Franchises Over 50: What You Need to Know
www.marketwatch.com - by Catey Hill - February 22, 2011
About twenty years ago, Marie and Jerry Wiermanski toyed with the idea of opening a franchise but couldn't find a well-managed company they could afford. Now, in their early 60s, the couple has more money in the bank, a stronger desire to own a business and - as of a few months ago - a new Batteries Plus franchise to call their own.
As more baby boomers look for ways to strike out on their own or supplement income in retirement, a surprising number are turning to franchises. At the West Coast Franchise Expo in November, 27% of attendees were 51 or older, up from 22.5% in 2008; at a different event on the East Coast in April, the percentage of 50-plus attendees jump from 21.5% to 24%, says Jim Mastandrea, the show director for MFV Expositions, which produces franchise expo events. And they're not just browsing. Last year, Decorating Den, an interior design franchise, said the percentage of franchise owners who were over 50 hit 35%, up from 32% in 2009. At Caring Transitions, an estate sale and moving firm, about 35% of current franchise owners are between 55 and 60. And in 2010, a sample of Great Clips hair salons showed that its franchise owners over 50 had increased more than 15% in the last year.
The boom in franchise ownership dovetails with other employment trends for Baby Boomers. They're working longer, either because they want to or have to, and many want out of the traditional work force - or haven't been able to stay in it due to recent downsizing, says Rob Bond, president of the World Franchising Network. Older Americans are also more qualified to own franchises: They're wealthier and have better credit -- people ages 50-59 had an average credit score 43 points higher than people in their 30s, according to Experian - and many want to employ their kids or pass the business along to them. And franchises, which are like a business-in-a-box, can often appear less risky than a from-scratch sole proprietorship, says Alisa Harrison, a spokeswoman for the International Franchise Association.
In fact, many experts say franchises are less risky. Whereas about 30% of small businesses fail within the first five years, according to the Small Business Administration, franchises are slightly less likely to do so, industry experts say. They come with an established brand name, a pre-designed business structure and strategy, as well as support from the franchisor. That's what Weirmanski liked: The corporate structure and franchisee support were among the benefits for the Batteries Plus endeavor.
But in spite of the predetermined business model and structure, there's nothing easy about owning a franchise. Just like starting a business from scratch, it takes a ton of energy -- 12 to 14-hour days are common, and soliciting new clients can require a lot of running around, says independent franchise consultant Joel Libava, founder of The Franchise King website. It's probably not the laid-back second career some boomers want.
Plus, franchise owners must pay royalties, typically about 5% to 9% of sales - not profits - to the franchisor. And earnings aren't always as high as some owners hope: Bond estimates that the average franchise owner these days takes home about $60,000 per year, and some may earn half that much. (It usually depends on the initial investment made - franchises with higher initial investments tend to deliver higher returns - as well as the quality of the franchise, among other factors, says Jim Dietz, president of Franchise Doctor.) Plus, because owners are executing a corporate vision and business plan, it can seem stifling. You usually can't change product offerings or make other major decisions without the approval of the franchisor, says Mark Kushinsky, founder of the Maidpro franchise.
There are already more than 800,000 franchises operating in the U.S., so competition is stiff. A site like WorldFranchising.com will list the options available - Wild Birds Unlimited franchise, anyone? - and the investment required to buy them. But interested owners should go further, says business strategist Carol Roth, author of "The Entrepreneur Equation": Check the franchise's reputation with the Better Business Bureau and interview other franchisees about how much they earn, since most franchises do not publicly disclose this. The franchise should be able to give you the contact information of a few owners, she says. And make sure it lines up with your goals like leaving the business to an heir (some companies do not let franchisees pass the company on to a family member) or having job flexibility.
Here are three areas growing in popularity in the franchise industry, and what would-be owners should watch for:
Caring for the sick
As part of one of the fastest-growing industries in the country, a home health care business may be appealing to the 10% of baby boomers who say it's "very important" to leave a business to their children, according to the Allianz American Legacies Study. Also, older Americans may have experience caring for their own aging parents, making them sensitive to clients' needs, says Roth. BrightStar Care, an in-home health franchise, is one of the few to provide a detailed financial data on its franchisees. A single store that's been open at least a year takes in more than $749,000 in average annual revenue, according to the BrightStar 2010 Financial Disclosure Document. Owners will manage operations, hire and supervise caregivers and sign new clients. The start-up costs are usually reasonable -- $75,000 to $100,000 for a Home Instead franchise - and the 5% royalty fee is fairly standard. But while you can often hire younger people to handle the physical labor, it can be exhausting job: Owners will have to sell their services to doctors, nursing homes and others to gain clients, says Libava.
Each one, teach one
After years in corporate America, a franchise that offers executive and management training may look attractive. For example, franchisees of Sandler Training - one of the Wall Street Journal's top 25 high-performing franchises - provide sales and management training to employees at local businesses; before they get started, Sandler HQ provides training, structure and lead generation. But it also costs $68,000 in start-up costs - fair, says Libava, considering it includes the franchise fee, lead generation and training - and you'll need six to nine months of living expenses to get through the start-up phase, says Ron Taylor, the company's head of franchise development. A person with lots of business contacts and a good business sense could go it alone, says Roth, and avoid the high franchise fee.
Other teaching opportunities include tutoring franchises like Sylvan Learning Center or Tutor Doctors. These gigs tend to offer a relaxed work environment and little manual labor, but you'll spend far more time overseeing the business than actually working with students, says Libava. Another warning for creative types, he says: The companies sometimes have strict curriculums.
Work in your PJs
The options for work-from-home franchises vary widely, from a babysitting franchise like SeekingSitters to a local advertising sales company like Valpak, Franchise owners for Valpak, one of the best mid-sized franchise opportunities according to an industry survey of franchisees, sell ads to local businesses, and the parent company handles the production and mailing of ads. The Valpak franchise will cost from $32,500 to over $1.2 million to buy, depending on its location, which includes training and administrative costs. Libava says that these fees are reasonable, considering they're based on the size and quality of the territory.
But even though you won't have to go into a store or office for many of these options, they often require some face-to-face sales, which can take a lot of energy, says Libava. Plus, these kinds of non-essential services tend to get hit hard during recessionary times, says Dietz. Furthermore, the earnings vary widely, says Libava - some owners make roughly $25,000, others make more than six figures per year.