While franchising isn’t something that’s at the forefront of most millennial’s minds, for some young, business-minded entrepreneurs, it’s proving to be an ideal business opportunity. This may come as a surprise to some, but franchising is growing in popularity –and not just with high-net-worth investors. Millennials are starting to notice the opportunities that franchising offers; and a growing number are taking the leap, and transitioning into the role of franchise owner.
If you were to have asked anyone ten years ago who the prime candidates for franchising were, the under 30 generation wouldn’t have made the list. Franchising is traditionally regarded as difficult to break into. It also has a somewhat dismal reputation as a restrictive and inflexible business model.
But those misconceptions are quickly fading. Entrepreneurs today are no longer limited to the options of yesteryear. Modern franchising opportunities today come in an endless variety of choices, with diverse business models –many of which are ideal for young and aspiring entrepreneurs.
It’s also easier than ever to get started, financially speaking. Most franchise opportunities are under $100,000, and some can be started for as little as $5,000. Low-cost startups include health-care providers, fitness companies, or travel planners – options that don’t require a storefront or large amounts of capital.
A Growing Opportunity
There are more than 900,000 franchised businesses in the country, which account for over 11 million jobs nationwide. They produce $2.31 trillion in total economic output and represent $660.9 billion in private-sector salaries. Nationally, the number of franchise systems is growing by more than 100 every year.
But it’s not just traditional investors who are responsible for the growth in franchising, Millennials are also behind this trend, and are snatching up franchise businesses right and left. Wary of corporate culture and hesitant to commit to life behind a desk, they’re looking for the chance to start their own businesses, something that franchising can help to facilitate.
According to Paul Segreto, CEO of the Franchise Foundry, a franchise development firm outside of Houston, the tide has turned, particularly in the last few years.
“In home-based and low-cost franchises, Millennials will make up 50 percent of new franchisees over the next two years,” Segreto says.
Franchising today is a hot opportunity –and it’s only continuing to gather steam.
How to Get Started With Franchising
Despite the common myth that franchisors run a dictatorship that prevents business owners from running their business how they want; this is simply not true. Franchising offers plenty of room for individual decisions. Franchisors just provide the basic system –it’s up to the individual franchise owner to manage the business, and ultimately make it successful.
If you’ve always been interested in starting your own business, franchising is an opportunity that you may want to consider. Here’s what you should know about getting started.
- Organize Your Finances
The first step is to get organized financially. This will save wasted time, and prevent you from looking into opportunities that you may not even qualify for. Make a simple net worth statement, adding up your assets and your liabilities. The difference between the two is your net worth, something that any franchisor will need to know. It’s also an important part of the process to define your living expenses and parameters. When starting a business you will definitely need to be on a budget. You need to learn if you can live and work on that budget, and whether or not you are willing to make that sacrifice.
- Research
Do some research to determine which type of franchise you are interested in. You’re going to want to be dedicated to the business’ success, so make sure you choose something that you’re passionate about. You’re certainly not limited when it comes to choice; there are thousands of franchising opportunities currently available. If you’re uncertain, you may find it helpful to attend one of the many trade shows that run across the country, and see what’s out there.
- Request Information
Once you have an idea on which type of franchise you would like to buy, you can request information from the franchisor. The first thing to look at would be startup costs; this may include location, advertising, and payroll. Not all startup costs are covered under the franchising costs, so check to see what’s included, and what you’ll have to dish out for. Run a detailed cost analysis to find out how much financing you’ll need. Some people save up for the initial financing, while others take out a second mortgage, or even get a group of investors together.
- Conduct Due Diligence
Don’t assume that the franchise is foolproof. Franchises are businesses, and have the same failure rate as any other small business. Be sure to do your research ahead of time regarding the viability of the business model; don’t take the franchisor’s word for it. Make sure you run the franchisor’s financial-disclosure statement by an accountant. You should also have an attorney review the franchise contract. Be sure to ask about encroachment, meaning- what are your rights if another franchisee decides to open a different store just down the road?
Also, spend some time talking with other franchise owners, and get their opinions. If possible, go to the businesses and talk with them in person. In that meeting, ask about a day in the life of said operator? Does what they’re describing sound like something you would like to do? Finally, and perhaps most importantly, it’s important to develop an exit strategy. If things don’t go as planned –then what? You need to have a backup plan, just in case.
- Don’t Overextend Your Finances
In the beginning, your business is unlikely to turn a profit. This may even be true for the first year or two, so be prepared to factor in a loss at first. Avoid falling into financial difficulties by managing your finances carefully. Very carefully. Franchise contracts are finite, which means that after a set term, usually ten years, you’ll have a new contract to agree to. Avoid taking on a lease that runs longer than the terms of your original contract. If your franchise contract runs out before the lease is up, this could put you in a precarious position. Should the new contract contain terms that you don’t agree with, you may feel pressured into agreeing to it –due to your financial obligations regarding the lease.
While franchising isn’t for everyone, for a growing number of Millennials, it’s an ideal business venture. Freedom from the 9-5, the opportunity to run your own business, and the tremendous potential for profitability that it entails makes franchising an attractive and often-successful venture.
There are more franchising options today than ever before, no matter which type of business you’re interested in. The prevalence of home-based, and other low startup cost franchises is making franchising a more financially viable, and realistic option, and opening the door for entrepreneurial millennials to get started.
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