Franchising Mailbag June 2016
The Franchising Mailbag for June 2016, presented a number of challenging questions related to franchising opportunities across America. At America's Best Franchises, we're here to serve, so let's get started.
I've read a lot about franchise failure rates. How seriously should I take some of these reports and what can I do to avoid falling into a trap?
William T. Bradley
America's Best Franchises
Let's face it, opening a new business of any kind, whether it be a franchise or a business opportunity is a risky venture. Failure rates vary substantially from franchise to franchise and by business category but know this - starting a new business is close to a 50 - 50 proposition.
Trust me, having that kind of expectation will bode well when validating a franchise business that might be for you. Here's the good news. Item 20, of the Franchise Disclosure Document, (FDD), details the franchisee failures over at least a three year period. So, whatever franchising opportunity you are considering, you'll know the failure rate of that franchise system. You will not have that luxury, if you're entertaining the purchase of a business opportunity. Sure, you'll get some background information but a highly regulated franchising industry will give you much more information. Carpe diem - Buyer Beware!
I've been a career employee but worked my way up to a manager of about 50 employees over time. I feel pretty confident that I can manage people well. Do I really need a franchise consultant to assist with the purchase of a franchise and do I need to profile my skill sets?That's a very good question that doesn't have a hard yes or no answer. Some aspiring entrepreneurs should except all the bells and whistles that come with making an informed choice in franchising. Some of us really need it and some of us don't.
A top notch franchise consultant can introduce you to franchise concepts that appear to fit your skill sets. Some of the larger franchise broker networks represent hundreds of franchise opportunities while some of the smaller networks consult for 20 or 30 franchise brands. If you connect with a consultant that happens to represent a franchise brand that really appeals to you, have him or her make an introduction. In the end, you're going to compare and validate up to 5 or so franchise opportunities anyway. So, give several a look, do your homework and make a smart choice.
There are a few companies that offer profiling tools designed to match your personality and skill sets and passions to a particular franchise. Again, they only match to a small sampling of franchise systems and they will match you with what they have. Franchisors have been known to rave about finding more qualified franchisees through profiling and I'm sure in many cases, it's true. I've always felt the answers to some of the questions might depend on the mood I'm in that day or if I'm focused or not. In fact, I've taken the same test on Monday that I took on a Tuesday and got totally different results.
Cover YOUR basis and do whatever gives you peace of mind with your choice. This is a big decision so to use all the tools afforded you is a good path to go down.
I'm interested in buying a senior care franchise in Austin, Texas. I see about 30 opportunities to choose from. The cash required seems to vary widely from $35,000 to well over $100,000. Why the large discrepancy?For the most part, the difference is the services they provide. It's all about Non-Medical care vs. Medical or Nursing care services. Non-medical services might include bathing and dressing, meal planning and cooking, laundry services, personal hygiene, grocery shopping, medication reminders, and companionship.
Home Health Care services are provided by licensed medical professionals i.e. nurses or physical therapists. Their services are much more technical and would include physical therapy, wound care, pain management, IV Therapy/Injections and mobility training.
There are a few senior care franchises that provide just non-medical care but most others provide both non-medical and home health care services. Obviously, it costs significantly more to hire and staff a senior care business that offers licensed practitioners.
I'm interested in buying a HomeVestors franchise but am not sure how much money I will need to launch the business effectively. How much money will I need to get started?First, allow me to congratulate HomeVestors, the We Buy Ugly Houses Brand, for once again being named to Franchise Business Review's "Top Franchise Opportunities for 2016." Franchise Business Review does an amazing job of interviewing thousands of franchise owners in all franchise industries across America. In the end, they publish a ranking of top franchising opportunities based only on owner satisfaction. Isn't that what really matters over time? Are current franchise owners happy with their investment? Find hundreds and thousands of more than satisfied franchise owners and you have a reason to want to be on board.
How Much Does a HomeVestors Franchise Cost?First, allow me to mention, for those with small budgets, that HomeVestors now offers an Associate Franchise. An Associate Franchise has the right to use the "We Buy Ugly Houses®” brand while working from home on a part-time basis. To purchase an Associate Franchise the franchise fee is $18,000 and a net worth requirement of $50,000.
HomeVestors also offers a Full Franchise. The franchise fee for a full franchise is $55,000. Other initial financial obligations are dependent upon opening an office or not. HomeVestors does not require you to get an office to run your business but if you decided to do so, you would have to consider the following:
Further, your initial purchase and repair of properties will cost anywhere between $15,000 and $150,000. The breakdown is as follows:
- Leasehold Improvements
- Furniture, Fixtures and Equipment
- Lease and Security Deposits
- Opening Supplies
- Advertising - Advertising costs can range from $8,000 on the low end to as much as $180,000 annually. HomeVestors will recommend a minimum amount depending on whether you are a Level 1 through Level 6. The minimum prepaid ad spend for a Level 1 and 2 is about $1,500 monthly.
- Training Expense for you and your team.
- Miscellaneous Opening Costs
- $10,000 to $25,000 for the 10% downpayment on the purchase of 1 to 5 properties.
- Repair of up to 5 properties will cost between $5,000 and $100,000 or more.
Working Capital You'll also need to include at least 6 months working capital. Working capital will vary depending on your situation but you should set aside anywhere from $10,000 to $60,000.
Total Estimated Initial InvestmentThe amounts as stated above are estimated and could vary as much as 10%. The total estimated initial investment for a Full Franchise is going to be between $85,000 and $350,000. Associate Franchisees can expect an initial investment of $40,000 to $250,000.
About William T. BradleyWilliam T. Bradley is the Founder and CEO of America's Best Franchises. Bill started America's Best Franchises in late 2006, after a successful career as a venture capitalist.
Bill spent more than 12 years in the securities industry working for several top Wall Street firms. In 1993, Bill decided he wanted to run his own business and started three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. From a remote office in the Bahamas and later in Del Mar, California, Bill and his team orchestrated more than 20 private equity transactions that raised more than $40 million and launched 5 specific private equity partnerships.
For the last 23 years, Bill has been an entrepreneur. He started with an idea and the desire to succeed. In 2005, Bill was presented with a private placement memorandum detailing the purchase of a franchise web portal. After considerable due diligence, Bill decided to launch his own franchise portal.
"I had no idea what I was doing and made a lot of mistakes along the way. Nevertheless, we survived one of the deepest recessions in history and today have one of the top franchise web portals in the franchising industry."