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NEW YORK – In 2020, Kelly Jackson and Davina Arsinox wanted to quit their corporate jobs and become business owners. They were looking for both COVID-safe and recession-resistant.
Instead of getting out completely under the umbrella of the group, he turned to franchising. Both are concerned about the notoriously tight margins for restaurants. He looked at a drug testing franchise, but the initial investment was too high.
A franchise mentor told them about Moto Mortgage Home Services, and Jackson and Arsinox opened one in Oakbrook Terrace, Illinois in July 2020 with an initial investment of $35,000.
“People are always looking for new places to live, and they’re buying and selling houses all the time,” Jackson said. He takes rising interest rates seriously. “Interest rates go up and down, that’s what they do, it’s part of the industry.”
Jackson and Arsinox, who were respectively senior IT program and project managers and assistant catering directors, had no mortgage experience, but Motto Mortgage offered training and support.
“You don’t need industry experience to get into this category, the brand will train you,” said Matt Haller, President and CEO of the International Franchise Association.
In the months following the outbreak of the pandemic, many people in corporate jobs decided to go on strike of their own, in what has been described as a “big resignation”. He explored options including opening a franchise with an established brand.
“Semi-entrepreneurs” who open franchisees say they love the opportunity to buy into a trusted brand name and gain access to tools and processes you won’t find if you start your own small business. But there are also many challenges in franchising. There are so many rules and regulations to follow. Contracts are long and can be difficult to complete.
According to the IFA, the number of American franchises increased by an estimated 3% to 774,965 in 2021 after a decline in 2020. This includes large franchises like McDonald’s or 7-Eleven, but all types of businesses can be franchisees, from pool cleaners to franchisees hair salons.
There are approximately 3,000 franchising brands in the United States. IFA estimates US franchisees will grow 2% this year to 792,014. This is still a fraction of the 32.5 million small businesses in the US
Franchise owners buy tens to hundreds of thousands of dollars – with an initial fee – to acquire their business and then pay a monthly royalty percentage. In return, they get access to the brand name and marketing and other endorsements.
As a classically trained pastry chef, Helen Kim often dreamed of having her own bakery. But when she decided to start her own business, Kim thought starting a business from scratch would be “a huge mountain to climb.”
While working at the Aria Resort and Casino in Las Vegas, Kim was a frequent customer at Paris Baguette. She was impressed and bought a Parisian baguette franchise in the city with her sister last year.
While the financial requirements are strict — according to the company’s website, the franchise must have a net worth of $1.5 million and $500,000 in cash and cash equivalents — Kim said it was worth it. While the money invested in the franchise is still at risk if the business fails, brand name recognition and the support of the franchisor provide a greater safety net than establishing an unknown brand.
However, getting used to the franchise structure can be a change. When Chris Dordell and her husband Jason Fenske decided to quit their jobs at Wells Fargo and Salesforce and open two Pilates clubs in 2018 and a Yogasix studio in 2020, they welcomed the handbook provided by franchisor Exponential.
“After more than 20 years in corporate jobs, it was exciting at this point to be able to fit into the existing model,” said Dordell.
But Dordell said some adjustments have been made in line with company rulebooks. Building the franchise came with some costs that could have been reduced, but “to maintain continuity in the business, we had to follow the model.”
A franchise can remain in limbo if a franchisor changes management or is sold.
Tom Lee and his wife opened Home Care Assistance, a home health care franchise, in Burlington, Vermont, in late 2016 when Lee decided to give up his sales management career for a larger company. After initially investing $300,000 and saving and not earning a salary for three years, the business began to thrive.
Lee currently employs 65 caregivers and has seen double-digit growth in benefits in 2020 and 2021. However, the franchisor changed ownership and began buying back the franchisee to operate privately. In 2022, The Key was rebranded, leaving the remaining 20 or so franchises, still known as Home Care Assistance, in limbo.
Lee said he still pays a 5% monthly license fee but doesn’t get as much support anymore. Key made an offer to buy back the business, but it was well below market value, Lee said.
Keys did not respond to a request for comment.
“They no longer have the staff to support us,” he said. “He really gave up the brand.”
As with any business, the franchisee needs to be aware of what they are doing themselves.
Mario Herman, a Washington-based attorney who focuses on franchise litigation, said it’s important that prospective franchisees review contracts carefully to ensure nothing is obfuscated, such as: B. previous bankruptcies or lack of profitability. Previously.
Earlier this year, the Federal Trade Commission sued the franchisor of the Burgerim, Calabasas, California burger chain, alleging that it tricked 1,500 people into paying $50,000 to $70,000 to open a franchise without adequately informing them of the risks . According to the complaint, Bergerim promised a refund if the franchisees failed to open a restaurant but couldn’t deliver. Bergerim did not respond to a request for comment.
“When done right, (a franchise) is great, but you have to be extraordinarily careful,” Herman said. “There’s a lot of scams out there.”