Posted: March 31, 2011

The franchise decision: home-based or brick & mortar?

Here are some pros and cons

By Ruth Garcia

Franchising offers prospective business owners a wealth of opportunity and a multitude of business models. Franchise opportunities can be traditional store-front and brick & mortar, such as hair salons, spas, doggie day care, and restaurants.

Other business models include mobile businesses such as dog-grooming services and auto repair as well as home-based businesses which can be found in many industries such as repair & maintenance, senior in-home care, child education and pet care.

With such a wide range of business models and franchised industries, which one do you pick? To help you answer this question, here are some pros and cons for brick & mortar and home-based business models:

Home-based:

- Home-based franchises offer the owner a very scalable business model. Initial investment is lower than with a brick and mortar business, as there is no need for a physical location, build-out, permits, lease and such.

- Another advantage of a home-based franchise is the fact that the owner needs to hire staff only as clients increase. Often, the first staff members are independent contractors or hourly employees, making payroll and benefits minimal if not redundant. Therefore, fixed costs should be lower with a home-based business - there is no need to staff a location or store no matter whether clients are walking in the door or not.

- While it is important to diligently research the territory proposed by the franchisor in order to make sure it has a good amount of potential clients and referral sources, a home-based franchise is not tied to a single location. Working out of your home enables the franchisee to meet clients at their location as long as they are within the assigned territory.

- When investing into a home-based franchise, the owner can be operational within a couple of weeks after signing the franchise agreement. Once you have attended training, ordered your marketing supplies and set up your home office, you are ready to get started.

- Owning a home-based franchise, however, requires the owner to be actively involved in the business with key responsibilities being sales, marketing, business development, client meetings & consultations and staff training and support. If you are looking for a part-time opportunity, a homed-based business will most often not be a good fit for you. Once the business has been established, some franchisors allow the franchisee to take on a more consultative role in the business, with key employees running the business on a day to day basis; however, it will take a couple of years to build a business to that level before being able to step away.

Brick and Mortar:

- Brick and mortar franchises provide immediate exposure to potential clients due to its signage and location, assisting in the overall marketing of the business.

- In addition, brick and mortar franchises provide great opportunity to owners who are looking for a semi-passive or passive ownership, meaning that the franchise does not replace the owner's current job or activity, but rather works like an investment.

- For most brick and mortar franchises, the owner hires a manager who has industry experience to run the day to day operations of the business, freeing up the owners time to continue with their current job and work on some marketing for the franchise.

- The option of investing into multiple locations help the owners become more efficient as economies of scale kick in for marketing efforts, inventory and staffing.

- However, brick and mortar franchises require significant amounts of investment due to the high up-front costs of lease, build-out, signage, FF&E and working capital required.

- In addition, the lead-time from signing the franchise agreement to being open for business can be significant. Location search, lease negotiation, build out and training can take anything from 3 to 12 months or more.

- And don't forget - location, location, location! Finding the right location for the short and medium-term is often challenging and as market demographics change, so might the success of your business.

Make sure you think about your objectives when looking at franchise opportunities, and consider the pros and cons of the various business models available prior to committing to a franchise.
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