Home Based Franchises Require Something Extra

COMMENT FROM TOM WEST:

Following is an article on home-based franchises. It raises the issue of home-based businesses from a business brokerage standpoint of reselling them. It also could be well worth following up on some of the home-based franchisees as we suspect that they would welcome the help of a business broker In selling new units.

From a resell perspective, they have several pluses. A recent catalog from InfoUSA offers a list of 1.3 million home-based businesses. We think that getting a list of local home-based businesses would be worth buying in order to send a letter to them. Yes, we know that many of them are hobby-type or much too small to be of interest or not big enough to support a normal commission or even a minimum one.

We do suspect, however, that you will find some very good leads in the list. Try 500 local ones and see how you do. Look at the pluses from a resale standpoint:

• No issues from a lease or landlord standpoint
• Completely re-locatable
• No licensing or approvals required (in most cases)
• Quick closing
• Working from home has a lot of appeal to buyers
• Great for single parent with children
• Generally, not equipment intensive

We don’t know of any business brokers or brokerage firms that specialize in home-based businesses – might be worth looking into. Read Ed’s article about them. Again, following up on selling new home-based businesses might add a new dimension to your business brokerage business.

Home-Based Franchises Require Something Extra

There are a number of advantages in owning a home based franchise. However, there can be disadvantages as well. Franchisees and franchisors should focus on the pros and cons of home based franchises when making their respective decisions.

A home based franchise operation can offer a number of advantages for franchisors and franchisees. Since the franchisee doesn’t need to locate and pay for a “bricks and mortar” location the initial investment and on-going operating costs will be lower and because it’s a home based location there will be less equipment costs. The time needed to start-up the franchise is usually less compared to a franchise with an offsite location. The overall investment in a home based franchise is typically lower than for other franchises and has the added appeal of the franchisee being able to work from home. These features should make it easier for the franchisor to sell franchises since they can choose from a higher pool of candidates.

A leading franchise advertising site lists 80 home based franchise opportunities with the following investment breakdown:

• 29 have a capital requirement below $25,000
• 38 have a capital requirement from $25-$50,000
• 13 have a capital requirement above $50,000

Despite the apparent advantages for both franchisors and franchisees, there are certain aspects of a home based franchise concept that can be problematic.

• The low franchise investment can attract candidates with weak qualifications. Franchisors may find it much easier to sell home based franchises with its low investment; however, this could mean accepting quantity over quality.
• Since the majority of home based franchise concepts are based upon the franchisee being sales orientated franchisees with weak selling skills can fail more easily.
• Although the investment is low the possibility of litigation from disgruntled franchisees still exists.
• Franchisees may find it difficult working from their home. Some franchisees may lack the discipline to work from home compared to the structured schedule that a business location provides. This can lead them to neglecting their business and going off in other directions.
• Home based franchisees that utilize other employees need good leadership, management and organizational skills. It can be difficult managing people from a home based location compared to a location where employees report to work.
• Home based franchisees should have good computer skills since they may rely on technology to help them operate their franchise.

Home based franchise opportunities provide a viable way for people to own a franchise for a modest investment. However, this feature can be a double edged sword since some candidates may not be fully qualified to operate this type of franchise. When evaluating candidates, franchisors should be aware of the unique challenges that a home based franchise can present. For their part, prospective franchisees should consider the particular skills that a home based franchise requires and determine if they can meet those requirements.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at www.franchiseknowhow@yahoo.com.