Now that you’ve decided to invest in a franchise, it’s important to not only pick the business that complements your interests and your market — but also one that fits your investment budget. That’s why low-cost franchises are attractive to franchisees looking to minimize risk while they maximize opportunity.
A low-cost franchise is one that typically requires an initial investment of $100,000 or less, according to Franchise Business Review, although you can invest in some franchises for as little as $10,000. And just because a franchise requires a smaller investment, it does not mean that it lacks a quality business plan or potentially high profitability. In fact, there are multiple advantages to investing in a low-cost franchise.
What are the Benefits of Investing in a Low-Cost Franchise?
- Affordability – No one wants to start a business in debt, spending months or maybe even years before turning over a profit. A low initial investment means that you can generate a return on investment on your franchise much faster.
- Flexibility – Want to work out of your home in any city or state? If you are a snowbird who prefers to work while you travel, a low-cost franchise can offer you the flexibility you need. Most low-cost franchises are service-based businesses that can be run out of a home office or mobile unit.
- Less Debt – If you invest in a low-cost franchise, you won’t typically incur the large loan debt common to higher cost investments. This will allow you to scale up your business much more rapidly. Many low-cost franchise opportunities don’t require expensive overhead or a large staff, which means they have a better chance of surviving a recession. (If recession-proof businesses interest you, check out this article on the Best Recession-Proof Businesses for Risk-Averse Investors).
- A Proven Business Model to Follow – Just because a franchise has a low entry cost, it doesn’t mean that it won’t turn a good profit. Low-cost franchises still provide you with a proven business plan, systems, coaching and all the other support you would expect when purchasing a franchise.
Franchising: What is Expected from You and What You can Expect to Make
Aside from your initial investment, franchise owners are responsible for other fees, such as royalties, and marketing and advertising fees. Your franchise brand’s Franchise Disclosure Document (FDD) can provide you more information on the specifics. The good news is that low-cost franchises usually have lower start-up costs and fees that reduce the barrier to entry.
- Franchise fees cover start-up costs typically associated with getting your website up and running, training, and initial supervision. These can be paid up-front or installments, depending upon your agreement.
- Royalties and monthly marketing and advertising fees are usually paid as a percentage of your gross revenue.
After you pay your initial investment and associated fees, how much money you’ll make will vary greatly depending upon your market, the type of business you have invested in and a slew of other factors. It’s important to thoroughly research your franchise opportunity, talk to current franchisees, and understand your market before taking the plunge.
However, according to Franchise Business Review data, as of March 2019, the average annual income for low-cost franchise owners is $77,851. Thirteen percent of low-cost franchise owners make more than $150,000 per year. When compared to the overall benchmark, which looks at all franchise investments, not just low cost, the average income is only slightly higher at $85,290, with seventeen percent of franchise owners making over $150,000.
What are the Financing Options for Low-Cost Franchises?
There are several ways you could choose to finance your franchise, including traditional forms of lending, cash, or securities, according to Guidant Financial. In the beginning stages of entrepreneurship, it can be challenging to make the right decision. That’s why it’s important to work with an experienced small business lender to explore your options.
- SBA Loans or Low-Doc SBA Loans: One of the most common forms of financing, SBA loans — up to $5 million — are guaranteed by the Small Business Administration and lent by banks. Guidant can match you with preferred lenders in their network. Low-Doc SBA Loans are similar; an alternative for those searching for lower amounts of capital, these loans offer you the same benefits as SBA Loans with a shorter turn-time.
- Retirement funds: You can use up to 100 percent of retirement funds from an existing rollable account (like a 401(k) or IRA) to buy or start a small business or franchise, without taking a taxable distribution or getting a loan.
- Portfolio loans: Borrow against your own bonds, mutual funds, stocks, or other security to make your franchise ownership dream come to fruition.
- Unsecured loans: For fast funding, a bank or credit union can provide you a loan without putting down any collateral in three weeks or less if you have a good credit score.
- Family and friends: You can often count on family and friends to help, too.
Some franchisors will let you finance a portion of the initial franchise fee over time and many offer special incentives to military veterans and other special groups such as first responders.
What are Some Popular Low-Cost Franchises to Consider?
Every year, Franchise Business Review surveys thousands of franchisees from leading franchise brands to gauge franchisee satisfaction and performance to compile its lists of the top-rated franchise brands. Based upon independent franchisee satisfaction reviews, this list reflects the feedback of franchise owners. Check out FBR’s Top Low-Cost franchises list to explore the award-winning business opportunities that are available and that have been vetted by current franchisees. Here is a sampling of low-cost franchises on this year’s top list:
- Cruise Planners – Run your own travel agency out of your home for an initial investment of $2,095 and be a part of a cruise franchise that has been ranked as a top franchise by Franchise Business Review and #1 in the travel industry by Entrepreneur magazine for 15 years in a row and #6 in the world!
- 360Clean – For an initial investment of $3,750, you can operate a home-based business specializing in commercial office cleaning. This low-overhead business has been ranked “very good” in all categories by current franchise owners — including general satisfaction and owner enjoyment.
- Minuteman Press – If you have an interest in marketing, printing, and design, you can operate a Minuteman Press franchise for a $62,207 initial investment. With more than 40 years in business, Minuteman Press franchisees include more than 100 second-generation owners.
- U.S. Lawns – Carve a niche in your own turf as a U.S. Lawns franchisee with a $53,500 initial investment. The largest commercial grounds care franchise in the nation, it enjoys more than 260 locations across the country.
As well as these four low-cost franchise opportunities, there are many more top-rated franchises on this year’s FBR Top Low-Cost List.
Additionally, Guidant Financial works closely with many low-cost franchises, including:
- Mosquito Squad – A leading pest control company, Mosquito Squad specializes in fighting ticks and mosquitos with innovative technologies and techniques. With nearly 20 years of experience, Mosquito Squad boasts over 200 locations across the country.
- Tutor Doctor – Tutor Doctor is an in-home tutoring service with over 200 units across 16 countries. Tutor Doctor franchises can be acquired for as little as $50,000.
- Archadeck – Serving customers since 1980, Archadeck builds one-of-a-kind, custom outdoor spaces like decks and patios. Archadeck franchises have a starting investment cost of $71,400.
- Wine & Design –A “paint ‘n’ sip” location, Wine & Design offers two-hour classes for individuals, couples, and groups to create art and unwind with a nice glass of wine. Wine & Design boasts one of the lowest franchise start up fees in the industry and a lean operating strategy to keep costs down.
As you consider your options, remember that there are many benefits to owning your own business, but finding the right franchise for you will take some time and homework. So, be patient, talk to franchise owners, read independent reviews, and thoroughly examine the FDD of any franchise you are considering.
Ready to Learn More?
Ready to learn more about purchasing your own low-cost franchise? Franchise Business Review and Guidant Financial are here to help. To get the latest reviews and ratings on today’s top franchise brands visit www.franchisebusinessreview.com. Or see what franchise financing you prequalify for today with Guidant’s simple prequalification tool.
Franchise Business Review is the only independent market research firm that specializes in benchmarking franchisee satisfaction based exclusively on ratings and reviews from franchise owners.