You may have already consulted sites like Franchise Know How as to which home-based franchising opportunities are suitable for you. But before investing your money in a franchise business, you’ll want to ask yourself the following questions first:
1. How much initial and ongoing fees will your chosen franchise’s franchisor charge you?
When you buy a franchise business, its franchisor will charge you an initial fee that you need to pay up front. You should come up with $50,000 at most even if home-based franchises typically have initial payments amounting to less than $20,000, as there are other fees and expenses you need to cover.
Once you pay your chosen franchise’s initial fees to its franchisor, you can start using its trademark and all of its proprietary materials and attend the training they have to offer so that you can run it in accordance to their policies and best practices. However, you should also brace yourself for the following ongoing fees that your franchisor would charge you at any point during your stint as their franchisee:
- Royalties, wherein you have to give a percentage of your franchise’s gross sales to your franchisor so that you can keep using its brand name and exclusive property
- Advertising fee, which is a fixed monthly amount, also expressed as a percentage of your gross sales, that you need to pay to your franchisor for the promotion of their entire business venture
- Renewal fee, if you want to renew your contract with your franchisor after your previous one has already lapsed
- Transfer fee, in case you want to sell your franchise to a fellow entrepreneur
2. Which financing options are available for you to use?
You may not have tens of thousands of dollars in your savings account right now, which can lead you to wonder where you’ll get the money that you need to buy a franchise. You can consider any of the following financing options so that you can start running your franchise as soon as possible:
- Franchisor financing, wherein the franchise company owning your chosen business would set you up financially as long as you can turn enough profit to pay them back the funding that they gave to you
- Borrowing money from people you know such as your family, friends, and even neighbors
- Taking out a commercial loan from your lending institution of choice
- Crowdfunding, wherein you to ask people or organizations to donate a portion of their money to your franchise in exchange for different sets of rewards
3. How much extra cash should you set aside?
Your franchise may not generate much of a profit during its first few days of business. You may find yourself initially spending more for your franchise than making enough income for you to live comfortably. So, when investing in a franchise business, you should always have a sufficient amount of cash on hand that can cover for utility and other bills of your business as well as your day-to-day living expenses.
4. How long will it take before your franchise expenses and revenue reach the same amount?
Time is gold as the oft-quoted saying goes. You’ll thus have to invest a good chunk of your time in running your franchise business until you start breaking even. It could take months or even years before you can accomplish that, but you can shorten it by making your franchise stand out from the rest of the competition and pull potential customers to buy from you.
Conclusion
Roughly three million people in the US work without having to leave their houses, some of them running a home-based franchise. But as with any business opportunity, you’ll need to let go of a fair amount of money so that you can get yourself a franchise of your choice. You should thus refer to the above-listed questions first before investing your money in a franchise business since you wouldn’t want to spend it on what may turn out later on to be a costly mistake.
