Many would-be entrepreneurs dream about opening a franchise business, but they’re often deterred by the stories of high investment costs and large-scale build-outs. If this describes you, we have good news: It is indeed possible to invest in a low-cost franchising opportunity without breaking the bank.
In fact, plenty of quality franchises offer a low-cost model that makes it easier to become an entrepreneur in the franchise industry. In this article, we cover the benefits of investing in a low-cost franchise, as well as the most common questions that people typically have, including:
You’ll gain an understanding of investing in franchising with a fully passive model that’s highly flexible and achievable, and you will also learn about five low-cost franchises that are great investments. So, let’s get started!
Low-cost franchises offer innumerable benefits to investors. These range from being more affordable to having a smaller business footprint than their larger counterparts, which allows an investor flexibility in launching and scaling their business. Here are some of the major benefits of investing in a low-cost franchise.
Affordability: Many franchise opportunities have initial investments starting at $100,000 and heading north of $1 million – which presents a formidable entry barrier for many first-time investors. Low-cost alternatives offer an easier entry into the world of franchising, and they are an excellent way to get started.
Flexibility: Lower-cost franchises often have business models that lend themselves to flexibility. They have a low headcount and fewer overhead costs than larger operations. Therefore they are easier for a first-time entrepreneur to get off the ground. They can also be easier to scale and manage as a semi-passive business option.
Lower debt: With a smaller investment, entrepreneurs have the option of self-funding their franchise license purchase and build-out. This provides the opportunity for some investors to enter franchising debt-free. Most larger-scale franchise businesses require at least some amount of financing to get started.
Low-cost franchises share many characteristics with those requiring a higher investment. Be sure to conduct the same due diligence process with every potential franchise partner, including examining the franchise disclosure documents (FDDs), interviews with current franchisees, and research with the help of a knowledgeable franchise representative such as a broker or a franchise attorney.
When evaluating opportunities, look for the following traits to ensure you choose the best franchise partner:
ROI: A solid franchise opportunity should give back more than it takes. Look for healthy returns on investment and a reasonable time to profitability. Income disclosures can often be found in the FDDs.
Growth: Understand how the franchise network has grown over time. While you don’t want to partner with a saturated franchisor, healthy growth of networks, low location closure, and franchisee turnover rates are indicators of a solid business process and support structure.
Leadership: Get to know the personalities running the franchise brand. As with any business, leadership is an important pillar of success. Do some research into past business pursuits and the reputation of the key players in the franchise.
Sustainability: Sustainable business practices lead to better overall outcomes. Examine the sustainability commitments and supply chain information available to you, and make sure you’re comfortable with the sustainability commitments your franchise partner has made.
Recession and pandemic resistance: Franchise businesses thrive because the business model offers goods and services that are highly desirable and essential to consumers. Take time to evaluate the pandemic and recession resistance of the franchise business you’re considering.
Manageability: Every franchise brand has different expectations of and requirements for its franchisees. Get to know the preferred (or contractually required) management style of the brand. If you are considering a semi-passive approach to franchising, be sure your franchise brand allows and supports this management structure.
There are numerous low-cost franchise opportunities from which to choose, and we’ve picked five that we consider the best. They share the common traits of a successful franchise opportunity: low initial costs, low-headcount business model, solid systems and support, and highly desirable products and services. These five low-cost franchises span high-earning industries with a track record of excellent return on investment.
Jan-Pro Cleaning and Disinfecting is a commercial cleaning company based in Alpharetta, Georgia. Founded in 1992, Jan-Pro specializes in cleaning commercial spaces like daycares, dealerships, offices, schools, and healthcare facilities. They have more than 8,250 locations in the United States and another 2,000+ international locations. Jan-Pro Cleaning offers training and support to help franchisees develop professional and well-trained crews.
Initial franchise fee: $2,500 to $44,000
Initial total investment: $4,800 to $58,000
Net worth: Up to $40,000
Cash requirement: $2,000 to $20,000
Royalty: 5% plus a 1% ad royalty
Incentives: 10% franchise fee discount for veterans
Founded in 2004, Stratus Building Solutions is a commercial cleaning company that’s headquartered in Hollywood, California. The company began franchising in 2006 and now has more than 2,900 franchise locations across the US and Canada. Stratus differentiates itself through environmentally responsible cleaning methods such as UVC light and HEPA filters, as well as Green Seal-certified products. The company has received many industry awards and distinctions, including multiple appearances on Entrepreneur‘s Franchise 500.
Initial franchise fee: $3,600 to $69,000
Initial total investment: $4,500 to $80,000
Net worth: $5,000 to $40,000
Royalty: 5% plus a 1% ad royalty
Incentives: 24-month interest-free financing on 50% of franchise fees of $8.1K+
This Florida-based travel agency franchise offers a turnkey solution for entrepreneurs interested in running a home-based business. With more than 1,600 franchisees currently operating independently across the US, this franchise offers the systems and support necessary to get new entrepreneurs up and running fast. Dream Vacations offers 1,000+ on-demand training modules via a web-based Virtual Learning Center. The company also offers support staff available via phone, email, or chat to help with questions or issues. And as a home-based business with a 100% commission structure and no overhead, both the investment and risk are lower than with other types of franchise opportunities.
Initial franchise fee: $495 to $10,500
Initial total investment: $1,800 to $21,000
Net worth: NA
Cash requirement: NA
Royalty: 1.5% to 3%
Incentives: 30% off franchise fee; training fee waived for business partner and for first veteran/military spouse associate, reduced by 50% for additional veteran/military associates.
Sylvan Learning is the most recognized brand in tutoring and supplemental education, and is also the nation’s largest provider of STEM education. Founded in 1979 and franchising since 1980, the brand currently features more than 750 locations and has an industry-leading reputation within the education space. Sylvan offers turnkey systems and name recognition that make launching a location easy and profitable.
Initial franchise fee: $40,000
Initial total investment: $86,000 to $187,000
Net worth: Up to $150,000
Cash requirement: $75,000
Royalty: 16% of monthly gross revenue, $32,000 minimum
Incentives: Undisclosed veteran’s discount
Founded in 2014, this real estate franchise changed how real estate buyers interact with brokers by empowering them with industry-disrupting marketing and systems. The company strives to offer franchisees cutting-edge understanding of the market and a streamlined experience, which makes higher-volume deal-flow possible. NextHome currently has 570+ franchise locations across the US. This brand partner is a good choice for entrepreneurs looking to enter franchising via the real estate market.
Initial franchise fee: $4,500 to $8,800
Initial total investment: $16,000 to $220,000
Royalty: $200 to $210 per month, with an additional $80 to $90 per transaction ad fee.
If you’re an investor looking to incorporate franchises into your diversified assets, investing fractionally with a FranShares franchise portfolio offers high earning potential and diversification in a completely passive investment model.
To learn more about the FranShares opportunity, speak to our Investor Relations team.
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(1) Portfolio IRR projections are calculated using all cash flows, including the initial investment of $25,000,000 of offering proceeds, annual earnings before interest, depreciation and amortization (“EBITDA”), less estimated corporate taxes, and the sale of the entire portfolio at the end of the fifth year at 5x EBITDA.
(2) Cash Yield projections are calculated as the arithmetic mean (average) of five years of annual cash flows (including EBITDA, less estimated corporate taxes) divided by the initial investment of $25,000,000 of offering proceeds.
(3) Equity IRR projections are calculated using the initial investment of $25,000,000 of offering proceeds and the sale of the entire portfolio at the end of the fifth year at 5x EBITDA.