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Lower Startup Costs and Risk, Faster Profitability and Easier Scalability are Among Many Advantages to Low-Cost Franchising

Franchises may come in a wide variety of industries – and at all different price points. The level of initial investment required can vary a great deal depending on the type of business, the franchise system and additional factors.

For aspiring owners trying to determine which franchise opportunity is the most prudent, price is undoubtedly a huge consideration. Even a franchise requiring a $100,000 investment – by no means the top of the franchising price band – may mean taking out a sizable loan, making a massive 401(k) withdrawal or parting ways with a family nest egg.

While some aspiring owners might pass on low-cost franchises, assuming that bigger is better, the more expensive franchise opportunities not only require greater investment, but also a higher level of risk and potentially more experience in management and business operations.

By contrast, a significant percentage of franchise opportunities are priced at under $100,000, such as those included in Entrepreneur’s annual list of top low-cost franchises, with some coming in at $50,000 or less, including those listed by International Franchise Professionals Group (IFPG). For many aspiring owners, these low-cost options may be the best way forward, representing a lower level of financial risk, the potential for higher return on investment and other benefits.

1. Lower Startup Costs

For some aspiring owners, low-cost franchises may be the only viable option. That’s because low-cost franchises are inherently more accessible. With less startup capital required, these franchise opportunities are far less demanding in terms of self-funding or financing, both of which can entail significant personal sacrifice and financial risk.

Low-cost franchises ensure a low threshold for entry by limiting overhead costs. These franchises may be home-based or mobile, and require tools, technologies or materials that are more limited in scope. Low-cost franchises may also have limited staffing needs, particularly for businesses that are seasonal in nature – another important way of controlling startup costs.

2. Faster Profitability

Lower startup costs mean that owners take on less financial risk and have greater potential for faster profitability. Owners who buy into low-cost franchising models don’t start out with as much debt, which means they don’t have as far to go to recoup their investment and turn their businesses profitable.

3. Easier Ways to Scale and Expand

Another advantage of low-cost franchises is that they provide ample opportunity for business growth and expansion. Indeed, for aspiring entrepreneurs who desire scalable success, low-cost franchising may represent the best entry point.

When business owners don’t have massive debts to pay off and can quickly turn their businesses into real profit centers, they can potentially afford expansion earlier. Having greater funds available earlier, they may be able to purchase additional territories, open new locations within their existing territories, buy another low-cost franchise under the same brand name, or even invest in low-cost opportunities in complementary fields.

4. Access to Established Brands and Proven Systems

It’s important to note that, while low-cost franchises offer a more manageable level of financial risk, there is still some risk inherent in any entrepreneurial endeavor. Owners must invest some capital, and though the amount is more modest, there is always a chance of loss.

However, there are additional ways low-cost franchising mediates risk, allowing owners to invest with greater confidence.

Consider that with a low-cost franchising investment, owners gain access to:

• Established brands that may already be known on a regional or national level and associated with quality, trust and professionalism. Leveraging an established brand is crucial for owners looking to break into a new market.
  
  
• Marketing assets that have been developed internally, tested and proven to be effective at raising brand awareness – without requiring local owners to reinvent the wheel.
  
  
• Proven business models and operational systems, which make it possible to get the business up and running relatively quickly.

The bottom line: Franchising eliminates much of the uncertainty that comes when starting a business from scratch. Following a proven model and leveraging shared resources does not remove all the risk from business ownership, but it does curtail it significantly.

Successful Franchise Ownership Doesn’t Have to Break the Bank

Franchising opportunities come at many different price points, but it would be misguided to assume that the lower-cost franchise opportunities represent lesser value. On the contrary, low-cost franchising can be one of the best ways to quickly and confidently establish business value, and to create a foundation for sustainable growth.

About the Author

Wanda Hoegren is vice president of operations for Gotcha Covered, a Five Star Franchising brand. Five Star Franchising is an innovative, fast-growing platform of home service brands with more than 1,500 total locations throughout North America.