Franchising is a solid option for people who are looking to better prepare for retirement. Here's what you need to know before making this decision.
Many of us are back to work after our summer holidays, back in the rhythm of work and kids' school schedules. Although the return to our usual routine might have us feeling energized and ready to take on our big goals for the second half of the year, planning for retirement is probably not on the list of immediate to-do's. That's a problem, because Americans are facing a pending retirement crisis that will soon impact millions.
Current data from the Center of Retirement Research at Boston College indicates that the majority of Americans are grossly underfunded for retirement. The bottom line is that half of American households don't have a 401(k) or IRA account, and those that do have balances far short of the $1 million-plus that most financial experts agree will be required to fund retirement costs for the average 65-year-old.
Some are betting on the safety net of Social Security, but with an average monthly benefit of just over $1,000 a month, that won't go very far. The harsh reality that many people will soon be grappling with is that they will have to continue working full time and put off retirement for a decade or more. For workers approaching retirement age (and many younger workers as well), the dream of a long, enjoyable retirement may be just that – a dream.
One possible solution is franchising. Franchising has provided millions of people with a "shortcut" to business ownership and an opportunity to generate a living income while also building long-term equity in a business they own.
I have been researching the franchise industry for the past 15 years, and I believe that franchising could be the solution for many people who are facing an uncertain retirement. Here are five compelling reasons why.
1. A proven playbook
The vast majority of wealthy people in America are business owners, not employees. While many people dream of owning their own business, most never do. In studies of small business and entrepreneurship by the Kauffman Foundation and other organizations, fear of failure is the No. 1 roadblock to business ownership.
Franchising addresses this challenge head-on by providing potential business owners a proven playbook in the form of established business methods and strategies with a documented operations manual.
A good franchise company will provide all the training, support and business coaching you need to be successful. While your ultimate success with the business will be largely up to your own efforts and hard work, franchise companies provide the resources and guardrails to help you achieve your goals.
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2. Skin in the game
Franchising is based on a licensing business model. As a franchisee, you are granted the rights to use the brand name and business systems of the franchise company. In exchange, you will typically pay the franchise company royalty fees and advertising fees of 5% to 10%.
While you certainly don't own the franchise brand name and business systems, you do own the business assets. This allows you to build equity in your business, which you can ultimately sell for a profit. When you explore franchise opportunities, it is important to research not only the short-term income potential of the business, but also its long-term equity potential.
3. Bank-friendly financing
Banks love making low-risk loans, and many bankers view established franchise companies very favorably. Given the current economic conditions, obtaining a small business loan for a known entity like a franchise business can be quite simple.
Many reputable franchise companies are pre-registered with the Small Business Association, so the franchise can help you receive fast-tracked loans through SBA lenders in your area.
4. A stable economy
While there has been much talk lately from economic pundits about a possible downturn in the economy, the U.S. Bureau of Economic Analysis reports solid consumer spending and increasing disposable income.
A stable economy and strong consumer spending bodes well for franchises and helps new franchisees ramp up their businesses faster. Historically, many franchise businesses have performed well even during a recession, especially those in sectors related to child services, senior care, health and fitness, and low-cost food concepts.
5. Job security
Late-career folks are typically the first to be laid off when a downturn occurs and businesses tighten their spending. There is nothing better for your own job security than owning a business. While owning a franchise business isn't without its challenges, as the owner of the business, you don't have to worry about being let go.
In fact, 88% of franchise owners indicate that they enjoy operating their business, according to Franchise Business Review research. Contrast that with The Conference Board findings that just 51% of employees are satisfied at work.
How to get started in franchising
If franchising sounds like an appealing avenue to owning your own business and building long-term equity, there are several options to consider in nearly every sector and at almost every price point. But before you start shopping for a franchise, you'll want to do your due diligence so you fully understand what it means to own and operate a franchise – and to determine the best model and franchise opportunities for you.
A common misconception is that franchising is easy, since the business model and systems have already been established. This is far from the truth.
As a franchisee, you can expect to work long hours, especially during the first couple of years when you are getting your business off the ground. During this time, you'll be introducing your business to your market and building your customer base. Because you should expect to dedicate lots of time and energy to your business, make sure you pick a product or service you are passionate about; you don't want to burn out after year one. Look for a concept that is missing in your community and that you are excited to introduce to your city or town.
You also want to make sure you're investing in a franchise system that is healthy and has the potential to deliver a profit. To determine the health of the system you are considering, you should carefully review the franchise disclosure document (FDD), speak to current franchise owners who can offer their candid opinions on and experience with the brand, review satisfaction reports, and ask lots of questions of the franchise brands you are interested in.
The FDD will be an important research tool for you as you dig into opportunities. This document lists valuable information, including financials, data on number of units open and closed, lawsuits filed against the brand, and current franchisee names. Once you are serious about a franchise, it is advisable to carefully review the FDD with an experienced franchise attorney.
Hedging your bets on retirement
If you're one of the many Americans worried that you may be underfunded for retirement, franchise ownership may be the answer. Certainly, owning and operating a business isn't for everyone, and not all franchise companies are created equal, but owning a franchise business might just be a good solution to achieve your long-term retirement goals.
If you're interested in franchising, the first step is to learn more about the franchise business model and the different concepts available. With thousands of franchise opportunities currently for sale, it's important to do your research and talk to current owners who can give you an honest review of what it's like to own a franchise and a particular brand.