What To Look For In A Low-cost Franchise

In 2006, Ron Wright was an airline flight attendant thinking about opening his own restaurant. But he realized that type of business would have to be open seven days a week and he'd put in long hours continually.

That's when he started looking at franchises in which he could plan his schedule in advance, take time off for family activities and work out of a home office. He bought a Heaven's Best Carpet Cleaning franchise serving south Orange County.

Article Tab: Ron Wright and Cathy Reyes clean the carpet at a house in Laguna Niguel. They are franchise owners of Heaven's Best Carpet Cleaning.

Ron Wright and Cathy Reyes clean the carpet at a house in Laguna Niguel. They are franchise owners of Heaven's Best Carpet Cleaning.

PAUL BERSEBACH ORANGE COUNTY REGISTER MORE PHOTOS » ADVERTISEMENT Heaven's Best was recently named the best franchise under $50,000 by Franchise Business Review, a New Hampshire-based franchise market research firm. The company's website categories by size of the franchising system, amount of investment required and industry. While other companies' franchise rankings are based on fast growth or absolute size, Franchise Business Review ranks based on franchisee satisfaction.

The concept is that if franchisees are satisfied, the company is probably well run and profitable, customers are probably happy and loyal and employees are probably doing quality work. And those factors have an impact on the economy.

Franchising is huge in the United States. Financial services giant PricewaterhouseCoopers estimates that there are almost 785,000 franchised establishments employing more than 7.8 million people and raking in $740 billion in sales.

The surveys ask benchmark questions in eight categories, says Franchise Business Review President and Chief Executive Eric Stites. Those categories are training and support, the operating system, franchisor's leadership, core values, activeness of franchisee community, franchisee's self-evaluation, financial opportunity and overall satisfaction (especially would you recommend the franchise to others and would you buy this franchise again) "Obviously satisfaction is most important but it's important to drill down," Stites says. "A lot of systems are good at selling franchises but they have a lot of churn. Franchisees don't stay with the company for more than two or three years. Why?" While the initial investment shouldn't be the only reason for buying a franchise, it is significant now that bank lending is tight and fewer people can pull equity out of their homes to pay the franchise costs. See Franchise Business Review's top 10 low-cost franchises for 2011 (location of sidebar).

Cody Howard, owner and chief executive of Idaho-based Heaven's Best, believes his franchisees rank the company highly because "we try to treat franchisees the way we would want to be treated if the tables are turned...and we stress that franchisees do the same with customers." Franchisee Wright says he was impressed with Heaven's Best's great "dry in an hour" cleaning products and system, but the real plus is franchisor support. "I could call right now and talk to Cody personally. When I first got into the business I came across an ink stain and I called and Cody walked me through the whole cleaning process." Wright also likes that he pays a flat month fee, not a percent of sales, that the franchisor has a strong marketing program and that it was strong enough to survive the recession when some competitors didn't.

Howard cautions would-be franchisees to have realistic expectations when they are researching which franchise to buy. "If they tell me they want to make $2 million in two years, I tell them to look someplace else. But they can make a good living (with Heaven's Best) and they can set their own schedules so they don't miss their kids' ball game." Stites of Franchise Business Review recommends talking to many franchisees within a system before making a commitment. "Some say you're buying a brand when you buy a franchise. Forget the brand. What you're buying into is a group who can share ideas and experiences." Financing is another important factor in buying a franchise. Stites says some current franchisees may be reluctant to open their financial records for a franchise shopper, so he suggests that a potential buyer draw up his own pro forma financials based on what he wants and needs from the business and then ask existing franchisees if the projections are realistic.

Stites also recommends studying a franchisor's complete financial requirements. "Some discount on the front end and add fees and high-cost products later," Stites says.

He adds, "You want to make sure you get training and support you need to succeed. You want to know how long it will take you to become profitable. It can takes two to three years to pay yourself a paycheck" from the franchise.

Top 10 franchises under $50,000: Franchise Business Review surveys thousands of franchise owners to develop its list of top franchises based on franchisee satisfaction. The top franchises whose initial cost is under 50,000 are: Number 1: Heaven's Best Carpet Cleaning - carpet and upholstery cleaning at commercial and residential locations Franchising since 1983, company has 400 franchisees in 2,700 locations. Start-up costs: $24,900 to $60,000. Cash required: $15,000.

Number 2: FocalPoint Coaching - business coaching tied to self-help author Brian Tracy. Franchising since 2006, company has 90 franchisees in 89 locations. Start-up costs: $49,950 to $60,000. Cash required: $49,950.

Number 3: Computer Troubleshooters - assistance for small business and home computer users to solve their computer problems and implement new technology. Franchising since 1997 with 450 franchisees in 477 locations. Start-up costs: $28,000 to $82,000. Cash required: $25,000.

Number 4: MaidPro - home cleaning service. Franchising since 1997 with 101 franchisees in 120 locations. Start-up costs: $18,709 to $103,959. Cash required: $20,000 Number 5: JumpBunch - home-based business to offer physical activity classes in schools, daycare, after-school programs, YMCA and public parks for children aged 15 months to 12 years. Franchising since 2002 with 40 franchisees in 40 locations. Start-up cost: $34,700 to $79,400. Cash required: $50,000.

Number 6: Cruise Planners - American Express travel service representatives specializing in cruises. Franchising since 1994 with 740 franchisees in 740 locations. Start-up cost: $10,000. Cash required: $10,000 Number 7: 5-Star Painting - interior and exterior building painting with nationwide phone answering service and proprietary software to run the business. Franchising since 2005 with 45 franchisees in 64 locations. Start-up costs: $30,000 to $65,000. Cash required: $25,000.

Number 8: Rhea Lana's - children's clothing consignment events. Franchising since 2008 with 35 franchisees in 41 locations. Start-up costs: $16,050 to $33,050. Cash required: $8,000 to $10,500.

Number 9: Showhomes Home Staging - prepare houses for sale to look their best, using "live-in" home stagers to manage vacant homes for sale. Franchising since 1994 with 41 franchisees in 70 locations. Start-up costs: $43,000 to $64,000. Cash required: $10,000.

Number 10: Tax Centers of America - income tax preparation service. Franchising since 1996 with 127 franchisees in 165 locations. Start-up costs: $15,000 to $45,000. Cash required: $25,000.

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