How to Start a Successful Franchise on a Shoestring

16/08/2018 17:00 | Start a business

How to start a successful low cost franchise

Not all franchisees started with a lot of money. In fact, many started by running relatively low-cost franchise units and built themselves up to bigger things. This meant starting their first franchise on a shoestring budget and working from there. Here, we provide eight top tips for those looking to start a franchise business with limited access to funds.

1. Identify and research low-cost franchises

The only way youre going to be able to start a successful franchise on a shoestring is if you identify affordable franchises and target those businesses within your price range. Most of the big franchises have a price tag that reflects their reputation. Youre not going to be able to afford a McDonalds or Subway franchise, so dont waste your time looking into these types of franchises.

Instead, be realistic. Identify low-cost franchises within your price range and begin performing thorough research into each of these businesses. While youll want to find an inexpensive franchise, cost cant be the only factor. You need to have a passion for the business if youre going to make it work.

2. Understand what makes a franchise low cost

In order to identify suitable franchises, it helps to understand what makes a franchise low cost. Generally, low-cost franchises can afford to charge low franchise fees and require little initial investment for a number of reasons. First, many tend to be home-based franchises. This means that there are no large overheads and no rent to cover.

Second, low-cost franchises rarely rely on expensive equipment. Instead, they generally focus on providing services associated with low equipment expenditure, such as cleaning, or management/organisational services. For instance, a business may advertise itself as a cleaning franchise, but its main roles are likely to be attracting clients, organising contracts, and then dispatching one of the cleaners on their roster. The franchisor isnt involved in any actual cleaning.

Finally, low-cost franchises can often be run from anywhere and don't require you to be tied to a particular property. This means that those looking to start a franchise on a shoestring budget should look for franchises that allow you to work remotely.

3. Focus on scalability

While low-cost franchises aren't always the most profitable if you look at each unit individually, they often start to make financial sense when you begin opening additional units. If you're looking to build a business on a shoestring budget, it's a good idea to look at franchises that demonstrate good growth potential and which offer franchisees the opportunity to purchase further units. Some franchises incentivise additional unit acquisitions by offering franchisees lower fees, dropping royalty rates, or providing other benefits.

4. Apply for finance from different sources

Establishing a franchise on a shoestring budget requires you to be imaginative, flexible, and capable of thinking outside the box. This is particularly true when it comes to franchise financing. While its possible that you can raise a large portion of the initial investment required from traditional lenders, such as the high street banks, you may have to look elsewhere, too.

Many franchisees raise capital from friends and family, some release value in the assets they own, and others raise funds via new crowdsourcing platforms. However you make it work, its vital that you perform due diligence before you accept any financing assistance. Making hasty borrowing decisions typically ends badly.

5. Understand the true cost of investment

In many cases, the investment figure advertised by franchises is nowhere near the actual amount you'll need to get your franchise off the ground. This means that you need to work out an accurate calculation before you invest. There's a number of ways to do this. First, you can discuss the matter with the franchisor and request access to the Franchise Disclosure Document. Second, you can talk to existing and ex-franchisees and ask how much investment it took them to get started.

6. Explore the idea of part-time franchising

If youre really struggling to raise the capital required to start a franchise, are concerned about putting all your eggs in one basket, or need a steady income to support your new business as it grows, part-time franchising may be a good idea. Many successful franchises offer franchisees the opportunity to work part-time, though the majority have pretty strict entry requirements. This is largely due to the fact that part-time ownership is difficult particularly if youre holding down another job at the same time.

7. Devote yourself to success

Starting a franchise on a shoestring budget is not going to work unless youre willing to make sacrifices and devote yourself to its success. Generally, its a difficult process that requires determination, dedication, and the commitment of many work hours and whatever financial resources youre able to muster. If you arent 100% sure that youre going to make it work, youll need to think carefully about whether youre making the right decision.

8. Form a plan and follow it

Finally, franchisees need to draft both short and long-term plans for the future and work hard to stick to them. The plans should revolve around step-by-step goals, allowing you to measure your progress as you grow the franchise. While all plans are subject to some change we can't predict the future it's important that you try and stick to your original plan as much as possible. For instance, if you're original intention was to build your first low-cost franchise, sell it early, and use the funds to upgrade to a slightly more expensive franchise, don't be side-tracked by the success of your first franchise. Stick to the plan!

Conclusion
While starting a franchise with limited funds is difficult, it is by no means impossible. Initially, success is likely to be determined as much by your attitude as it is your business aptitude. However, you'll quickly need to develop your business smarts if you're to survive in the cutthroat world of franchising. By following the eight tips listed above, you'll give yourself the best possible chance of making it work.

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