IS WORKING FROM HOME LIKE?
Many low-cost franchises are home-based.
“100% of our franchisees work from home doing planning, administrative work, phone calls, and organizational tasks, although on rare occasions as business grows a few have opted to also have an external office. If so it is by preference and not necessity,” says Bunchman of JumpBunch. “We are a mobile business so a lot happens in the field such as marketing, networking, training staff, and of course teaching classes to kids.”
Working from home can be challenging for many people.
“It’s convenient having an office in your home. At first you won’t know when to shut down the computers and close the door. Set a daily start to close time for your business. When it’s ‘go home time’ leave the office and spend time with your spouse and children,” says Giuffre of National Property Inspections. “My best advice is to be disciplined from the start. Don’t get into bad habits.”
WHAT TO EXPECT DURING YOUR FIRST YEAR IN BUSINESS
While you will have the franchisor’s guidelines to follow, as an owner you’ll initially be responsible for the majority of tasks including day-to-day operations, big-picture strategy, and servicing clients. Once your business is generating enough profit, you will be able to bring employees on board and assign certain responsibilities to them.
To shed additional light on what franchising may be like during your first year in business, we asked franchisees to share their thoughts.
“Year one is about learning the business, understanding the financials, and getting your hands dirty with the processes and numbers,” says Wilson of Window Genie. “You need to get to know and understand your customer base and learn how to make decisions that will positively impact your business in the long run. Be financially prepared for the ups and downs until you can become profitable, then focus on those actions that make you profitable. Finally, start establishing and refining your office operations and procedures so that customers get the same, great experience each time.”
“Do not schedule a vacation that first year. Put 100% of yourself into getting started. Focus on marketing, sales, learning your trade, and learning about your competitors. Be a sponge—learn, learn, learn. Make sure you are calling and getting all the information and help you can from your home office of the franchise you purchased,” says Giuffre of National Property Inspections.
“Start strong by positioning the right people in the right positions, where they can help develop and strengthen the brand. Surround yourself with people who share similar goals and who have skills that complement each other well,” says Hillenmeyer of Weed Man. “We believe in setting our employees up for success within the system and giving them the tools to grow, so we can put them in a position to allow the company to expand in new markets. Also, I would advise franchisees to create an upfront and candid relationship with the customer from the very beginning.”
Transitioning from working for others to working for yourself requires some adjustment.
“In corporate America you typically have one overall area or category of responsibility. The biggest adjustment to working for yourself is suddenly realizing that you are every department. Accounting, marketing, sales, IT, purchasing, and HR are all up to you, at least to a great degree anyway,” says Bunchman of JumpBunch. “Most adapt quickly because that’s what they wanted, but there is certainly an adjustment. Bottom line though is that success, and possibly failure, is totally and completely in your hands since no one is checking each day to make sure you clock in.”
GO LOW NOW TO GO HIGH IN THE FUTURE
Remember to keep in mind that there’s a big difference between “low-cost” and “cheap” franchises. Prior to investing in one, know everything there is to know about it. Don’t consider any brands lacking a solid business plan and proof that current franchisees are achieving success. Franchisees will tell you what its really like in the trenches. The best ways to obtain insight into what they think of a brand is to speak with them and to see if the franchise shares its franchisee satisfaction survey results within the Franchise Reviews section of FranchiseBusinessReview.com.
We wish you the best of success in achieving your dream of business ownership through franchising. The experiences the franchisees within this report have had illustrate that many entrepreneurs have done so.
“I like the challenge of making my business successful and knowing I am my own boss,” says Janice Sinardi who purchased her Cruise Planners, an American Express Travel Representative franchise in 2008. The minimum investment for a Cruise Planners franchise starts at $2,095. Sinardi says her gross revenue was over a million in 2015 and that she has already exceeded this figure in 2016 as of the writing of this report.