The Prefab Alternative

If opening up your own business sounds to risky, a franchise might be right up your alley.

If you like the idea of buying into an established business, consider operating a franchise. There are more than 3,000 to choose from. (To see what’s out there, check, which lists them by industry.)

Joel Libava, who helps match franchisees with franchisors as president of Franchise Selection Specialists, says the average investment is $150,000. That includes a franchise fee and start-up costs, such as training and royalties, which are calculated as a percentage of gross sales and typically range from 4% to 12%.

When deciding what appeals to you, think about what skills you bring to the table. For example, Jim O’Neill, 63, was a senior information-technology manager at a major health-care provider when he lost his job in a downsizing. O’Neill, a resident of Lake Oswego, Ore., has always enjoyed working around the house. So he set his sights on a Mr. Handyman franchise, which would enable him to hire and oversee handymen.

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As any smart investor should do, O’Neill spoke to ten franchisees to get a sense of the business. “Not one said he wouldn’t do it again,”says O’Neill. In fact, he adds, the franchisees seem to break even within six to nine months. His initial $54,000 investment, which will come out of savings, includes the franchise fee, a starter kit of software and uniforms, and a territory fee, which gives him exclusive coverage of a particular area.

Be sure to avoid fads. What’s hot today may be ice-cold tomorrow. Or, as Jania Bailey, president of FranNet, which matches entrepreneurs with franchises, puts it: “Don’t fall in love with what the business does. Fall in love with what the business will do for you.”

Associate Editor, Kiplinger's Personal Finance