Home-Based Business Profile
The home-based business industry includes franchises that don't require commercial, storefront or office space to operate. Instead, franchisees manage these businesses from home offices. In some cases, franchisees conduct all their transactions over the phone or the Internet without having to leave home. Other franchisees manage their businesses in home offices but travel to service clients where they live or work. In either situation, owners of home-based business franchises are free from the costs and responsibilities related to the rental and maintenance of traditional business locations.
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Outlook and Trends
As a home-based business franchisee, you may be working on your own, but you won't be alone in your venture. According to the Global Entrepreneurship Monitor (GEM), an annual report by Babson College and Baruch College that studies total entrepreneurial activity across all industries, 69 percent of businesses are started at home. Beyond the start-up phase, 55 percent of new businesses and 59 percent of established businesses continue to operate as home businesses, according to GEM.
The U.S. Small Business Administration (SBA), reports that home-based businesses represent about 60.1 percent of all firms without paid employees and 23.3 percent of firms with fewer than 500 employees. By industry, home-based businesses represent 70.0 percent of information/technology businesses, 68.2 percent of construction businesses and 65.3 percent of professional, scientific and technical services businesses. About 50 percent of the nation's 22 million small businesses are home-based, according to Home Business magazine.
The increasing availability of home-based franchises mirrors the fact that working at home has become more common for all employees over the past 20 years. Between 1997 and 2010 alone, the number of people who worked at least one day at home per week increased 35 percent to include 13.4 million workers, according to the U.S. Census Bureau. During that period, home-based workers increased from 4.8 percent to 6.6 percent of all U.S. workers. Almost 50 percent of home-based workers are self-employed.
For owners of home-based franchises, the flexibility to merge work and home responsibilities can be a significant advantage. The conditions can be attractive to individuals who must care for children or ailing adults. Among entrepreneurs, 72 percent of women operated a home-based business, according to GEM data. Among established business owners, 68 percent of women worked at home. Home-based businesses also offer opportunities across all demographics. In a study of small businesses in America by CreditDonkey, a credit card comparison website, researchers found that 46 percent of home-based businesses are minority owned.
About 22 percent of the self-employed population has a home office as their primary workplace, according to a report from business consultants Global Workplace Analytics. Between 2005 and 2014, individuals associated with formal home-based businesses, such as franchises, fared better compared to those whose businesses were less structured. In that period, the total number of people self-employed in non-incorporated, home-based businesses declined by 9.8 percent. However, the population working in self-employed incorporated home-based businesses grew by 18.7 percent, according to the report.
The fact that the franchise industry has responded to the growing popularity of home-based business models is apparent in the results of Entrepreneur magazine's Franchise 500, an annual list of the strongest and most financially sound franchises across all industries. Of the 500 franchises included, editors reported that almost 30 percent were suitable for home-based offices. Many types of franchises have worked to make their businesses home-office friendly as technology has improved mobile and virtual business transactions. As a result, home-based franchises, along with all home-based firms, have gained legitimacy among both business and consumer markets.
Home-based franchises cover a wide range of industries, from businesses that don't require related experience to those that allow franchisees to use specialized professional or trade skills. While there are home-based opportunities in almost every franchise category, they typically fall into one of two business models:
Home-based Franchises with On-site Business Transactions:
These franchises allow owners to use home offices to handle the logistics necessary to run their businesses, while they travel to a client's home or business to provide services and deliver products. In some cases, the use of a van, trailer or other specially equipped mobile unit is required.
Some of the most successful types of franchises in this model are:
- Cleaning franchises such as Chem-Dry and The Maids
- Children's activity franchises such as British Swim School and GymGuyz
- Home construction and repair franchises such as Handypro and Garage Experts
- Outdoor maintenance franchises such as The Grounds Guys and Outdoor Lighting Perspectives
- Pet Care franchises such as Always Faithful Dog Training and Earthwise Pet Supply
Home-Based Franchises Run Exclusively In-home:
A diverse group of home-based franchises has emerged as technological advances have allowed for the success of paperless transactions. With apps, video conferencing and virtual communication more commonplace in business transactions, franchisees in many industries can operate lucrative businesses without leaving their homes.
Some of the most successful types of franchises in this model include:
- Cruise planning franchises such as Cruise Planners/American Express and Expedia Cruiseship Centers
- Medical billing franchises such as American Business Systems and ClaimTek Systems
- Home care franchises such as Home Instead Senior Care and Home Helpers
- Business advising franchises such as Transworld Business Advisors and Valcor Worldwide Financial Consulting
- Staffing franchises such as All About People and ATC Healthcare Services
You can find a home-based franchise that may work for you by searching Franchise Opportunities' Home-Based Franchises category.
In general, home-based franchises offer some of the lowest start-up costs in the franchise industry, with some available for under $20,000. Removing the cost of physical space, along with the maintenance, legal and insurance fees associated with it, helps minimize your initial fees. Home-based franchises that are run 100 percent at home also reduce costs since franchisees save money on transportation, wardrobes and eating out. Franchisees whose businesses require physical inventory or mobile units can expect to have higher initial costs.
Home-based franchises are considered as legitimate as any business. Though you'll be working at home, you'll still have the liabilities of a business, so insurance may be a special consideration, especially in cases where employees or clients are visiting your home. You'll want to examine what your existing homeowner's policy covers and how to cover the gaps between your policy and potential business losses. Depending on the requirements of your home-based franchise, and considerations such as vehicles, professional liability and workers' compensation, you may have to purchase a separate business insurance policy for the right coverage.
A home-based franchise will give you all the benefits you'd expect from any franchise. No matter where you're located, your main selling point is the franchise name. Your franchise's proprietary services and/or products will be the main drivers for business when you open your doors. As a result, you'll start your business marketing to potential clients who may be familiar with the name and reputation of your franchise and its offerings, setting the stage for you to make successful connections beginning on your first day.
As a home-based franchisee, you'll also benefit from having access to a proven business plan. Your franchisor will be a valuable resource for questions related to the franchise, as well as logistics. The advice and expertise of business owners who have done it before will help you avoid mistakes and recognize opportunities to succeed. You'll likely be encouraged to network with other franchisees who can offer support and solutions to some of the challenges of owning a home-based franchise.
As the owner of a home-based franchise, you'll also be eligible for the same tax deductions as other types of home businesses. Based on the set-up of your home and office, you may be eligible to deduct portions of your rent or mortgage, physical upgrades and utilities. Expenses for travel, office supplies and even health insurance also may be deductible.
According to a report on Monster's SmallBizLink, you'll also be able to keep more of the money you make as a home-based franchisee. When the SBA compared the tax returns of sole proprietors who claimed home-office deductions against those who paid commercial rent, the benefits of home-based businesses included more than lower operating costs. The SBA reported that the home-based businesses kept an average of 36 percent of their total revenue as net income. In contrast, businesses that were not home-based retained just 21 percent of their total revenue, according to the report.
Before establishing a home-based franchise, it's important to check local zoning laws. If you live in an area that's zoned residential, you may have some restrictions on the type of franchise you can choose. Many zoning laws limit the amount of changes you can make to the exterior of your home to accommodate a home business. These restrictions can affect your freedom to make physical changes to your home, use signage or park commercial vehicles in front of your home. Other laws are intended to prevent your home-based franchise from practices that result in increased traffic, noise and other nuisances. This may mean limiting daily deliveries as well as capping the number of employees or visitors associated with your business.
As a home-based franchisee, you'll be your own boss. If you're transitioning to a home-based franchise from a full-time, onsite job, you likely won't miss your alarm at daybreak or a stressful commute. However, you may find that living and working in the same space creates feelings of isolation. Part of your challenge will be to remain connected to people other than clients during the workday. You'll have to make an effort to create connections with other home-based franchisees in your network to create some of the same camaraderie you likely shared with your coworkers.
While conducting your business virtually can be convenient, it can be challenging to maintain a healthy life-work balance. Having your office just steps away from where you eat and sleep can make it hard to close up shop at the end of the day. While you can expect to work long hours getting your franchise off the ground, home-based franchisees risk burn out by working round-the-clock because it's so easy to do. Though a home-based franchise can give you the flexibility to work nontraditional hours, you'll have to maintain some boundaries to prevent it from taking over your household and your life.
Characteristics for Success: Who Should Consider a Home-based Franchise?
If you're ready to succeed with a home-based franchise, it's likely that you can find one that matches your skills and interests. You'll make the most of your investment if you're suited to handle the unique challenges that come from living where you work and working where you live. Having specific strengths and attitudes can help you enjoy the cost-savings and flexibility of a home-based franchise, while growing a profitable business.
You should consider a home-based franchise if:
- You're self-disciplined enough to remain focused on the business amid the distractions of your home. To succeed, you'll have to shut out diversions that might cause you to procrastinate or lose focus when you should be working.
- You can create a physical space where you can work on your business. Whether it's a spare bedroom or the basement, you'll need to set aside an area where you can keep organized and convey a professional demeanor during a telephone call or video chat.
- You can motivate and push yourself. While you'll gain flexibility, you'll only be accountable to yourself for how productive you are during working hours.
- You can find sources of inspiration outside of a traditional workplace. You'll have to investigate new ways to help you remain creative and inspired if you're tethered to your desk for most of your workday.
- You recognize you can't do it all. Even though you may be tempted to fulfill every role in your organizational flowchart, you know when to hire specialists for expertise or employees to share the workload.
- You understand the value of networking. Being out of the physical workplace means you'll have to work harder to make personal connections to generate new leads and break into new markets.
Industry Snapshot*:Minimum Cash Required: $ 3,995
Average Cash Required: $ 45,282
*Based on January 2017 listings at FranchiseOpportunities.com