Looking To Start A Business This Year? Here’s Why Buying A Franchise Could Be The Best Choice – Forbes
By Rieva Lesonsky
If you’re dreaming of starting a business but you aren’t sure what kind of business to start—or where to even begin—the ideal solution may be to buy a franchise. In fact, Guidant Financial has gone so far as to dub 2019 the “Year of the Franchise” based on trends in its latest Small Business Trends survey. Here’s a closer look at what it found about today’s franchise owners (also called franchisees).
Some 62% of franchisees in Guidant’s survey are baby boomers, while 30% belong to Generation X. Just 8% are millennials. One reason for the low level of millennial involvement: most millennials can’t yet afford the high average cost of opening a franchise. Since franchisors expect franchisees to put a significant chunk of their own money into startup, the average franchisee needs to have about $50,000 liquid capital to invest.
A recent study reveals most franchisees are very happy with their choice of business ownership.
Reflecting the financial means needed to buy a franchise, franchise owners generally have a higher level of education than the average small business owner. Some 85% of franchisees have advanced degrees: 47% have a bachelor’s degree, 25% have a master’s degree, and 11% have an associate’s degree. Of course, 15% are doing fine with a high school or GED degree.
You’ll need to put a chunk of your own money into buying a franchise, but you may be able to get a loan for the rest. Getting a small business loan is typically very difficult for a startup business; however, franchises are different. Since franchisees are buying into a proven system, lenders are more likely to feel confident that their startups will survive and be able to repay the loan. In fact, franchisees are 28% less likely than independent business owners to say cash flow is a major operational challenge, Guidant’s survey reports.
With loan interest rates dropping, Guidant notes that small business lending solutions such as SBA 7(a) loans are becoming more affordable. The SBA recently adjusted its size standards, categorizing about 90,000 more businesses as “small businesses” and making them eligible to obtain small business loans. Last year, 26% more franchise owners used SBA loans to launch their business compared to the prior survey.
What kinds of businesses are most popular among franchisees? Overall, franchise trends mirror trends in business in general. Here are the five most popular franchise industries:
While owning a franchise does eliminate many of the challenges of startup, it’s not always easy. Asked what has become more difficult in the past year, 21% of franchise business owners say they’re struggling to recruit and retain qualified staff (a 14% increase from last year). The majority of franchisees in the survey have two to five employees, but the survey notes an increase in the number of sole proprietor franchises—possibly because these owners can’t find good employees.
In addition, 16% of franchise owners say they struggle with marketing and advertising, while 12% say time management and administrative tasks are their biggest challenges.
Another challenge: Buying a franchise is becoming more expensive. Almost seven in 10 (68%) franchisees say their locations cost $100,000 or more to open, a 15% increase from 2018. The number of franchises that were opened for under $100,000 dropped by 22%. In addition, 52% of franchises in the survey were existing locations the new owner purchased; 48% were new locations opened by the owner.
The majority of franchisees surveyed (66%) are profitable. While 57% of franchisees are focusing on growing their current location, 23% say they’d like to open an additional location.
Some 24% of franchisees say lack of capital or cash flow is an issue for them. When asked what they would do with additional capital, most franchisees said they’d use it for expansion. Franchise owners also said they’d use extra capital to invest in marketing and advertising, staff, and equipment.
Despite their challenges, Guidant found that overall, franchisees are happy with their choice to go into business “for themselves, but not by themselves.” On average, they rate their happiness eight on a scale of 1 to 10 (10 being happiest).