Does the Business Services Industry Make Money?

Introduction

Patrick Findaro, co-founder at Vetted Biz and managing partner at Visa Franchise, discusses the business services industry. This sector has attracted many clients over the years, including various services such as insurance, payroll, bookkeeping, and accounting.

Industry Insights

Market Overview

• Market Size The business services industry was valued at $10 billion as of 2019.
• Small Businesses There are approximately 28 million small businesses in the United States, including around 2 million in Florida.
• Service Demand Services like insurance and accounting are often necessary for compliance with federal, state, or local laws.

Investment Amount

• Cost Comparison The average investment for a business services franchise is about $100,000, significantly lower than food and beverage franchises, which can range from $200,000 to over $1 million.

Pros and Cons

Advantages

• Lower Initial Investment Business services franchises generally require less capital than many food or beverage franchises.
• Growing Demand Many small businesses require these services, providing a consistent market.

Challenges

• Time to Build Client Base Developing a client book may take longer compared to businesses like restaurants or barbershops, where customer acquisition can be more immediate.
• Consumer Hesitation Convincing small business owners to switch providers (e.g., insurance, payroll) can be challenging and time-consuming.

Strategies to Overcome Challenges

Effective Approaches

• Asset Purchase Buying an existing business can provide an established client base and immediate revenue.
• Franchise Integration Transitioning an existing business into a franchise system can leverage marketing and lead generation support.

Franchise Performance Analysis

• Sales Growth A leading franchise in the business services area shows average sales growth from $85,000 in the first year to $939,000 by year five.
• Gross Profit Margins Gross profit averages range from 44% to 47%.

Existing Business Opportunities

Buying Existing Businesses

• Acquiring an existing bookkeeping or insurance practice can accelerate the path to profitability.
• Many franchisors can assist with operations, allowing franchisees to focus on sales and client relationships.

Financial Success Metrics

• Loan Data Analysis Over the past ten years, the success rate for business services franchises was 11 to 1 for SBA loans, with a lower default rate compared to non-franchise businesses.
• Long-Term Trends Historical data shows that the success rate for business services franchises is approximately five to one for loan repayments.

Franchise Insights

Franchise Royalties

• The average franchise royalty in the business services industry is around 10%, higher than many food and beverage franchises, reflecting the support services provided by franchisors.
• Marketing Fees: Typically set at 2% across franchises.

Business Services Industry Options

Franchise Examples

• Estrella Franchise Founded 40 years ago, requires an initial investment of $50,000 to $80,000 with a 10% royalty fee. Eligible for SBA financing.
• Existing Business Example A newly opened franchise in California with sales of $356,000 in 2019 is available for sale, offering a good opportunity for new entrants looking to start with an established client base.