How To Buy A Work At Home Franchise (Complete With Pictures)

How To Buy A Work At Home Franchise - If you're thinking about starting a home-based business, a franchise can provide you the benefits of a ready-made system of operations and an established reputation. However, those benefits do come with significant conditions and restrictions that you'll want to thoroughly evaluate before you make a decision. Once you've made up your mind, buying a work-at-home franchise is as simple as signing the agreement and paying the franchise fee – but first you'll want to set up a separate business entity and have all your licenses and permits in place.

Table Of Content

1. Finding an Opportunity
2. Evaluating the Contract
3. Making the Deal

Finding an Opportunity

Evaluate your own strengths and weaknesses. To choose a work-at-home franchise opportunity that's right for you, assess your own business background, education, and experience objectively.

For your franchise to succeed, you'll also need to have more than a passing familiarity with the industry in which the franchise operates.

For example, if you want to buy a work-at-home franchise in direct sales, you'll face a lot of challenges if you've never worked as a salesperson.

If your business will be primarily online, you'll need to have at least a working understanding of computers, the internet, and the basic applications on your computer. Depending on how the business is set up, you may need additional technical knowledge or experience, such as the ability to do some basic coding.

Avoid any delusions about a franchise as opposed to other small businesses. While you'll be your own boss in terms of evaluating and controlling your daily performance, the standards and practices of operating a franchise typically are dictated by the franchisor.

While this can benefit you if you have little experience or interest in creating your own systems, it can be frustrating if you already have your own way of doing things or have a hard time following rules that may at times seem arbitrary to you.

Talk to active work-at-home franchisees. Having an open conversation with others who have already started a work-at-home franchise can give you an idea of the challenges you might face and whether a particular franchise is a good fit for you.

One of your first steps when you start shopping for a work-at-home franchise should be talking to people who are currently operating one, or have tried it in the past.

At this stage, it doesn't matter if the people with whom you talk bought the same franchise you end up buying. You're more interested in the big picture – their experiences and any problems they've had.

Ideally, find someone who is willing to be open and honest with you about their business and what did (or didn't) work for them. Even though they may have different strengths and weaknesses than you do, you still can learn from their experiences.

Attend a franchise exposition. Franchise expositions give you the opportunity to check out and talk to many different franchise systems, including work-at-home franchises, without making any sort of commitment.

If you're not able to attend an exposition, you can also buy a franchise opportunities handbook, or check one out from your local library to find work-at-home franchises that interest you.

Many franchise systems have a wealth of information about their opportunities available online, and you also can read articles on business and entrepreneurial websites.

Beyond information provided directly by the company, you can find reliable information on government websites such as those operated by the Federal Trade Commission and the Small Business Association.

Consider hiring a broker. Franchise brokers may also advertise themselves as business consultants or advisors. They can review your finances and background and help you select the best work-at-home franchise that will maximize your skills and give you the best chance of meeting your goals.

If you decide to talk to a franchise broker, make sure they fully explain what they can do for you and that you understand what their fees are. You also may want to check their reputation with the Better Business Bureau or other trade organizations.

You also may want to work with an accountant or attorney who can help guide you through the process of buying a franchise and explain the contracts to you.

Evaluating the Contract

Calculate the costs. By far the largest expense in buying a work-at-home franchise will be the up-front licensing fee, which can run into the low five-figure range. Beyond that, you'll have additional start-up costs for equipment and supplies.

Less expensive franchises typically fall into the product or trade name category, in which you are solely buying the right to use that companies trademarked name and services or products.

Business format franchises usually are on the higher end of the franchise-fee scale, and also exhibit far more control over your business methods and operations.

Whichever type of franchise you've chosen, be aware that there may be regular royalty fees in addition to the initial franchise fee. These royalties typically are based on a percentage of your sales, and can cut into your profits.

You also may be required to contribute to an advertising fund, and this advertising may be designed to recruit new franchisees or to promote the brand nationally – not to draw customers to your specific franchise.

As a home-based business, you'll have very little overhead – you were already paying your house payment, utilities, and other expenses associated with your home.

However, there may be additional expenses for office supplies or product inventory that you need to factor in to your start-up costs.

When calculating your start-up costs, include several months of such expenses – it may be that long before you start realizing any profit.

Read the agreement and disclosure document carefully. The franchisor is required by federal law to provide you with a full copy of the franchise agreement and a franchise disclosure document at least 14 days before you sign or pay any fees.

Keep in mind that the contract typically will be drafted to benefit the franchisor more than it benefits you, and may include conditions or restrictions with which you're not comfortable.

At the same time, you typically won't be able to negotiate any changes to the franchise agreement – if you don't agree with it, you have the choice not to sign it.

The disclosure document includes information about the franchise system, with details about its structure and the professional and legal background of its executives.

Read both the franchise agreement and the disclosure document at least three times so you know them backwards and forwards, and jot down notes if you see anything that you want to know more about.

Talk to a franchise system executive. Once you've reviewed the paperwork, arrange a meeting with someone – either in person or over the phone – so you can ask detailed questions about the background of the company and day-to-day franchise operations.

Before you decide to invest in a franchise, you need to know how long it's been in business, how many franchise outlets currently exist, and where they're located. If this information is not included in the disclosure document, you should be able to get it from someone with the franchisor.

Find out exactly what sort of controls the franchisor imposes, and how much ongoing assistance they provide once you've bought the franchise.

If the franchisor has given you any sort of income projections or promised specific profit levels, they should be prepared to substantiate those claims.

Do your own research. Beyond the disclosure document, perform your own independent investigation of the company's reputation and the market for the products or services it provides. You also want to try to talk to several current or former franchisees.

Keep in mind that any information provided by the franchisor typically will be skewed in their favor. They are at least partially in the business of selling franchises, so they're not going to give you information that might give you pause or dissuade you from making the purchase.

If you're given any names and contact information of current franchisees, they typically will be people who've already been vetted by the franchisor and have enjoyed extraordinary success.

While it can be beneficial to talk to them, it's also important to talk to people who haven't been quite so successful, or even have failed to make any money after buying a franchise.

Check out the franchisor's reputation among franchisees by looking them up at the Better Business Bureau and other business organizations.

You also should consider having an attorney review the offer, including the franchise agreement and the disclosure document. Be prepared to pay around a thousand dollars for an attorney's appraisal of the deal.

Making the Deal

Choose a fictitious name. Typically before you start your work-at-home franchise you'll want to create a separate name for your business, also known as a "DBA" for "doing business as," and register that name with your state.

As a franchisee, you won't be able to use the name of the franchise as your business name, so you'll have to find another name under which your business will operate.

It's typically a good idea to choose a name that's somewhat descriptive of the services or products you'll be offering through your work-at-home franchise, since the name of your business is the name that will show up on your customers' bank or credit card statements.

The secretary of state in your state typically will have a DBA database online that you can search to ensure the name you've chosen isn't already being used by someone else.

If you plan to form an LLC or other business entity, make sure that form of the name you've chosen is also available. For example, if you plan to do business as "Cathy's Cleaning," you also want to check "Cathy's Cleaning LLC" or "Cathy's Cleaning, Inc." depending on what sort of business entity you plan to form.

Once you've found a unique name, you can register it with the secretary of state for a small fee.

Consider creating an LLC. If you operate your business as a sole proprietorship, you are putting your personal assets at risk. While forming a corporation can be more expensive and complicated, an LLC is a simpler way to protect yourself from personal liability for business losses.

The Articles of Organization is the document that forms an LLC. You must create this document and file it with your state.

Different states have different requirements regarding what must be included in this document. You can easily find forms online, or you may want to hire an attorney to draft them for you.

When you submit your documents to the state, you'll have to pay a filing fee, typically around $100. In contrast, it can cost several hundred or even over a thousand dollars to incorporate.

If you've already registered a DBA, you will simply add "LLC" to that name.

Apply for an employer identification number (EIN). Even if you don't plan on having any employees at your work-at-home franchise, you still need to obtain an EIN for your business, especially if you have created an LLC.

Even if you're operating your business as a sole proprietorship, you typically will need an EIN if you want to open separate bank accounts for your business. Your state also may require you to get a separate EIN to get a business license or register with the state to collect sales tax.

You can apply for an EIN on the IRS's website free of charge. While you also can apply for an EIN by submitting a form using mail or fax, the online application is far more simpler and you'll get your EIN immediately.

The online application is in an interview-style format. You simply answer questions about yourself and your business.

You can apply for an EIN online anytime Monday through Friday from 7 a.m. to 10 p.m. Eastern time.

Once you've gotten your EIN, you can open separate bank accounts for your business to keep the finances separate.

Sign the franchise agreement. Sign the agreement on behalf of your business entity and pay the franchise fee using funds from your business bank account to maintain the separation between your business and personal finances.

Use your business's EIN on all documents where necessary, and put your title in the LLC under your name when you sign.

If you plan to operate your business as a sole proprietorship, you still should get an EIN and separate bank account for your business.

After you've signed all the necessary agreements, make sure you have several copies for your own records.

Apply for permits or licenses. Depending on the type of work-at-home franchise you've bought, you may need permits or licenses from your state or local government before you can start operating your business.

The licenses and permits you'll need depend on the type of business you will be operating. At a minimum, you typically need to register with the state for tax purposes.

You also may need to apply for a general business license. There is an annual fee associated with this license, and it essentially gives you the right to conduct business in your state.

Since you have a work-at-home franchise, you may need to get permission from your local zoning board, or apply for a home occupation permit.

Complete any training or inspections. Some franchisors require extensive training in their methods of operation before franchisees can start doing business, and may also want to inspect your location to make sure everything is set up according to their standards.

Some franchisors require in-person training, while others make the training available online to be completed at your own pace.

If you know in advance you'll have to complete several weeks of training before you can officially open your franchise, you can also use that time to apply for the licenses or permits you'll need.

There typically won't be any extensive inspection by the franchisor for work-at-home franchises, but if the bulk of your operations will be taking place online, the franchisor may want to look at your website and test the security you have in place there.