There are over 4000 franchise opportunities available to investors today. Mixed in those franchise opportunities are business opportunities, we won’t cover the difference of the two however both have similar characteristics.
So given we have 4000 of these franchise opportunities ranging from absolute garbage to the cream of the crop, and investment levels from $500 toi$10 million how do we make our decision?
Well if you follow the channel at all we suggest always aligning your skills and strengths with the actual operational model of the franchise. Do you think you should have skills of a chef to run a McDonalds franchise? No McDonalds is about managing teams, recruiting and retaining staff, and developing community relationships. Every franchise has varying requirements of how much sales, customer service or human interaction is involved. Always ask your franchise what an average day will involve and speak to existing franchise owners.
Another important thing you need to consider is budget. How much can you afford and will you finance a portion of your business? Lack of capital is the number one reason businesses fail so you need to make sure you are sufficiently capitalized.
You need to know how much working capital will you realistically need until your franchise starts turning a profit. that’s another reason franchises are beneficial they generally have an idea of how long that can take. Now we get dozens of calls from people who have $10,000- $50,000 asking about buying a food franchise. Now the majority of food franchises have a minimum of $300,000 net worth requirement and a liquidity requirement of at least $100,000 so that is not a good choice. Many of them are beyond those amounts. Keep in mind often times the investment given on the website is not the full investment including buildout costs and working capital. If you have less than $200,000 you should not consider looking at brick and mortar food franchises.
If you have a $50,000 or less investment we have mostly owner operator type franchises that include businesses like consulting, medical billing or business coaching for executives, or cleaning, and service based businesses like cleaning or painting for blue collar investors. These franchises are generally one person businesses, can be operated from a home or small office, and require the owner to conduct most if not all of the business functions. They can still be profitable, you will just need to trade work for the fact your budget is limited.
Between $50,000 to $100,000 we see our options expand and franchise opportunities like senior care, child tutoring, junk hauling, disaster restoration and even some smaller specialty style kiosk food concepts become available. At this level with service based businesses you are no longer owner operator, but operating the business in an executive capacity, so managing crews and estimators, building business relationships and the like. You will still be working on the business, however not necessarily in the business.
Between $100-$200k investment we start to see brick and mortar franchise opportunities come available like smaller footprint food shops, smaller fitness franchises, master franchises, which are licenses to sell unit franchises within a given territory, larger multi truck service type franchises like moving and similar. Some of these concepts have semi passive options available.
From $200,000 to 1 million is where most of the retail franchise opportunities exist. This is also the range where true passive ownership is most realistic . You still won’t be able to buy a McDonalds, which is over 1 million but your options are quite extensive in this investment range. There are many food type franchises, passive ownership franchises like multi unit ownership of hair salons, there are lucrative master franchises and licenses in all areas. Self storage is another popular investment, massage and day spas or medical clinics and brick and mortar educational franchise facilities.
Now some of you might be saying “Robert, we see food franchise opportunities all the time for $40,000 or less on websites like BizBuySell! What are you talking about” And absolutely that is true and testament to the churn and burn mentality of franchising in general. Every single one of those sellers you see selling for far less than their original investment is a distressed seller. They are losing money. If they were making money they will sell their business for double what they paid or more! Not less. So that’s when the uneducated buyer goes out,. thinks they are getting a “deal” on this fantastically priced franchise, and unless they have enough skill and capital to turn the business around will also meet the same fate.
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