How to Start a Home-Based Franchise
Starting a home-based franchise may seem like an easy way to start a business. It can cost as little as $5,000 to start a minimum-investment franchise, compared to the massive amount you'd spend for a storefront. As a franchisee, you can be an entrepreneur in nearly any field that interests you by tapping into existing franchises from cleaning services to tax preparation, from child care to IT consulting. You get all the brand recognition and time-tested marketing strategies of a big business from the comfort of your own home (and, perhaps, in your pjs).
Sound simple? Not quite. Actually, launching an at-home franchise can leave you tangled in a complicated corporate contract and liable for far more than you bargained for. Buying into a franchise, after all, is an investment, and to make sure that investment pays off, you've got to research carefully and buy wisely, especially if you're bringing business into your own home.
"You're making a life-changing decision," says Garth Snider, a franchise law attorney and president of the Franchise Opportunities Network. "It doesn't make sense to get into a business that you're lukewarm on just because it's home-based."
The good news is that franchising is designed to work. You just need to find the brand that fits you and your home. This guide will show you how.
How to Start a Home-Based Franchise: Is It Right For You?
The most important thing to consider before you even explore franchising opportunities is whether or not you'll be able to work effectively from home. Keep in mind that working from home is still work, and it won't instantly grant you the freedom you might expect.
"Don't go into franchising thinking it's a one way ticket to easy street. Most franchisees will say it's well worth it, but it is hard work," Snider says. "If you're easily distracted by the kids or Oprah, then [a home office] may not be the best environment for you."
This is a full-time endeavor, and you will work long hours. You can't expect to grow if your home-based business is an after thought or a side project.
CruiseOne franchisee Ralph Santisteban admits to having worked 12 to 14-hour days when he was first starting out. As a result, his business has grown steadily since he opened in 1998.
Snider says, "The pitfall is thinking that you're not going to have to work as hard as you were working before. That's not the case, unless you're coming out of a coal mine."
So before you start out, ask yourself if you can afford the long hours. Can you work in a solitary environment? Does your home have space for an office? Are you self-motivated and organized? Do you have the funds needed to cover your start-up costs? And, most importantly, can you live where you work?
If you're up to the challenge, then go ahead and check out your franchise options. It's important to do something you enjoy and cash in on your passion, but first, check with your local government to make sure your home is zoned for the type of business you want to open.
Once you've done that, there are a few reputable websites you can use to find out what's available in that field. Sites like Franchise Gator and Franchise Solutions will give you fast facts and figures about what home-based franchise opportunities exist.
If nothing suits your liking, think about the companies you enjoy doing business with. Fetch! Pet Care franchisees Loni Rudolph and Nicole Romagnolo, for instance, knew they wanted to work with animals. Rudolph remembered how pleased she was with the service Fetch! provided when she left her own pets under their care. "When we found out they were franchised, we were happy," Romagnolo says.
The two soon-to-be franchisees researched the company's practices and ideologies and found that they shared Fetch!'s beliefs on how to care for animals. Then they investigated whether or not there was a need for that type of service on Staten Island, where they're based, and if they would be up against any competitors, a step they say as crucial to any start-up at-home franchise.
When they found that there was a need for trusted pet care in their area, Romagnolo and Rudolph decided that Fetch! would give them all the guidelines they needed to execute that service well.
Dig Deeper: How to Start a Franchise
How to Start a Home-Based Franchise: Ask the Right Questions
Once you think you've settled on the right brand, you've got to know what to ask the company. Franchisors are required to provide potential franchise owners with a franchise disclosure document (FDD), according to the Federal Trade Commission. The FDD is a legal document that discloses information about the franchise to help franchisees analyze the merits of a franchisor and it must be presented at least 10 days prior to the signing of the franchise agreement. Snider says, "If a franchisor can't produce a FDD one needs to be very, very skeptical. I would go so far as to say that no FDD should be a non-starter."
The terms of the agreement my vary state to state or business to business, but Snider says most FDDs will include information on geographical limitations, royalty fees, advertising funding, earnings disclosure, number of current franchises and franchise success rates.
Remember that these agreements are, generally, inalterable, so you need to know exactly what the terms are before you sign on. The American Franchisee Association says to beware of gag orders, corporate kickbacks and drastic franchise agreement changes upon renewal.
Santisteban developed his own system of narrowing down potential brands when he was looking to buy into a cruise franchise. "No matter who you call, they're going to try to convince you they're the best," he says, so he started asking franchisors the important questions. Does the brand offer franchisees start-up tools? Does the company give franchisees continual training throughout their careers? Does the franchisor provide an accessible marketing team that teaches franchisees how to target clients?
These key questions narrowed Santisteban's search down to CruiseOne, but Snider suggests a few more discussion topics to bring up with your franchisor:
• Can you terminate early and what other termination rules apply?
• How many times can the FDD be renewed?
• What are the initial fees and continuing payments?
• What travel is involved and what is the cost?
It may be worth consulting legal advice when you're reviewing your FDD. Some franchisors may even offer you an attorney in your start-up package. "You're making a life-changing decision," says Snider, "and spending a couple thousand dollars just having a franchise attorney look over the agreement is well worth it."
Remember, the franchisor may have some questions for you, too. Dwain Wall, senior vice president and general manager of CruiseOne, helps franchisees like Santisteban get off the ground. He says CruiseOne's vetting process is rigorous, so before you meet with a franchisor, make sure you can explain your employment history. If you've changed jobs every few years, be able to explain why. A franchisor will only do business with you if they think you'll successfully bring business to them.
Dig Deeper: How to Read a Franchise Agreement
How to Start a Home-Based Franchise: Prepare Your Home
You may think the paper work is complete once the FDD is taken care of. It's not. Before you get started, you'll need to apply for a business license. Contact city hall or your county government to find out what type of license you'll need. They can redirect you to the proper agency if you require a state license. Snider says it's also a good idea to form a corporation and get a commercial general liability policy from your insurance company. "Most individual franchises are held by some type of corporation or limited liability company," he says. "If you own it outright, you have personal liability for anything that might go wrong with the business."
Visit the Secretary of State website for your state to find the guidelines you'll need to incorporate. The site should also provide information on how to draft articles of incorporation, which you'll need in addition to a name and an appointed director (that's you!).
Once that's complete, it's time to work on your home office. Set aside a room in your house or apartment that is solely dedicated to your business. Aside from having the basic telephone line and internet connection up and running, Santisteban says it's also helpful to get dressed every morning like you're going to work. It will keep you motivated and driven, even when business is slow at first.
Dig Deeper: How to Start a Home Office
How to Start a Home-Based Franchise: Getting Out of the House
Once your home office is set up, you will have to get out and pound the pavement to get the business off the ground. You can't rely solely on the brand name to get you clients. You've got to do most of your own marketing. As Santisteban says, "You can't just sit there and wait for the phone to ring because nobody knows you exist."
Finding a client base isn't as hard as it sounds, though. Start with friends and family and have your kitchen table pitch ready. Then decide what markets you want to do business with. If you're trying to work with a bank, contact the human resources department. If it's the pet owner demographic you're after, as was the case with Rudolph and Ramagnolo's business, visit local groomers. Another tip: host parties and events for your local community and enlist your social media network to spread the word.
Wall suggests setting up a table at trade shows, because it's a good way to meet other business owners, make contacts and build your list of clients.
"The best place to start is your local community," he says. "We encourage that guerilla marketing."
Be ready to discuss your business plan for the next few years. This means, of course, you will have to actually have a business plan, laying out the basics of your budget, funding, marketing strategies and equipment needs. Wall suggests getting in touch with other franchisees who can help you map this out.
"A lot of the learning goes one through franchisees talking to each other," Wall says, so ask your company if there are regional franchisee meetings you can attend.
Remember, once your business is set up, you're not alone. Most franchisors will hold webinars, conferences and offer intranet support networks for you to consult.
Dig Deeper: How to market through social media
How to Start a Home-Based Franchise: Resources
Wall says the No. 1 problem franchisees face is being dissatisfied with the solitary lifestyle they're suddenly thrust into. That's why it's crucial to maintain contact with your franchisor and get in touch with the nation-wide groups out there dedicated to both home businesses and franchisees. Check these sites out for tips and tricks:
The American Franchisee Association: Get access to legal assistance, as well as products and services.
The National Franchisee Association: Find advertising opportunities, compare business models and learn where local franchisee events are happening around the country.
Home Business Magazine: Read up on what other home business owners are doing to succeed.
Franchise Opportunities: Check out the Franchise Blog and Franchise buyers guide or consult this site to find out what franchises openings exist.
Dig Deeper: Lessons Learned at Franchise Boot Camp