The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.
Have you ever thought about going into business for yourself, but didn’t necessarily want to start from scratch? A franchise may just be what you need in your life. In its basic form, a franchise is a business that has already been formed and has a proven system that anyone can replicate.
One of the first successful franchises in the United States dates back to the 1960s when Ray Kroc (then a multi-mixer salesman) bought the rights to the restaurant, “McDonald’s” and sold the franchise over and over again to willing entrepreneurs. All Ray asked for was a portion of their sales volume. Many succeeded and the popularity of the franchise was born.
If you want to sign up as a McDonald’s franchisee today, you’re a little late to the party. Not only do you need millions of dollars to start one, you need to already be an owner of an existing franchise. So, since this obviously isn’t going to happen, what are your other options? There must be some well-known franchises that are cheap to start. Indeed there are. Take a look at the five successful franchises below that still have a reasonable price tag.
1) Chick-Fil-A
Chick-Fil-A is a fantastic franchise – so much so that there are over 20,000 applicants a year to become the next franchisee. Since the company cares more about the success of their business and their franchisees, they obviously do not allow every applicant to become an owner. Instead, they select between 75-80 new operators per year. Of those selected, 95% of them are a success and stick with the business for the long term.
The initial cost to the new owner-operator is $10,000 plus 15% of sales for the rent of the building, and then another 50% of the pre-tax profits. It sounds like a lot, and it is, but the start-up costs are next to nothing so almost anyone can become an owner of their very own franchise!
2) Subway
Subway has been a hot franchise ever since Jared shed hundreds of pounds on his “Subway diet”. In certain areas, there are almost too many Subway franchises and the market is becoming saturated, but if you can find a location that doesn’t have a Subway, then it could certainly become a great opportunity for you!
The franchise fee of a Subway is $15,000 and you have to foot the cost of the building (often $250k or more). They require you to pay royalties of 8% of gross sales and an advertising fee of 4.5%. The prices seem a little bit steep initially, but if you decide to call it quits, you will likely have equity in the building when you sell.
3) Cold Stone Creamery
Cold Stone Creamery opened their first store in 1988. The slow-churned ice cream became a hit quite quickly and the franchise was born.
If you want to start a Cold Stone Creamery today, you’ll need to have a net worth of $250,000. If you’re clear here, then you’ll have to come up with just $27,000 for the franchise fee, which is pretty meager compared to the costs of a full-fledged start-up. Of course, you’ll need a down-payment on the building (as is the case with most franchises), and you’ll have to pay 6% of your sales for royalties and 3% for national advertising.
4) Quiznos
The main rival to Subway, Quiznos offers subs that are considered less of a “fast-food” taste and more of a sandwich that would make your mouth water. Overall, the franchise is doing pretty well and offers its franchisees a pretty good deal to get started.
The initial cost of a Quiznos is $25,000 for the franchise fee and then they charge you 7% of sales for the royalty costs. And, as is typical, the cost of the building is yours too. But, even with that, the rates are quite cheap for an almost guaranteed business start-up!
5) Dairy Queen
Dairy Queen has been around for 75 years and is still a favorite today. The name is obviously recognizable, so if you want to start a franchise that is instantly known, then this is a strong possibility for you.
To start a Dairy Queen franchise, you’ll need to have $35,000 for the initial franchise fee and a down payment for the building. Once you open the doors and start earning all that cash, you’ll have to dish out 4% of gross sales for royalties and 6% for marketing expenses.
Summary
Each one of these options is feasible, but the absolute cheapest option is obviously the Chick-Fil-A franchise. Plus, notice where the royalty fees are pulled from: profits, not sales. That is a huge difference. With all other franchises, you could be losing money, but you would still owe money to the franchise because they take a percentage of your overall sales.
Chick-Fil-A on the other hand, wants to be sure that you earn money first and foremost, and then will accept half of your profits. If you want to put up very little money initially and have a very high success opportunity, then Chick-Fil-A would be the opportunity for you.
How about you all? Are you considering a franchise opportunity? What steps have you taken so far to move forward?
Share your experiences by commenting below!
***Photo courtesy: https://www.flickr.com/photos/informant/32974814/
