If you're tired of working for other people and want to work for yourself, you're not alone. In a 2018 survey, over 60% of Americans said they wanted to be their own boss. Somewhere between 16 and 25 million Americans own their own business or are self-employed, depending on how you count the numbers.
It's clear that a lot more people want to work for themselves than actually do, and that's not surprising. Starting your own business or leaping into self-employment is a big risk. Half of all new businesses shut down in the first five years, whether because the business can't support itself or because the owner wants to go back into the workforce.
But there's a way to work for yourself while minimizing the risk and offloading some of the stress. It's called franchising.
Now, I'm not a franchise owner myself. I own my own business. But I know plenty of people who have gone the franchise route, and it's a lot easier to make that transition than it is to leap headlong into a new business.
There are a few steps you need to take to make that transition.
1. Figure out what kind of franchise you want.
When someone says "franchise," what's the first thing that pops into your mind?
For most people, "franchise" brings to mind McDonald's, Burger King or Taco Bell. Fast food is the most visible and one of the most common types of franchises. But it's not the only kind.
There are several different types of franchises, involving just about every business model you can think of. Here are some of the ones you need to know.
Business format franchise
A business format franchise gets not only the trademark, but the entire system of doing business. This is one of the easiest types of franchising to get into and also one of the most common. Most fast food franchises fall under this umbrella, but so do some retail stores, fitness clubs and business services providers. A company like H&R Block is just as much a business format franchise as Jazzercise or KFC.
With these, you can offload much of the effort of getting the franchise off the ground and keeping it going to the company you're franchising from. You'll get help with marketing, training and more. If you want to expand the number of your franchised locations, you'll find help there too. It's the least stressful option of all the franchise types.
Job franchise
These franchises are among the cheapest to start, as they're normally very small businesses – sometimes only one person. With low amounts of stock and low overhead, these franchises are ideal for someone who wants to leave the 9-to-5 life without a huge upfront investment.
Many of these franchises involve trades, while others might be event planning or other service-based careers. That dog groomer that makes the rounds in a van might be a franchisee. Same with the custom detailer, or the plumber who fixed your clogged drain.
These companies may have a storefront – you might run into a travel agency, shipping service or similar franchise business that has a physical location – but many of them don't. These businesses typically have some support from the franchise company, but less than a business format franchise provides; they're more or less just using the name.
Distribution franchise
If you've ever seen a Coke truck dropping off product to a local gas station, chances are you've seen a franchise employee. Many companies, like Coca-Cola, franchise their distribution efforts to large distributors that exclusively sell that company's products. In some cases, they may even handle part of the manufacturing. Automobile producers, gas stations and other companies of this type are usually distribution franchises tied to a specific product.
Investment franchise
Large-scale enterprises like hotels and huge restaurants might be considered investment franchises. The upfront cost on these may run into the millions of dollars, sometimes more than $50 million.
These enterprises typically have certain things in common among franchises, but they'll bring in their own team and build up the business with the intention of getting a return on the investment. Owners in these kinds of franchises are more interested in putting up the money and hiring people to handle the day-to-day duties than going hands-on the way they would with a smaller franchise.
Conversion franchise
This option probably doesn't apply to you if you're working a 9-to-5 job, but some companies like to take over existing businesses and add their own branding and franchise support. This category spans many different types of franchises, but some of the most common are real estate and trades.
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Whichever franchise type you're interested in, think of how your current experience could play into it. Look to the example of Darrin Baker, a Restoration 1 franchisee, for starters. Baker did restoration work for the company for years before actually moving into franchising. It was a natural fit for him, and as a result, the company flourished more than it might have with franchisees who didn't have experience in the industry.
Baker's experience isn't rare. Most people who become franchisees have some experience in their business, and it's a great way to give yourself a leg up.
2. Find out how you're going to fund it.
This is where the rubber meets the road, and it's the main reason many people never get started in the first place: Franchises aren't cheap. Even the cheapest often require thousands of dollars in the initial startup investment. Something like a plumbing company may only require a truck and some tools, but there's still the franchise fee to pay.
According to franchise consulting company Frannexus, one of the major reasons any business fails is undercapitalization. If you don't have enough money upfront, you're starting out well behind the eight ball. You need money to keep it running long enough to be profitable. But owning a business can be a benefit to that too.
As Frannexus notes, normally you'd have to earn $130 to buy a $100 cell phone, presuming a normal tax bracket. But if you're using it for business, you could put the cell phone on the business and only pay taxes on that other $30. This can sometimes save you money over the long term.
All franchises have to pay a fee upfront to start their business. Usually that fee is set, but some franchisors may ask for more or less money depending on where the business is started. That can be a double-edged sword: A franchise in a smaller territory might have less competition and a lower startup fee, but it's also probably going to be more limited in revenue than something in a larger territory would be.
After you've paid the franchise fee and the upfront investment, you may still have other hidden costs. You'll need to cover operating expenses for at least the first three months while the business gets off the ground – and depending on the type of business, it may take you longer than that to break even or make a profit. Some take a year or more. Various licenses may be required as well, depending on the type of business you're in, so do your homework first.
Self-funding is a possibility if you are well off, want to use a retirement account or have some money put away. You might also be able to fund it with a commercial business loan if it's cheap enough, or tap family or friends who have money. But there are other options in case you don't have the money set aside.
In-house financing
Many franchisors will provide partial or full financing for a franchise. Depending on the type of business, there can be significant startup costs that the franchisor may be willing to cover.
For example, 7-Eleven covers up to 65% of the initial franchise fee through its own internal financing. Many others do too. A franchise disclosure document will usually state this, but you can also ask the business about your options directly.
Other companies may provide discounts to certain groups they wish to incentivize. Veterans, minorities and women often get lower fees and more financing options through franchisors.
The amount and type of help vary among franchisors, and they often have higher interest rates than bank loans. But sometimes they're available without the same collateral requirements. Make sure you do your homework to find out exactly what your franchisor is willing to do for you.
SBA loans
The U.S. Small Business Administration is a government authority designed to support small business activity, providing funding options for businesses that need them. Interest rates for SBA loans tend to be relatively low, as they have more favorable terms than most loans and sometimes don't even need collateral.
The SBA doesn't provide financing itself; what it will do is provide better terms for business lenders so they can give better terms to business owners in turn. To get an SBA loan, you have to have a few qualifications: Your business must being U.S.-based and for profit, having owner equity without other financing options. It's the lender to turn to when regular lenders don't work, which is more frequent with smaller or lesser-known franchises. There are also multiple different programs under SBA that you might qualify for depending on your circumstances.
3. Set up your business.
Once you've figured out the type of franchise you want and how you're going to fund it, it's time to lay out the cash. This step's pretty straightforward: Buy the assets, the stock, the licenses and the services that you'll need to get off the ground.
If you have to do a build-out of a physical location, make sure you find a contractor you can trust. Don't just go with the cheapest bid. You might run into more trouble down the road than you would if you'd gotten a better contractor in the first place.
Once your business is running, you'll need to transition to a different mindset. If you've been in management before, this will probably be easier, but if you haven't, you should know it's completely different from being an employee.
Make sure to get any help you need from accountants, lawyers and consultants. Don't be afraid to spend a little money upfront to save yourself money down the road. Communicate regularly with any employees you have, stay organized with your business, and stay current on your taxes.
Making the leap from 9-to-5 employee to franchise owner is a challenge, but it's not as hard as you might think. Follow these procedures and you'll succeed as your own boss, just as you did as an employee.