After a few set-backs in my pursuit to buy a business, which I documented on this site, I’ve relaunched the effort. But the question I am posing now is whether to include franchise businesses in my search.
In the past, I’ve been hesitant to buy a franchise. My thinking is that either you’ll be paying a high premium to buy a high value franchise (think McDonald’s) or you’re paying for something that you can just as easily create yourself.
Maybe I’m simplifying things, but I just don’t see the value that lower prestige franchises provide.
As an example, when you pull up businesses for sale in most areas, you’ll find more home health businesses than just about anything else. These are businesses that provide in-home care ranging from simple companionship up to full-scale medical care.
The logic behind these businesses makes sense. Generally, given the choice, people would rather age in their own homes than in a facility. This is even more so the case when someone has lived most of their life in a single-family home rather than in a condo or apartment setting.
Additionally, the demographics are favorable for senior care. I’ve talked before about my personal investment in the senior housing industry. As the baby boomer generation ages, there will be demand for senior services.
But when I look at all the different home care companies, I have trouble understanding what value they bring.
A few years ago, a friend of a friend sold his home health business to a much larger corporate buyer. He had started his business from scratch not as a franchise and built it into a highly successful enterprise. I cannot see how starting as a franchise would have benefitted him.
As I look at businesses to buy, obviously one of the reasons to buy an existing business rather than start one is that you already have a certain number of clients that serve as a base for the business.
But with a franchise, that’s not the case. Starting a franchise is more similar to starting a business than buying a business. The benefit of the franchise is that you have a proven business plan, an established vendor network, and access to corporate sales and marketing.
But how much is that really worth? I guess that’s the big question. What does the franchise cost (upfront and ongoing) and what do you get for that cost?
Readers, I would love to hear back from folks that have started franchises or have contemplated a franchise vs a startup. What was the deciding factor for you?
Martin - Get FIRE'd asap says
January 22, 2017 at 4:27 amI’ve heard that in most cases buying a franchise is just buying a job without the benefits of an being an employee. Unless you’re buying into a well recognised brand with all of the support and systems that it offers, I reckon starting your own business from scratch is the way to go. Even better is when you start it up while still working in paid employment. Sure, you’ll make some mistakes along the way and it’s a steep learning curve but you’re not handing over a load of cash to someone else and you have 100% say over how your business operates.
There’s plenty of franchises out there that don’t offer their members good value for what they’re paying. Be very sure you know what you’re getting in terms of systems, support, marketing etc before signing up.
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Financial Slacker says
January 30, 2017 at 6:19 pmThanks, Martin.
That was my conclusion as well. I’ll keep looking and let you know if I find something.
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