Hot franchises you can run from your home - understanding the advantages and disadvantages of a home-based franchise - includes related article on tips for buying a home-based franchise - Cover Story

Black Enterprise, Sept, 1993 by Adrienne S. Harris

Can you really make money in a home-based franchise? Yes--if you understand the limitations before you dive in.

IF YOU'VE BEEN SERIOUSLY CONSIDERING going into business for yourself, you've probably heard more bad news than good. Your attorney, banker, best friend and spouse no doubt have all warned you that most small businesses die painful, early deaths. They're right. According to the U.S. Small Business Administration, 63% of businesses never make it to their sixth year. Most fail because their owners don't have enough money and/or know-how to operate them effectively.

But what if you could own a business that, by design, avoids these problems? What if you didn't need as much start-up money? And what if, after you got started, you could follow a proven plan that would help ensure your success?

Well, finally, some good news. A home-based franchise can give you just that.

In essence, home-based franchises offer you certain critical advantages by combining the best features of home-based businesses and franchised businesses. First, by operating from your home, you won't need an outside office, warehouse or retail space, an expense that can gobble up the lion's share of start-up business capital. Whereas it requires a total investment of $150,000 to start the average franchised business, the average home-based franchise can be launched for less than $50,000; many can be started for as little as $10,000. Second, by operating a business as a franchise, you don't have to be an "expert" in all aspects of business operations. You simply adhere to the franchisor's proven format.

Today, more than a half-million franchised businesses account for $813.4 billion in annual revenues, or 35% of retail sales. Home-based franchises started coming into their own in the 1980s, riding the wave of technological advances that made personal computers and fax machines as accessible as telephones and economic changes that created more demand for service-oriented firms. "We're seeing a lot more businesses that can be operated from the home and a lot more franchisors that consider that a viable option," says Michael H. Baum, executive vice president of Francorp Inc., a franchise development company based in Olympia Fields, Ill. A recent survey conducted by DePaul University for Francorp indicates that home-based franchises account for almost 13% of all franchised businesses.

In addition to making it easier to get started in and stay in business, home-based franchises offer entrepreneurs flexibility and convenience. Gone are long commutes to work. Irrelevant are office politics. Unnecessary are formal requests for personal days off. But as perfect as home-based franchises might seem, experts warn that they are no panacea for business problems and are not an easy way to get rich quick.

For one thing, home-based franchising isn't for everyone. Ideal candidates should love saes and be self-motivated, able to work alone, committed, disciplined and willing to follow the franchisor's plan. Surprisingly, former corporate executives, although they are likely to have both the business expertise and money to invest, aren't necessarily the best candidates for a home-based franchise. "It's not so much adjusting to franchising; it's adjusting to small business," says Baum. "If someone's been working for a large corporation, he or she may not know what it means to wear multiple hats, change schedules at a moment's notice and have no staff to fall back on. In a small business, the owner is everything."

Because the owner is everything, another drawback of home-based franchises can be limited income potential. "A home-based franchise is a great way to learn how to start a business, but most people will outgrow them. That's the risk of any franchise," says Susan P. Kezios, president of Women in Franchising Inc., a Chicago-based association of current an prospective franchise owners. She compares home-based franchises to "starter homes," and suggests that as the franchisee's business savvy increases, he or she will want to graduate to owning more than one outlet, or selling a profitable home-based franchise to buy a larger business.

But, to get to that point, you have to get started. And for many would-be entrepreneurs, home-based franchises can be a step in the right direction. Following are profiles of three people who took that shot. These African-Americans acquired home-based franchises in three of the most popular areas: business services, personal services and home improvement. Their stories represent both the potential and the limitations of home-based franchising

SANDLER SYSTEMS INC., Stevenson, Md. Type of business: Sales and sales management training. Start-up costs: $33,300 to $37,900. Royalties: $908 monthly service fee, plys $1,500 each quarter for sales instructional materials after the first 12 months. Financing: None. Phone: 410-653-1993.

All Fred Huyghue really wanted to do that Sunday afternoon in May 1992 was camp out in front of the television set and watch his hometown Boston Celtics play the Cleveland Cavaliers. "But life brings your whatever you need," says Huyghue, 52, a former marketing executive for IBM and Digital Equipment Corp. Instead, he ventured out to a business expo where he discovered Sandler Systems Inc., a sales and sales-management training company that was recruiting new franchisees.