The short answer on franchise vs buying a business: a home services franchise tends to require $118,000 to $292,000 before it collects its first dollar, then pays the franchisor 5 to 10 percent of gross revenue for the life of the agreement. Roughly the same equity check, $125,000 to $175,000, can control an established business producing $500,000 in seller discretionary earnings through a 90 percent SBA 7(a) loan. The loan data leans the same way: SBA acquisition loans defaulted at roughly 1.93 percent annually versus 2.71 percent for non-acquisition SBA loans, while brand-level franchise charge-off rates have ranged from under 5 percent to above 40 percent.
The Short Answer
Franchise vs buying a business is the first real fork in the road for anyone trading a paycheck for ownership, and most of the content written about it is sales copy for one side or the other. Franchise portals earn referral fees when you buy a franchise. Business brokers earn commissions when you buy a listing. This guide takes a different approach: it puts the disclosed numbers side by side, names the source for every figure, and lets you run the math yourself.
Both paths can work. Franchising hands you a tested playbook and a recognized brand in exchange for a permanent royalty. Acquisition hands you revenue, customers, and staff that already exist, in exchange for diligence risk and a harder search. The honest comparison is not about which model is good or bad. It is about what your specific capital, skills, and timeline buy in each system, and the numbers below generally favor different paths for different buyers.
Franchise vs Buying a Business: What Each Path Actually Is
A franchise purchase is a license, not a business. You pay an upfront fee and ongoing royalties for the right to operate under a brand, follow its operating system, and receive its training and marketing support. The legal core of the relationship is the franchise disclosure document, or FDD, a standardized filing required by the FTC Franchise Rule. You own the legal entity and its assets, but the brand, the playbook, and often your right to sell are governed by the franchise agreement. If that path interests you, our walkthrough on how to buy a franchise covers the process from FDD review to signing.
Buying an existing business means acquiring a company that already generates revenue: its customer list, equipment, technicians, phone number, reviews, and cash flow. In practice this spans a spectrum. Self-funded searchers use SBA financing and their own savings to buy one company they will run themselves. Traditional search funds raise institutional capital first, then hunt for larger targets. Individual buyers sit anywhere in between. The umbrella term is entrepreneurship through acquisition, or ETA: buying an established company and stepping in as its operator rather than founding something from zero. That two-sentence definition is enough for this guide; the linked page covers the full model.
The core trade in buying a franchise vs buying an existing business is this: the franchise sells you a system and asks you to build the revenue; the acquisition sells you the revenue and asks you to run the system that already produces it.
The Day-One Capital Math, Side by Side
Start with what a real check buys on day one. For the franchise column, we use Mr. Handyman, a Neighborly brand and one of the most established names in the category. Per its 2025 FDD, total initial investment runs $118,000 to $154,000, including a $59,900 franchise fee. At the premium end of home services, Servpro’s 2026 FDD disclosed a $69,000 fee and a $202,000 to $292,000 total investment. Our breakdown of handyman franchise costs and FDD data covers the rest of the cohort.
For the acquisition column, we use a typical CT mandate: an established home services company generating $500,000 in seller discretionary earnings, or SDE. Businesses at that level tend to trade at roughly 2.5x to 3.5x SDE, or $1.25 million to $1.75 million, based on BizBuySell benchmarks and CT engagement observations. An SBA loan to buy a business generally covers up to 90 percent of that price on a ten-year term, leaving the buyer a roughly 10 percent equity injection of $125,000 to $175,000. This is not exotic financing. In FY2025, SBA 7(a) acquisition lending reached $8.29 billion across 7,003 deals, up 34.6 percent year over year, at an average ticket of $1.18 million, per data.sba.gov.
| Day one | Home services franchise (new unit) | Established business ($500K SDE) |
|---|---|---|
| Cash required | $118,000-$154,000 (Mr. Handyman, 2025 FDD) to $202,000-$292,000 (Servpro, 2026 FDD), plus realistic reserves | ~$125,000-$175,000 equity injection on a $1.25M-$1.75M purchase |
| Financing | SBA or franchisor-referred lenders; loan sized to buildout, not cash flow | SBA 7(a), generally up to 90 percent, ten-year term, serviced by the business’s own cash flow |
| Revenue on day one | $0 | Existing book, roughly $1.5M-$2M gross for a $500K SDE company |
| Team on day one | You, plus whoever you hire and train | Existing technicians, office staff, and processes |
| Ongoing fees | Typically 5-7 percent royalty plus ~2 percent marketing fund, life of agreement | None beyond debt service |
| Time to break even | Typically 12-24 months | Profitable at close if diligence held up |
One warning on the franchise column: the franchisor’s stated working capital figure is a floor, not a plan. A realistic reserve covers six months of fixed costs at zero revenue plus three months at 30 percent of target, which in this category tends to mean $25,000 to $40,000 beyond the stated minimum. Our guide to the working capital reality behind low advertised entry costs shows why the cheapest franchises are frequently the most underfunded ones.
What the SBA Default Data Actually Shows
This is the section franchise sales pages skip. Start by retiring a myth: the claim that “95 percent of franchises succeed” traces to a misquoted 1991 study by economist Timothy Bates in the Journal of Business Venturing, and no credible study supports it. Bates’s actual research found franchise survival rates that were not superior to independent firms. The figure survives in marketing decks because it sells.
What we do have is loan performance data. SBA lending records, analyzed by ROI Advisers across loans originated 2010 through 2021, showed franchise loans defaulting at roughly 9.9 percent on average, while lifetime charge-off figures commonly cited for franchise SBA lending run 17 to 25 percent depending on window and method. The brand-level spread is the real story: from under 5 percent to above 40 percent.
| Brand or cohort | Rate | Data window | Source |
|---|---|---|---|
| Top 20 most-funded franchise brands, combined | ~4.3% default | SBA loans, 2010-2021 | ROI Advisers |
| All SBA franchise loans, average | ~9.9% default | 2010-2021 | ROI Advisers |
| Quiznos | 42.2% charge-off (35 of 83 SBA loans) | 2010-2021 analysis window | ROI Advisers |
| Aire Serv | 14.8% default | SBA loans, FY2020-2023 | VettedBiz |
| Mr. Appliance | 13.5% default | SBA loans, FY2020-2023 | FitSmallBusiness |
| Mr. Electric | 33% charge-off | SBA loans originated Oct 2000-Sep 2008 | SBA brand-level file |
| Mr. Handyman | 13% charge-off | SBA loans originated Oct 2000-Sep 2008 | SBA brand-level file |
| SBA business acquisition loans | ~1.93% annual default | Annual basis | data.sba.gov analyses |
| Non-acquisition SBA loans | ~2.71% annual default | Annual basis | data.sba.gov analyses |
Read the time windows carefully, because they matter both legally and practically. Mr. Electric had a 33 percent charge-off rate and Mr. Handyman had a 13 percent charge-off rate on SBA loans originated October 2000 through September 2008; those are historical windows, not statements about current performance, and both brands have changed ownership and systems since. Quiznos had a 42.2 percent charge-off rate, meaning 35 of the 83 SBA loans made to its franchisees in the analyzed window were charged off. Aire Serv showed a 14.8 percent default rate and Mr. Appliance 13.5 percent in FY2020-2023 SBA data analyzed by VettedBiz and FitSmallBusiness.
One methodological caveat, stated plainly: the 1.93 percent and 2.71 percent figures are annual default rates, while the brand-level franchise figures are mostly lifetime charge-off rates. Annual and lifetime rates are different measurements and are not directly comparable. What survives the caveat is the direction. Acquisition loans, backed by businesses with existing cash flow, defaulted less often than SBA loans generally, and dramatically less often than the weaker franchise brands. That pattern has a simple explanation: the most common cause of franchise failure is undercapitalization during the ramp, and an acquired business skips the ramp entirely.
The Returns Data: Item 19 Disclosures vs Stanford Search Fund Studies
So is buying a franchise worth it on the returns side? The honest answer is that franchise returns are hard to know in advance, and the disclosure system is part of the problem. Item 19 of the FDD is where a franchisor may present financial performance representations. It is optional. Mr. Handyman’s 2025 FDD included no Item 19 financial performance representation at all, which a careful buyer should treat as a buyer-beware signal: the franchisor is selling a six-figure investment without disclosing what units earn.
Where Item 19 data exists, averages and medians can tell very different stories. Mosquito Joe’s 2025 FDD showed roughly $367,000 in average unit revenue against a $65,000 median. That gap is the first-18-month ramp reality in a single line: a small number of mature, multi-territory units pull the average up while the typical newer unit is still climbing. Typical ramp to break-even in home services franchising runs 12 to 24 months, which is exactly when the undercapitalization failures from the previous section happen.
The acquisition side has cleaner data because academics study it. The Stanford GSB search fund studies, the longest-running dataset on entrepreneurship through acquisition, report a 35.1 percent aggregate pre-tax IRR for the asset class. Three qualifiers keep that number honest. First, the 2024 update put the median acquisition multiple at 7.0x, not the 4x to 6x folklore, so entry prices for larger search-fund targets have risen. Second, roughly a third of acquired companies historically produced a partial or total loss of capital; the aggregate return is carried by the winners. Third, the 2021-2024 cohort closed acquisitions at a 48 percent rate versus 58 percent historically, with about half of that decline attributed to competition for deals. The returns are real, and so is the dispersion.
Royalties: The Cost That Never Ends
The franchise fee gets the attention, but the royalty is the bigger number. Home services franchises typically charge 5 to 7 percent of gross revenue plus roughly 2 percent for the national marketing fund, for the life of the agreement. Servpro’s 10 percent royalty, disclosed in its 2026 FDD, is the highest in the home services cohort we track.
Run the arithmetic on a ten-year agreement. Take a unit that ramps from $300,000 in year-one revenue to roughly $850,000 by year ten, about $6.65 million in cumulative revenue, a realistic path for a successful territory. At a 6 percent royalty plus a 2 percent marketing fund, the operator sends the franchisor 8 percent of every dollar collected: roughly $530,000 over the decade. That is money paid on gross, not profit, so it comes off the top in bad years too.
Now translate it into exit value. Royalties come straight out of seller discretionary earnings, and buyers pay multiples of SDE. At roughly 3x, the $50,000-plus annual royalty drag on a mature unit generally represents around $160,000 of resale value the independent owner keeps and the franchisee does not. None of this means royalties are a scam; you are paying for brand, systems, and lead flow. It means the royalty is a permanent partner who takes gross revenue, and you should price the partnership like one.
The Exit: Both Paths Now Sell Into PE Consolidation
Here is the part of this comparison that has changed most in the last decade: both paths now sell into the same institutional buyer pool. CT Acquisitions tracks 288 private equity platforms actively consolidating 32 home services and adjacent sectors, and that demand has repriced exits on both sides of the fence.
On the franchise side, resale has been transformed. A decade ago, a franchise unit doing $2 million in revenue generally sold to a local operator at 3x to 4x EBITDA. Today, PE-backed roll-ups routinely pay 6x to 9x for strong single units and 10x to 14x for regional multi-unit groups. The franchisors themselves are now institutionally owned and support resales rather than obstructing them: Neighborly, with 30-plus brands, is backed by KKR; Authority Brands is backed by Apax; Premium Service Brands is backed by Riverside. If you go the franchise route, read our franchise resale guide before you sign, because your exit rights live in the franchise agreement.
Independent businesses ride the same wave without sharing it. Handyman and general home services companies tend to trade at roughly 2.5x to 5x SDE as owner-operator businesses, 4x to 7x EBITDA once management runs a multi-truck operation, and 6x to 10x at platform grade, per BizBuySell data and Peak Business Valuation benchmarks. The jump between tiers is the whole game: the same cash flow is worth more as it becomes less dependent on the owner. Our guides to handyman business valuation, multiples by industry, and the buyer archetypes paying these prices map the tiers in detail.
When the Franchise Genuinely Wins
A data-fair comparison has to say this clearly: for some buyers, the franchise is the right answer, and pretending otherwise would make this guide as dishonest as the portals it criticizes.
You have capital but no industry experience. A franchisor’s training program, documented processes, and vendor pricing compress years of expensive trial and error. An acquisition gives you a running business but no instruction manual beyond the seller’s transition period.
You want brand and national accounts from day one. Insurance restoration work, for example, tends to flow through carrier programs that established brands hold. An independent startup or small acquisition may be locked out of that channel for years.
Financing is smoother. SBA lenders know the registry brands, and franchise loans for recognized systems tend to move faster with less scrutiny than a first-time buyer’s acquisition of an unfamiliar independent company.
You cannot run a long search. Buying a good independent business generally takes many months of sourcing, underwriting, and dead deals. A franchise territory can be signed in weeks. For buyers whose income clock is ticking, speed has real value.
You are early in an emerging brand’s map. Prime territories in a well-run young system can appreciate substantially, and the top-20-brand default figure of roughly 4.3 percent in ROI Advisers’ 2010-2021 analysis shows that strong systems do protect their operators. The skill is picking from the strong end of the spread, which is where a serious home services franchise comparison earns its keep.
When Buying an Existing Business Wins, and What It Costs
The acquisition wins on the numbers this guide has already walked through: cash flow from day one, no royalty, a default profile that compares favorably on the available data, and an exit where you keep the full multiple. If your goal is to buy a home services business that pays you a manager’s salary plus debt-service coverage from the first month, acquisition is generally the shorter path to that outcome. But it charges three tolls the franchise does not.
The search itself. Good businesses with clean books and reasonable sellers are scarce, and the Stanford data showing the 2021-2024 cohort closing at 48 percent versus 58 percent historically is a competition signal that applies down-market too. Expect months of outreach, broken deals, and sellers who change their minds.
Diligence risk. You are buying someone’s past decisions: their bookkeeping, their customer concentration, their deferred maintenance, their handshake deals. Quality of earnings work, legal review, and license transfers cost real money and can kill deals late. The single most expensive trap in home services right now is labor classification. Under the Department of Labor’s 2024 final rule on independent contractor status, 29 CFR Part 795, businesses built on 1099 technician models generally take a 0.5x to 1.5x EBITDA valuation discount, and many simply fail diligence. The DOL’s misclassification guidance is required reading before you underwrite any technician-heavy target.
Transition risk. If the seller is the business, some revenue may walk out with them. Pricing that risk, structuring seller notes and training periods, and keeping key technicians through the handover is where deals are won or lost after close.
Decision Framework: 6 Questions That Pick Your Path
Franchise or buy a business? Six questions settle it for most buyers we talk to.
1. Does your capital cover the ramp, or only the entry?
If your all-in liquidity barely clears the franchise’s stated minimum, you are the undercapitalization statistic waiting to happen. If you can fund the entry plus a real reserve, both paths open; if you can write a $125,000 to $175,000 equity check, the acquisition path opens at meaningful scale.
2. Do you need income in month one?
Acquisitions generally pay from close. Franchises typically take 12 to 24 months to break even. If you cannot fund your household through a two-year ramp, that alone may decide it.
3. Do you have an operator’s playbook, or do you need one?
No industry background and no management history favors the franchise. A decade of running teams, P&Ls, or sales favors the acquisition, where your judgment replaces the royalty.
4. How do you feel about paying 5 to 10 percent of gross forever?
Not profit. Gross. If that sentence made you flinch, you already know your answer. If it reads as a fair price for brand and lead flow, franchising may genuinely fit.
5. Can you tolerate a search that might take a year?
Acquisition rewards patience and punishes urgency. Buyers who need certainty on a schedule tend to be happier signing a territory than chasing listings.
6. What does your exit look like?
Both paths now sell into PE consolidation, but the independent owner keeps the whole multiple and controls the timing. The franchisee shares economics with the brand and sells inside the agreement’s transfer rules. Decide at the entrance how you want the exit to work.
About CT Acquisitions
CT Acquisitions is a buy-side M&A advisory for the home services sector. If you are a searcher or individual buyer, you already know the hard part is not the financing or the thesis. It is the search. We source off-market, founder-owned home services businesses and match them to your target profile: vertical, geography, size, and SBA budget. You pay a fee only at close; exploring costs nothing. Book a 15-minute call and tell us what you are looking for.
And if you own a home services business, everything in this guide is your exit market: SBA-funded individual buyers, search funds, and 288 tracked PE platforms competing for companies like yours. Sellers pay us nothing, sign nothing, and can walk away at any time. Book a call to hear what buyers are paying for businesses like yours.
FAQ
Is buying a franchise safer than buying an existing business?
Not according to the loan data. SBA acquisition loans defaulted at roughly 1.93 percent annually versus 2.71 percent for non-acquisition SBA loans, while lifetime franchise charge-off rates by brand ranged from under 5 percent to above 40 percent. Annual and lifetime rates measure different things, but the direction is consistent: existing cash flow tends to protect the borrower.
How much does a handyman franchise really cost?
Mr. Handyman’s 2025 FDD listed a $118,000 to $154,000 total initial investment, including a $59,900 franchise fee. Treat stated working capital as a floor: a realistic reserve adds $25,000 to $40,000 to cover six months of fixed costs at zero revenue plus three months at 30 percent of target, since undercapitalization during the ramp is the most common failure cause.
Can I buy a $1.5M business with $150K down?
Generally yes, through an SBA 7(a) loan. The program typically finances up to 90 percent of a qualifying acquisition, so a roughly 10 percent equity injection near $150,000 can control a $1.5 million purchase on a ten-year term. In FY2025, SBA 7(a) acquisition lending reached $8.29 billion across 7,003 deals at a $1.18 million average, per data.sba.gov.
What returns do search funds actually produce?
The Stanford GSB studies report a 35.1 percent aggregate pre-tax IRR for the asset class. The spread is wide: roughly a third of acquired companies historically produced partial or total capital loss, and the 2024 update put the median acquisition multiple at 7.0x, well above the 4x to 6x folklore. The winners carry the average.
What is ETA (entrepreneurship through acquisition)?
ETA means buying an existing company and running it yourself instead of founding one. The spectrum runs from self-funded buyers using SBA 7(a) loans through traditional search funds backed by institutional investors. Its appeal is starting from proven revenue, existing customers, and trained staff rather than a blank page, in exchange for search effort and diligence risk.
What is the biggest risk when buying an existing business?
Concentration and transition. If the owner is the business, revenue can walk out the door with them, and heavy customer or technician concentration turns one departure into a crisis. Labor classification is the sleeper risk: under the DOL’s 2024 rule (29 CFR Part 795), 1099-heavy technician models generally take a 0.5x to 1.5x EBITDA discount or fail diligence outright.
Do franchises resell well?
Increasingly, yes, in home services. A decade ago a $2 million revenue unit generally sold to a local operator at 3x to 4x EBITDA. Today PE-backed consolidators routinely pay 6x to 9x for strong single units and 10x to 14x for regional multi-unit groups, and institutionally owned franchisors now support resales rather than blocking them.
Disclaimer
CT Strategic Partners LLC, operating as CT Acquisitions, is a buy-side M&A advisor and is not a registered broker-dealer, franchise consultant, or lender. FDD figures change with each filing; consult the current FDD for any brand before making decisions. SBA statistics cited here come from the named analyses, which cover differing time windows and methodologies; annual and lifetime default rates are not directly comparable, and brand-level figures reflect only their stated periods and may not reflect current performance. Stanford search fund data describes the past performance of a studied population and guarantees nothing about future results. All ranges are directional; individual outcomes vary materially. Nothing here is investment, legal, tax, lending, or franchise advice.