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Indebta > Small Business > How To Start A Franchise On Low Capital
Small Business

How To Start A Franchise On Low Capital

News Room
Last updated: 2023/08/22 at 11:58 PM
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CEO of Frannexus, award-winning franchise consultant and author of “Profits are Better Than Wages.”

Contents
Low-Cost Franchises For The Average WorkerTypes Of FranchisesGetting A Franchise Off The GroundBuyer Beware

As we head fast through 2023, many are finding that the status quo isn’t cutting it anymore. Pre-pandemic, many settled for paying their dues, earning a paycheck and muddling along, but Covid-19 taught us that life is too short to be miserable and that there are alternatives to the daily grind. But what do you do if you want to create a startup but lack available capital?

Often, there is a notion that you need money to make money, and that isn’t entirely false. But in my work as a franchise consultant, I have seen plenty of examples where those with low capital can succeed in the franchise industry. Let’s take a closer look at how to get started in a franchise, even if you are not independently wealthy.

Low-Cost Franchises For The Average Worker

While it is true that the average worker may not have the savings required to go it alone for a small-business startup, there are many opportunities for people to get ahead through franchises with hard work, perseverance and tenacity. A variety of franchise opportunities require very low out-of-pocket investment, including those in industries like tax preparation, lawn care, janitorial services, medical billing and vending machines.

Another benefit offered by many franchise opportunities is the ability to carry on with your current career until you start to see the profits rise. After that happens, you can focus your time fully on your franchise and focus on expanding and even building more units. A major key to success with a low-cost franchise is to find those that give you the support you need and provide a turnkey solution for your new career or investment.

Types Of Franchises

There are five different types of franchises that you can buy into. They can be separated into the following:

• Job Franchise

Job franchises are business models designed to be a one-man-band operation for an owner-operator, and have minimal (if any) staff. They can usually be run from home or be a mobile business. When you buy into a job franchise, you create both an income and a career. Examples of job franchises are cleaning services and lawn services.

• Investment Franchise

Investment franchises are large-scale businesses that require wealth. Business owners are typically silent, meaning they are not present in the day-to-day options. It usually also requires specific knowledge of the industry. Investment franchises are not ideal for low-cost opportunities.

• Distribution Franchise

A distribution franchise means that an owner is granted the right to sell or distribute a product or range of products to customers. The owner of a distribution franchise typically operates using their brand rather than using the original creator’s name.

• Business Format Franchise

Business format franchises provide a franchisee with everything they need from the franchisor to open and operate the business. This is the most comprehensive type of franchise. Since everything you need is included, there can be a high degree of success for low-cost investors.

• Conversion Franchise

Conversion franchises are situations where a franchisee will join a network already owning their own business within the same industry. Their entity is purchased and turned into a branch. This makes it easier to expand quickly and use the connections and brand recognition of the franchisor.

Getting A Franchise Off The Ground

After you have found a franchise with the best chance for success, it is important to devise a path to get the franchise up and running. First, if necessary, you will need to secure financial help or backing. Often, franchise owners will help with lending opportunities. Other options are traditional lending institutions or friends and family members. You want to make sure you have the resources to get your franchise up to speed and enough to tide you over while you begin operations.

The next step is to use all of the resources available from the franchisor and other franchise owners. Many franchises offer support with everything from computer software to training. Take full advantage of these resources; that’s why they are there. Finally, make sure that you are ready to proceed by having everything completed and planned for. If you open too quickly, being unprepared can lead to a host of serious problems that can set you back both brand-wise and financially.

Buyer Beware

As with anything in life, when choosing a franchise to buy into, it is a buyer-beware situation. When you buy something cheap, you often get what you pay for, and franchise ownership is no different. Before you buy into any franchise, make sure that you read the full disclosure agreement and completely understand it before you sign on the dotted line.

Although the FTC has done a fair amount of work on trying to squash false claims made by franchise owners, there is still the risk of fraud if you aren’t sure what to look for and don’t have experience. Beware of a franchise offer that is too good to be true, because it usually is. Also, if you have questions that are not easily answered by the franchisor, that is a red flag. Franchisors should be open and enthusiastic about giving you all of the information you need to make an informed choice.

Lastly, don’t ever sign a contract or pay money without legal representation. It is always a good idea to trust but verify before you enter into any business arrangement with a franchisor or partner. You can also mitigate risk by working with a franchise professional who can walk you through the process and help ensure that you are choosing the best and most credible franchise possible. (Full disclosure: My company offers this service, as do others.)

As we head into a new era of personal and professional preferences, many are looking to get out of the unfulfilling daily grind and do something they are enthusiastic about that can help them accumulate their own wealth. Money and resources help you build, but that doesn’t necessarily mean you can’t start without a large cushion. A franchise might be the answer if you are looking for a business opportunity to get ahead.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

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News Room August 22, 2023 August 22, 2023
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