Should Franchising be a Part of Your Retirement Plan?

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When it comes to income after 50 or after retirement, there are plenty of options available. Will you work for another? Do you start a business? Do you rely on investments, savings, and social security? Even passive income offers opportunity, as shared in my previous article, Should Real Estate Investment be a Part of Your Retirement Plan?

While passive income is the dream we all aspire to, the truth is many over 50, or already in retirement, do not have enough saved or invested to rely on passive income. Therefore, many Boomers and GenX-ers will need to find employment of some form into their 60s or 70s in order to maintain a needed source of income. Which appeals most to you?

• Going back to work
• Entrepreneurship
• Franchising

Franchising as an Income Stream?

I never considered franchising until a recent conversation with Ron Bender, franchise advisor and owner of Future Focus Franchise. He is quite enthusiastic about franchising potential for those over 50 and adds, “Franchising is a wonderful idea for those over 50; however it’s not ideal for everyone.”

Age as an Asset

Being over 50 has huge advantages. Baby Boomers and many GenX-ers have life experience, maturity, and are comfortable in their own skin; all personal assets to bring to a franchise.

Are you a franchise candidate?

Whether you choose to pursue entrepreneurship or franchising, there are three huge factors to consider:

• Level of responsibility
• Risk tolerance
• Tasks of the owner

And with all three, your personality will dictate your options. Here are points to consider:

• If you prefer to explore new ideas and creative pursuits, franchising is NOT the best option for you.
• If you want to “do it” your way, then franchising is NOT a great option.
• How much risk and responsibility will you and your spouse/significant other tolerate?
• If you desire to own a business but have a relatively low risk tolerance, franchising may be a great option for you.
• Franchisees will have a system to follow, pre-established by the franchise.
• Most franchisees do not need franchise or industry experience.
• The personality of the individual candidate is what determines the best franchise business types.
• Many amazing options exist in the franchise world.

The role of a franchise advisor

Are you curious to learn more? Then you may wish to speak with a franchise advisor. When Ron works with potential franchise candidates, he begins with education. This starts with explaining the franchise business model.

Franchise systems vary by franchise: some have a wide business model (guard rails to keep you on the road to success!), allowing the business owner to make more decisions, to have more control on how to build the business and gain customers. Many franchises with a wide guard rail fall into the consumer and business service brands—AlphaGraphics and Green Home Solutions. 

Other franchise models, such as the hotel and food service brands, have a narrower business model, expecting owners to closely follow a well-established business plan.

Based on a franchisee’s personality, risk tolerance, attitude, and strengths, Ron helps an individual determine the optimal width of their guard rails. For instance, if a potential franchisee (and her/his spouse) has a low risk tolerance or doesn’t want to be involved full-time; the risk is often buffered by narrower guard rails.

Financing a Franchise

Now for the money. As with everything else, you must have money to start your franchise. According to Ron, a minimum $40K startup contribution is typical.

Personal funds: one option is to self-fund through a combination of savings, investments, or retirement funds. A benefit for self-funding is the business can begin faster than awaiting a lender’s approval. The downside is a higher risk to your personal finances and future retirement needs. If you choose to use retirement funds, there is a program called ‘ROBS’, Rollover for Business Startup, which eliminates the tax penalties, but has quite a bit of corporate structure and reporting requirements.

Banking loans: work with a direct business lender, usually a bank, to apply for an SBA loan, a conventional business loan or a personal loan. Benefits are less upfront risk to your own capital and investments. A borrower must invest a minimum of 20% of the total investment, possibly more depending on the business concept they are funding. Expect loan application fees with possible discounts for retired military members. A business plan with a 3-year projection will be required.

Loan brokers: this specialist will help you prepare or ‘package’ your loan application and submit it to many different lenders. This gives you the best chance of success but has additional ‘packaging fees’ for the broker’s assistance, again with discounts for veterans.

Franchise funding: there are several of financing available for franchisees, and having a grasp of your finances expands the opportunity. Here are additional things to know:

If you choose to borrow, shop several different lenders or loan brokers to compare fees. Ask questions:

• “How many franchise loans did you do last year?” If few, seek out another lender.
• Ask your franchisor if they have had successful fundings with specific lenders or loan brokers.
• Inquire if the franchisor is on the SBA Franchise Registry as this could streamline your application and approval process.

Lenders and franchisors are not allowed to help in preparing your business plan, but loan brokers can. If you are considering a franchise, ask existing franchisees if they would share their own startup business plan and assist you in preparing your own. Consider speaking with competitors far from your own market area for assistance and feedback.

• An accountant is critical to help with the financial analysis and projections.
• An attorney is vital to review franchise agreements and any other leases, agreements and contracts.
• Most importantly: seek out franchisor support services and outsource in your areas of weakness.

It’s a lot to take in, but in the quest for income streams, franchising is an opportunity not to be overlooked. Ron has this as closing advice for potential franchisees:

Take it slow, ask a lot of questions, and use your guard rails!

For more information, contact Ron Bender at RonBender7@gmail.com.

Kristen Edens

photo credit: Stas Tsibro from Pexels