More people are cashing in their retirement savings to open up a franchise business, according to consultant Frank Dunne, with more than half of clients he has placed this year tapping such funds.
Dunne, a strategic franchise advisor in the Hudson Valley for FranNet, said most people probably have a similar thought when thinking about a franchise business, but the type of offerings is much broader.
“The first thing I think people think of is McDonald’s and Dunkin Donuts and that kind of thing,” Dunne said. “Really, those types of franchises only represent 6 percent of the entire franchise pie.”
As the economy continues to recover, Dunne said he is seeing more people not only tapping their savings to open a franchise, but also being semi-absentee owners. This allows the franchise business owner to keep their 9-to-5 job while also managing their own business.
“Most of the semi-absentee opportunities tend to be retail in nature because they all have a fairly common template,” Dunne said.
FranNet, which offers franchise consulting services nationally, also says the odds for success are greater through opening a franchise rather than starting a business from scratch.
The company conducted a five-year study starting in 2006, which revealed approximately 92 percent of its franchise placements were open two years later. This compares to around 62 percent of small business ventures continuing operations after two years, according to U.S. Census Bureau studies. After five years, its franchisees saw 85 percent still in business, opposed to 50 percent of small businesses, according to FranNet.
“Franchising has long enjoyed a reputation of being successful because of its systems,” Dunne said. “You are mitigating the risk because you are following the franchisee’s system.”
New York state, though, does lag behind developing franchises compared to some other states, Dunne said. He pointed to one larger-scale franchise owner in the area that recently opened 20 Menchie’s Frozen Yogurt locations.
The demographics of people looking towards opening a franchise are also changing from the budding entrepreneurs to individuals looking towards a new career. Sometimes this change comes after being laid off and not being able to find a job, Dunne said.
“There was time when the majority of people who sat in our workshops were aspiring entrepreneurs … but the majority of the people we see now are in career transitions,” he said. “The job market is not what it used to be, and there are really a great many of people that don’t have the same opportunities that were available to them a few years ago.”
About one third of franchises require a $100,000 investment, Dunne said, either through a loan or personal capital. According to Dunne, there is a way to craft a “funding cocktail” through using retirement funds, Small Business Association loans and private funding.
Using retirement funds to open a franchise business without accruing any penalties can be done, Dunne said, but it is “quite technical” in nature. He said the company works with “firms that have a pretty good defense record.”
Dunne is moderating a franchise ownership forum the morning of Wednesday, Dec. 4, at the Albany Chamber of Commerce. The forum is being hosted by the state Small Business Development Center.