The best home-based franchises - excerpt from 'The Best Home-Based Franchises' - includes glossary and related article on franchise fraud - Buyers Guide

Home Office Computing, Dec, 1993 by Gregory Matusky

While the idea of buying a franchise is nothing new, launching one from home is something you may not have considered. No, you can't run a Jiffy, Lube or a McDonald's from the spare bedroom, but there are hundreds of franchises that make ideal home-based business opportunities. The following is an excerpt from The Best Home-Based Franchises by Gregory Matusky (Doubleday), a franchise industry expert. To select potential candidates for inclusion in the book, Matusky began his search nearly three years ago. First, he developed a questionnaire that was distributed to 300 franchises. He consulted publishers, directories, and members of the International Franchise Association to substantiate the responses. Next, he interviewed hundreds of trade specialists and attorneys to compile his list of 97 home-based franchises. Then, at the request of HOME OFFICE COMPUTING, Matusky narrowed his original roster even further. He handpicked 25 of the best opportunities specfically for our readers-based on information obtained from subscriber surveys, his personal knowledge of the industry, and the financial health of the franchises. He are his top picks chosen with HOC readers' needs in mind.

Among the advantages to home-based franchising, the first is that the business approach provides minimal risk. In a well-managed system, invaluable know-how is handed down to franchisees. It's a process whereby experienced franchisors communicate their knowledge of building a profitable enterprise. And unlike home-based entrepreneurs, franchisees feel less isolated.

Henry and Paula Feldman, for example, spent a lifetime living apart. As a sales rep in women's apparel, Henry found himself on the road for weeks, even months. When the couple began investigating opportunities, their goal was to find a business that would keep them at home. Then they hit on Money Mailer Inc., a home-based direct-mail franchise that allows Henry's sales expertise to shine. At first, the Feldmans started with nothing more than a table and a telephone. Five years later, however, they own 15 territories, their office is filled with state-of-the-art equipment, and they grossed more than $600,000 in 1991. "The real value of being in a franchise is that the systems are in place," says Henry. "You don't have to develop them yourself. Just be willing to work hard, listen, and learn. There's no greater magic than that."

The ABCs of Franchising

Before you plunge into franchising, there are a few basics you should know. In general, franchisees purchase a replica of the franchisor's company and agree to follow preset operating specifications.

Franchisors sell the rights to use their trademarks, trade names, and methods for running a successful operation. Well-managed operations provide a host of services--new product research and development; national, retail, and wholesale account marketing; lead generation; PR; advertising programs; management training and consultation; profitability reviews and financial evaluations; new sales and marketing initiatives; and more.

In return, the franchisee pays an initial fiat fee as well as ongoing payments. The initial fee--ranging from $1,000 to $140,000--grants the franchisee the right to open the business and learn the franchisor's trade secrets and operating procedures. Then, once the business is established, franchisees pay monthly fees (or royalties); based on a percentage of gross revenues of the business--anywhere from 1 to 15 percent of gross sales.

Gross is the operative word. Royalties, which are not based on net earnings, can be substantial. For instance, if you own a franchise that grosses $200,000 a year in revenue and you're required to pay a 5 or 6 percent royalty, you'll be shelling out $10,000 to $12,000 annually to the franchisor. Ongoing fees should seriously factor into your business plans as you browse the following opportunities.

25 HOME-BASED OPPORTUNITIES

Business Services

Comprehensive Business Services

Company description: Comprehensive Business Services franchisees serve the role of all-around financial consultant, relieving small businesses of recordkeeping, business analysis, tax preparation, and payroll.

Benefits: The 25-year-old company has built their reputation around accurate recordkeeping.

Franchise fee: $25,000

Total initial investment: $30,000 to $50,000

Financing available: Yes

Royalty/advertising fees: 6 percent/2 percent

Phone: (619) 431-2150, (800) 323-900

Contact: Robert Anderson or Kathy MacLeod

Business startup/franchised: 1948/1965

Number of units: 230

General Business Services (GBS) Company description: GBS franchisees offer tax, business, and financial consulting to business owners who don't have the time to manage these concerns. Benefits: GBS is the nation's leading organization of business counselors. It brings 31 years of experience to its franchisees and customers.

Franchise fee: $25,000

Total initial investment: $30,000 to $40,000

Financing available: No

Royalty/advertising fees: A sliding scale from 2 1/2 to 10 percent/none