Impacted by COVID-19? Special assistance is now available.

Nonprofits as Franchise Owners

The SBDC has certainly seen First Coast nonprofits start for profit businesses. Clara White Mission and Challenge Enterprises are two that come to mind immediately as being entrepreneurial. I do not know of any franchises owned by a local nonprofit, but it is certainly happening elsewhere. There has been a trend in recent years for nonprofits to explore franchises as a way to create another income stream while either employing or training a target population. Ben & Jerry’s were early adopters in helping nonprofits get into the ice cream franchise business. This article from the NonProfit Times reveals a resurgence in nonprofit franchise ownership.

Nonprofits Buying Into Franchises

The Evergreen Commons Senior Center, in Holland, Mich., never worked with a franchise before inking a deal four years ago with American Ramp Systems in South Boston, Mass.

The operation differs from the public health club the nonprofit purchased nine years ago. “Part of the decision to have the franchise comes from the uniqueness of the product,” said Larry Erlandson, president of Evergreen. “We determined that the product was very good and they offered services like a call center and marketing for support.”

Social Franchise Ventures, LLC, in Washington, D.C., brought the two parties together. While there is an estimated 900,000 franchise opportunities, Ventures lists fewer than 100 nonprofit-owned franchises.

“We believe partnering with a franchise brand that leverages a nonprofit’s strengths and assets is paramount to a successful social franchise venture,” said Doug Sudell, CFE, of Social Franchise Ventures. “It is of the utmost importance that a nonprofit use a highly disciplined approach when selecting a brand because that can significantly increase their likelihood of success.”

Figures show that franchised businesses provide more than 11 million jobs, or 8.1 percent of the national private-sector workforce with an annual payroll of $278.6 billion, or 5.3 percent of all private-sector payrolls in the United States.

Evergreen runs an in-home care service that could rival other such franchise operations. So taking on a franchise in that sector would not make sense, according to Erlandson. The health club requires no special support, so the ownership of that does not require a franchise arrangement.

“We saw the ramp product at a conference a few years ago,” he said. “We couldn’t recreate that product on our own and it was worth the franchise fee.”

Evergreen contacts rehab centers along with veteran administration facilities, and hospitals. In dealings with those groups, Erlandson saw that a product was in demand and could connect that to Evergreen’s already existing activities.

Deciding on having a franchise could depend on several factors. One could be the timing of your budget needs. Not every organization has the right capital and division for different types of operations or the ability to manage the activity. The organization also needs a board that gets behind the effort 100 percent.

“A danger exists with many nonprofits when they look at a business venture and overestimate how fast they can find a return,” Erlandson said. “Franchises are not a quick fix.”

Does the organization have a high-risk capability? “You have a risk when you start any business,” he said. What will the community think of the organization? “We had some donors question our activity, saying this was creeping away from our mission,” he said.

Franchises do offer another option from fundraising. “As a nonprofit, we regularly keep our eyes open for a business venture to help the organization,” he said.

Fees for service, membership dues, and program fees are just some ways to obtain revenue. Grants and fundraising are other methods. “Business ventures further add a diversity in revenue. This helps the nonprofit avoid depending on any one stream,” he said.

“We’re trying to have a diverse revenue base,” Erlandson said. The franchise offers a potential for a greater return than sticking the investment into an endowment fund.” 

« »
SBDC Footer Shadow Background