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Home-Based Franchises Could Be Right for You

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The start-up costs of running a franchise from home are relatively low, but the concept still needs careful research. Here's how to determine if this arrangement fits your personality and complies with local regulations.

It was a beautiful day when Jocelyn Gold realized that her future was junk. After accompanying her brother on a few runs for his home-based 1-800-GOTJUNK? franchise, the former financial-services marketing consultant knew that the opportunities in hauling other people's castoffs was her calling and soon began the process of opening her own home-based 1-800-GOTJUNK? operation. The franchisees specialize in removing the refuse that local trash haulers and organizations such as the Salvation Army won't take. The material is taken to the local dump or reclamation center and fees are charged to the customer based on the amount and type of junk removed.

"I've always wanted to run my own business," explains the Oakland, Calif.-based franchisee. "Working at home definitely has its advantages and keeps overhead down." After less than six months in the business, Ms. Gold estimates that her salary is about equal to what she made in her marketing position, while the potential to grow her income is much greater.

While there aren't many hard statistics on the home-based franchise market, the segment definitely has grown over the past several years, says Don DeBolt, president of the International Franchise Association (IFA). Mr. DeBolt estimates that out of the 1,200 to 1,300 active franchise concepts, at least 150 are suitable for home-based businesses.

Many home-based franchise opportunities are service-oriented, such as home-inspection firms, computer repair and interior decorating, but a wide variety of retail, consulting and other opportunities also are available. American Poolplayers Association Inc. franchises run recreational billiards leagues, with more than 240 units in the U. S. and Canada. More than 400 Candy Bouquet franchisees create arrangements using candies and chocolates in place of flowers. Other opportunities include wedding-planning, publishing and advertising companies and holiday-decorating services. According to the IFA, while approximately 72% of franchises require an initial investment of up to $250,000, most home-based franchises max out at an initial investment of $50,000 to $60,000.

A Texas Couple Investigates

The relatively low up-front cost attracted Bill Peterman. He and his wife, Karla, own a home-based Furniture Medic franchise in Austin, Texas, and travel to office buildings, homes and other locations to refinish, repair and touch up wood furniture and finishes. The Petermans had seen a television commercial for Furniture Medic franchises (there are more than 550 in the U.S. and internationally) and decided to check out the opportunity.

Furniture Medic seemed like a bargain compared to other franchises they had investigated, such as a hardware store that required hundreds of thousands of dollars up front. Initial investment was limited to the cost of the van and some equipment. Before leaving their jobs as counselors to individuals recovering from brain injuries, they managed to stash away six months of living expenses. However, Mr. Peterman admits, the first years were a scramble. "During the transition, we took any piece of business we could get," he recalls. "Now, we routinely refer business to [competitors] and work a lot less. It's up to us to determine how much money we want to make."

Still, working from home isn't as easy as hanging a shingle in front of your house, says Jim Deitz, aka The Franchise Doctor and president of Andover Franchising Inc., an Atlanta-based consultancy that helps bring franchisees and franchisers together. Mr. Dietz counsels clients to be diligent about examining the opportunity as well as their own interest and passion to make sure that the match is a good fit. Some potential home-based franchisees believe wrongly that opening a home-based franchise is a way to cut their 40-to-50-hour workweek.

"Starting a home-based franchise is like starting any other business. It's going to require a lot of work at the start," he says. "You might work 60 to 70 hours a week in the first years and then grow into a 30-to-40-hour week in three to five years as your business grows and you get more established."

Factors to Consider

According to Mr. Dietz and other experts, there are five primary considerations that prospective franchisees should consider before investing in an opportunity. While these tips won't guarantee success, ignoring them can increase the risk of failure.

1. Understand the opportunity.

Mr. Deitz cautions his clients to understand the difference between franchises and "business opportunities." Business opportunities can range from multilevel marketing programs and distributorships to fee-for-information programs, and they aren't regulated in the way that franchises are. "The only people who are making millions [working] in their underwear are the models in the Victoria's Secret catalog," Mr. Dietz says.

Howard Bassuk, president of The Franchise Network Group, another franchise-consulting group, notes that many of these "opportunities" charge an up-front fee for information but have no underlying business and offer little or nothing in the way of support. Franchises, on the other hand, are licenses to use a name and a trademark and generally offer a great deal of continuing support. Even home-based franchises must fully disclose their list of other franchisees to prospects considering investing in the franchise and often have specific protocols that must be followed.

Both experts emphasize the importance of taking one to three months to fully investigate any opportunity. Call other franchisees. Check out the opportunity with the International Franchise Association and the Better Business Bureau. Mr. Bassuk adds that a track record is very important, but that good opportunities also can be found in new franchises. The key, he says, is to be diligent in gathering information.

"Some people like to take advantage of an established franchise, while others prefer to be in on the ground floor, helping to make decisions to guide the company," he explains. "There's no right or wrong answer, but be sure that you are thorough in checking [out the opportunity]." He recommends taking at least two to four months to research and compare franchise opportunities and to avoid making snap decisions.

2. Know what it takes to work from home.

Working from home can present challenges to franchise owners who aren't prepared for the isolation, distractions and long hours. Mr. Dietz notes that home-based franchise owners who leave jobs where interaction with other employees was common may feel isolated when working alone. He advises home-based franchise owners to develop a network of other franchisees within the company's network or, at least, with other business owners in their area. This circle of like-minded business owners can be a tremendous source of support and ideas.

Some franchisees may wish to invest in a business coach who can, for a monthly or hourly fee, provide help with motivation and goal-setting for the business and the owner. And while the idea of having more flexibility can be attractive to many home-based franchisees, it's important to also have a regular schedule to keep productivity high. Mr. Deitz explains that many a home-based business has lost valuable work hours when an owner has decided to mow the lawn or take care of other household chores during business hours instead of taking care of the business.

Both consultants agree that home-based franchises need to be more aggressive about sales and marketing. Mr. Deitz explains that while out-of-home businesses can benefit from the visibility of a storefront or signage, "no one's going to walk down the street and say 'I wonder what they sell at this house.' "

3. Know yourself -- and your finances.

When you're investigating a franchise opportunity, it's important to look beyond face value and find out what's really involved in running that business. The majority of your job, as owner, may be spent on administration and planning vs. providing the day-to-day products or services of the business. Your venture may be in trouble, Mr. Bassuk warns, if the demands don't match your work strengths and your interests.

Mr. Deitz's consulting company has developed a personality profile to help prospective franchisees find out which opportunities may be right for them. The $30 profile helps analyze the work strengths and weaknesses of the candidate. For instance, a prospective franchisee profiled as an introvert might not do as well with a job that involves a long or intensive sales process, whereas those assessed as extroverts may thrive in that environment. Extroverts, on the other hand, may wither in a business that doesn't allow ample contact with others. The profile investigates several areas of personality and work habits and suggests types of businesses for which those traits are best suited.

The IFA's Mr. DeBolt adds that one must consider the cost, as well as the worst-case scenario if the business fails and that investment is lost. "Know how much investment you're willing to put at risk. Investing in any business, including a franchise, is risky. We like to think that (the franchise structure) will lessen that risk, but business is business and there are no guarantees."

4. Check out the local laws.

Mr. Bassuck advises prospective franchisees to investigate local ordinances and prospective business. Restrictions on home-based businesses vary significantly from town to town, so it's best to be certain that the venture complies with those rules and regulations. For instance, some municipalities may allow home-based businesses as long as the business doesn't attract customers to the home. Other areas may require that the business obtain various licenses. And the homeowner may need a variance from the local zoning board to run a business from the home. By checking to see that the business can be operated legally from the home, you'll protect yourself and your business from fines or being shut down by local law enforcement.

5. Have a growth plan.

Managing growth also can be a challenge for home-based franchisees who suddenly discover they need to hire employees. Business owners may be uncomfortable having employees work out of their homes. Often, says the IFA's Mr. DeBolt, when it's time to hire employees, it's time to move out of the house. "That's a great way [to grow]," he explains. "You really bootstrap in the beginning and then grow into a location as you can afford it."

Still, the benefits of being home-based make sense for many even when the business prospers. Lane Thomas works with his wife Betty and daughter Alicia as well as with two part-time staffers in his CruiseOne franchise, which operates out of the dining room of his Houston home. After a year of red ink, Mr. Thomas sold more than $1 million worth of cruises, netting in excess of $100,000 in commissions, in his second year. After being in operation for five years, he says the business earns "much more" than those early figures, offering the family a comfortable living.

While there are no guarantees when it comes to opening a home-based franchise, this option allows you to enter into a proven business model for less than traditional out-of-home franchise opportunities. Since the parent company of the franchise often recoups a portion of the franchise profits for a period of time, it's in the best interest of that company to do everything possible to ensure the health of new operations. Therefore, many franchise programs offer extensive training and support to those who buy into their program.

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