Should Your LLC or Corporation Buy a Franchise?
by: Blair Woods
Ever thought of owning a franchise? In many cases, you can establish a corporation or form an LLC and own franchises under your corporation or LLC name. You may even be able to secure a start up loan from the Small Business Administration (SBA). There are so many franchises your corporation or LLC could buy into. Let’s take a look at a few as well as some loan information provided by the SBA.
The Small Business Administration has dispersed $391.8 million in loans to small business owners looking to franchise a Subway. It surprised me to learn that Subway is one of the biggest fast food chains in the world, with almost 33,000 eateries in 91 countries. Why would Subway be enticing to your LLC or corporation? For starters, it has a low initial start up fee of $15,000 and a low loan default rate. The Small Business Administration has kept statistics for loan default rates by franchise and Subway has a low 7% failure rate. The SBA sees a much higher default rate for Blimpies (46%).
Cold Stone Creamery was acquired by the Khala Corporation in 2007. But, is it a good investment for your corporation? The ice cream brand that started in Tempe, AZ more than two decades ago now has more than 1,400 locations. Start up is not cheap. The initial franchise fee is $42,000 and in the last decade almost one in three SBA backed loans went into default.
Who doesn’t love a Blizzard Treat? If you had your heart set on being in the ice cream business, Dairy Queen is one of the safer investments for your LLC or corporation. Berkshire Hathaway, the company run by famed investor Warren Buffet, acquired the 70 year old company in 1998 growing it to 5,700 locations worldwide. Your initial franchise fee will run you $35,000 but according to the SBA, the loan default rate is a low 8%.
Not sure the food industry is right for your corporation or LLC? What about a Super 8 motel? It’s going to cost you a lot more to get into than an ice cream shop, the average SBA loan is over $900,000. But, it has one of the lowest failure rates (4%) according the SBA. Interesting note, there are a few franchises that boast a 0% default rate in SBA backed loans and the bulk of them are hotels and motels. Where did Super 8 get its name? When the chain opened back in 1974 in Aberdeen, SD it offered room at $8.88 per night.
Think your LLC should get physical? Consider Curves for Women. Since opening the first locations in Texas in 1992, Curves has grown to 10,000 locations in 70 countries. The “no makeup, no men, and no mirrors” philosophy put the franchise number one on Entrepreneur magazine’s annual “fastest-growing franchises” list in 2003 and 2005. Sadly, with fitness being a luxury item, it did not even make the top ten this year.
So there you have it. We’ve looked at franchises where you can eat, sleep and get fit. But, there are so many more to choose from, many with reasonable initial franchise fees and solid success rates that may be perfect for your LLC or corporation.
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