Traditionally, when you think about starting an accounting business, you envision building the business from scratch and all that entails—doing market research, financing your startup, differentiating your business in the marketplace, etc. But there’s another option you may not have considered: buying a proven concept of accounting franchises.
There are a number of accounting franchises available, some of which you may have heard of and some you likely haven’t. The decision to start an accounting business on your own or with the support of a franchise system depends on what kind of operation and lifestyle you want to have.
Let me explain further:
As a franchisee for one of the accounting franchises, you pay an initial fee to buy into the system, plus ongoing royalties to a franchisor during the operation of your franchise. In return, you get the right to the use of the franchise’s trademark, ongoing support from the franchisor, and the right to use its proven operational system plus any products or services specific to that franchise. For example, as one of the system’s accounting franchises, you’d most likely be supplied with proprietary software, marketing assistance, ad templates, and more.
Starting from scratch means going about all of that on your own, which is harder but also gives you more freedom. In this post, we’ll look at the pros and cons of buying an accounting franchise.
Pros of Accounting Franchises
According to the Franchise Business Economic Outlook for 2018, the franchise sector grew faster than the overall economy in 2017 and is set to do so again in 2018. The number of franchise establishments increased 1.6 percent in 2017 and is expected to increase another 1.9 percent in 2018 to 759,000. In addition, franchise employment is forecast to grow 3.7 percent in 2018 and employment in the franchise industry as a whole will continue to outpace economy-wide employment growth. Finally,the economic output from franchise businesses is estimated to increase by 6.2 percent in 2018.
Buying an accounting franchise doesn’t mean you’ll achieve instant business success right immediately. But it can give you a significant head start in terms of the following:
Location: A good franchise company will have already researched market trends and demographics to find potential new locations, which increases your odds of success. Market research is one of the most important tasks a new entrepreneur must do, and buying an accounting franchise in an area with potential for growth can give you an edge that an independent startup doesn’t have. A franchisor may also be able to give you information on your competition in the area and building lease costs.
Financing: While independent small business owners must find their own resources for startup funds (such as family and friends, bank financing, crowdsourcing), franchisees frequently reap the benefits of in-house financing from the franchisor and access to third-party financing from partner resources. Financing helps with startup costs, equipment, inventory, accounts receivable, and payroll.
Proven operational systems: New business owners often make a ton of mistakes during the startup phase. However, as the owner of an accounting franchise, all the kinks have been worked out for you. Daily routine operations have been fine-tuned so you’re getting a proven operating system and the training to keep it running smoothly. Even though you have the skills to be an excellent accountant, you may lack the skills to actually run an office, such as managing human resource issues, obtaining business licenses, and more. Investing in an accounting franchise offers you support in areas you may be weak in.
Brand recognition: No matter how well known you are in your community, as a franchisee you’ll benefit from hanging out your shingle with a recognizable brand name with years of a solid reputation behind the name. For consumers seeking out accounting services, the power of a brand name can help you attract clients you might never have attracted otherwise.
Strength in numbers: Being a part of a franchise system also means you have the power of the franchisor behind you when you’re negotiating terms with partner businesses, buying materials and supplies and more. Other businesses are more likely to trust you as a new business owner when you have a well-known brand name behind you.
Are Accounting Franchises Worth It?
You started your business in order to be your own boss. By buying a franchise, are you giving up control? Not altogether, but you may find some of the rules and restrictions of being a franchisee a drawback.
Fees: First, although most franchises offer help with financing, the fees involved in buying into the system can be hefty. In Item 7 of the Franchise Disclosure Document (FDD) required by federal and state franchise law‚ states franchisors must disclose the initial investment amount to potential franchisees. The initial investment could be $10,000, $80,000 or more depending on the franchisor, but the amount stated must include:
- The initial franchise fee;
- Training expenses;
- Real property whether purchased or leased;
- Equipment‚ fixtures‚ construction‚ and decorating costs‚ whether purchased or leased;
- Initial inventory;
- Security deposits‚ business licenses‚ and other prepaid expenses; and
- Additional funds required by the franchisee before operations begin and during the initial phase of the franchise business.
In addition, you can expect to pay ongoing franchise fees, an ongoing royalty fee, and an ad royalty fee. Most likely the franchisor will also have minimum requirements for net worth and liquid cash. All of this can be a huge detriment for startup entrepreneurs considering going the franchise route.
Restrictions: If you don’t think you can follow the accounting franchise’s rules, think twice about buying a franchise. Most franchises have strict rules on everything from how customers are greeted to how and where you can publicize your business. If you’re the type to want to forge your own path and make your own decisions, franchising might not be the best route for you.
Do Your Homework
The franchise option is worth investigating if you think you’d like the support and guidance accounting franchises provide. Here are some resources to help:
- International Franchise Association (IFA) Start here with your franchise research. The IFA reports the latest news in franchising, holds events around the country, and provides information on over 1,200 franchises in its online directory. Check out the IFA’s special programs for veteran, women and minority franchisees.
- The Franchise King Joel Libava is a franchise guru, advisor and author of Become a Franchise Owner!: The Start-Up Guide to Lowering Risk, Making Money, and Owning What you Libava also has a website with information about franchising, including a blog, and a franchise quiz to help you determine if franchising is the right path for you.
- Franchisedirect.com Franchises are categorized by industry and by business type on this directory site; you can click directly from FranchiseDirect to request more information.
- SBA’s Introduction to Franchising This self-paced training exercise from the Small Business Administration (SBA) presents an overview of franchising, as well as how to determine if franchising is right for you, and how to choose the right one.
You can’t build a business overnight, so take the time to investigate if investing in accounting franchises are a good fit for you.