Home Is Where Your Franchise Is
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Kathy Eng, 42, sold her thriving McDonald's franchise in the Bronx, N.Y., last year to spend more time with her family. She now sells cruises from the enclosed porch of her New Rochelle home and has never been busier.
According to the U.S. Bureau of Labor Statistics, 19.8 million people worked from home at least one day a week in 2001. That number includes 5.9 million people who are self-employed, and at least half of them, like Mrs. Eng, conduct all their business where they live.
E-mail, the Internet and fax machines have been a boon to the 100-plus franchise systems that sell home-based opportunities. Mrs. Eng's franchise, CruiseOne Inc., in Fort Lauderdale, Fla., for example, has 437 franchisees who book cruises mostly from home offices. But the home occupation trend is also causing problems--for local zoning boards, for in-house entrepreneurs who discover they'd rather do the laundry than make those sales calls, and for people like Mrs. Eng, whose very convenient office means that she can be there 24/7.
Actually, 13/7. Of course, Mrs. Eng has always been motivated. She earned her M.B.A., while raising a toddler, having a baby and working full time. Then for eight years she spent 6 Â½ days a week at her McDonald's, directing a staff of 70. But it was only after she paid CruiseOne a $9,800 franchise fee and spent $20,000 to turn the family's porch into a full-scale office that she really pumped it up.
Mrs. Eng starts work every day at 7 a.m., and doesn't stop until 1 a.m. Yes, every day. When she leaves her home office, say for a meal with sons Thomas, 10, and Matthew, 13, and husband, Warren, 43, the work follows her, because she's had business phone lines installed in five different locations in her home. "The whole house rings," she says. "If it's during dinner or at 11 p.m., I still answer it. The key is to be there when someone calls for cruise information."
Other home-based franchisees avoid work overload by setting strict limits on when their residential offices are open. Camille Hamilton, 42, has been a franchisee of Computer Moms in Austin, Texas, for two years and works out of a spare bedroom in her Spring, Texas, home. She and her employees--two part-time technicians--provide one-on-one computer training for adult clients on their own computers, at home or in their offices, conduct software-training sessions, and troubleshoot hardware problems, for a fee of $85 an hour. But only during business hours.
"If I hear my business line ring after 5:30 in the evening, I don't answer it. It rolls over to voice mail, and I call back in the morning," Mrs. Hamilton says. "One client got hold of my cell-phone number and called with an emergency at 8 p.m. on a Saturday. I told her to wait until Monday. I have a family and a personal life, and I won't let my clients mess with them."
Sometimes franchisees find their homes aren't necessarily conducive environments for their businesses. Nancy Barton, 46, spent 4 Â½ years as a CruiseOne franchisee, selling trips to the Caribbean from the sunroom of her Spencerport, N.Y., home. Her husband, Steve, 48, runs a trucking company from the same house, and she bounced from one business to the other. Her college-age kids would pop into her office, the dogs would bark whenever the phone rang, and there was always that load of laundry to think about. "It started to drive me crazy," Mrs. Barton says.
So in mid-September, she moved her files of Princess and Carnival line brochures into an office in a professional building in downtown Spencerport. "Now I can focus just on my business during the day," she says. "I'm seeing other professional people and networking more. I'm even dressing better."
Other home-based business owners may soon have to do the same, says zoning attorney Steve Elrod, a partner with Holland & Knight in Chicago, but not because of their dogs and other distractions. Professional planners and zoning staffs in cities and villages throughout the country, Mr. Elrod says, are advocating tougher restrictions on home-based businesses to uphold the integrity of their zoning laws. They're recommending ordinances that would forbid such infringements as "nonresident" employees, more than five deliveries a day, and parking commercial vehicles on residential streets. "But it's a mixed bag, " Mr. Elrod says, "because the home-business community has become more vocal and resistant. I usually advise municipalities to write zoning regulations that allow home occupations so long as they can't be heard, seen, touched or smelled by surrounding neighbors."
Of course, vans outfitted for franchisees to sell Snap-on Tools, clean carpets as ServiceMaster operators or perform Furniture Medic magic on mahogany tables can be seen parked in franchisees' home driveways. "Before we sign on a new franchisee," says Harold Enger, assistant director of franchise support for Spring-Green Lawn Care in Plainfield, Ill., "we give him a list of things to check out with his local zoning department." Ken Riley, 48, a longtime Spring-Green franchisee in Anoka, Minn., for example, has a separate building on his property where he stores his van and weed-killing chemicals.
And Mr. Handyman service technicians can come to home offices to pick up their daily schedules. That's why Don Corkran, 50, of Montgomery, Ala., selected a downstairs den with a private entrance to be his Mr. Handyman headquarters. "We don't have people walking in the front door and trudging through the house," he says.
Private entrance or not, the main reason people select home-based franchises is cost--you can start out with no overhead and, if and when you make money, deduct a lot of home expenses from your taxes. It's a big if. Home-based franchises generally have a lower investment than those that require an outside office or store, but require more effort to succeed.
There are no statistics on franchise failures, so it's difficult to know whether home-based franchise enterprises are more likely to fold than others. It is easier to walk away from home-based franchises because many require low initial investments (under $10,000). But Peter Birkeland, the author of "Franchising Dreams" (University of Chicago Press, 2002), says his research shows that top-performing franchisees have the most relationships--with other franchisees, employees, customers and members of the business community. "Successful operators take relationships seriously and certainly use them for contacts, but also to integrate their diverse viewpoints and ideas. If you're sitting alone in your house working, it's harder to find people to interact with," he says.
"We have franchisees who sold over $1.5 million in cruises last year," says Ken Lewis, CruiseOne's director of franchise sales. "But we also have those who drop out, because selling cruises was more work than they expected, or they just hated all the paperwork."
Mr. Riley charges his 550 Spring-Green customers $35 to $45 a treatment for fertilizing and weed control, and he serves 15 to 25 of them a day. That's great money, until you factor in Minnesota winters and the months when he treats no lawns at all. The highly disciplined Mrs. Hamilton has joined four chambers of commerce and three organizations for businesswomen to promote her Computer Moms services, but says her best month was August, when she grossed $4,300. Her initial investment was $32,000, although she recently upgraded to Computer Moms' Leadership Model and took out a loan for $35,000.
Mr. Corkran has spent about $200,000 launching his Mr. Handyman, including buying and outfitting three service vans. To find customers, he's spending about $4,000 a month on direct-mail, newspaper and radio advertising. Mr. Corkran knows he won't make a profit until he has three Mr. Handyman service technicians installing ceiling fans, replacing rotten wood, and making other household repairs full time. "I'm still putting money in," he says.
As for Kathy Eng, her goal is to sell $1 million in cruises this year. At commissions that range from 12% to 20% a booking, her income could come close to what she made selling Big Macs. But she's a little off track. "I took some time off to get my kids settled in school," she says, "and for the first time ever I'm attending P.T.A. meetings and volunteering at their schools. Some nights I even shut down at midnight. But I won two franchisee achievement awards in July, and that's not bad for a newcomer."
Copyright Â© 2003 Dow Jones & Company, Inc. All Rights Reserved
For reprints and licensing questions, click here.