At Franchise Gator, we're often asked questions by users exploring the world of franchise ownership. These questions typically inquire about costs, profitability, and popular franchise opportunities.
There's a lot to know about when considering the purchase of a franchise. Many people only "think" they know about franchising, but when you're looking to invest in a franchise business, knowledge is key. Browse the questions below to become a better-educated entrepreneur. If you still have questions, feel free to contact us. We're here to help!
The best franchise will be different from investor to investor. You are far more likely to be successful with a franchise that interests you. There is no replacement for passionate business ownership when it comes to future performance. Investors who choose something they enjoy or have preexisting skills/knowledge in will be on the best path for finding the best franchise for them.
Historically speaking, fast food restaurants remain one of the safest bets when investing in a franchise. Sticking with a name brand is often the best route for any entrepreneur, a thought backed up by the continued presences of such concepts at the top of most franchise “Best Of” lists.
The top four franchises and eleven out of the top twenty from Entrepreneur’s 2020 Franchise 500 list are in the fast-food industry. Convenience stores rank high, too, as well as service businesses like gyms and tutoring centers. These businesses benefit from name recognition, high-demand offerings, and well-established business systems with plenty of franchisee support. But they also generally require significant upfront investments as well as involved real estate arrangements. For some people, the best franchise to start in 2021 is one that requires a smaller investment and less upfront work to start. Service businesses that do not require a physical location are significantly easier to open.
It’s possible to buy a franchise even if you don’t have the upfront investment by leveraging other people’s money. Some franchises have financing options available to cover some portion of their franchise costs. This is a loan that you’ll be required to pay back, but you can use your franchise business proceeds to make the debt service payments.
If you own a home, you can look at a home equity loan as a funding source. Additionally, you could explore SBA and traditional bank loans. 401k owners can take advantage of the ROBS program to take a penalty-free disbursement to cover their franchise investment.
Finally, you might consider taking on a partner to pay some portion of the initial startup costs in exchange for an ownership interest in the business.
When it comes to finding financing, a good place to start is with the franchisor. Many offer some type of financial assistance, and some also offer incentives for veterans, minorities and first-time franchisees. Conventional bank loans are another option but will require you to have a good credit rating and/or collateral. Small Business Association (SBA) Loans or loans from an online lending company like Kabbage are typically easier to qualify for. If borrowing from a lender doesn't work for you, look into borrowing from yourself from a retirement savings account, a securities backed line of credit or home equity loan.
Most franchises require investments greater than $10,000, but that doesn’t mean there aren’t bargain franchise opportunities available.
Low-cost travel franchises, such as Cruise Planners and Cruise One / Dream Vacations offer the opportunity to work out of the house and book extravagant vacations for your clientele. Overhead is low and no employees are required. Each can each be started for less than $3000.
The Cleaning and Maintenance industry is interesting in that many offered tiered opportunities where one can buy territories that have a number of cleaning crews that they hire out for work. The crews themselves are also franchisees, where one can buy in for less than $2500. Companies such as Buildingstars and Jan-Pro have been offering such opportunities for decades and have hundreds of franchisees across the country.
To find the cheapest franchise you need to look at the associated franchise fee as well as royalties, and required equipment, staffing, and real estate investments.
Buildingstars has an initial franchise fee of only $795. Additional funds necessary bring the total investment range from $2245 - $8295. As per their FDD, the average investment is $5270.
Buildingstars is a cleaning and maintenance franchise that offers you the opportunity to run your own janitorial crew. The Buildingstars corporate office not only provides initial training, but it sets you on your way with a customer base, but also provides back-end billing and collections support as well as marketing.
With startup costs running into the millions of dollars for top food franchises like McDonald’s and Taco Bell, it might seem that owning a food franchise is out of your reach, but there are several good franchise opportunities that you can open for much less.
Surprisingly, one of the least expensive is Chick-fil-A. Instead of the $45,000 franchise fee you’ll pay to start a Mcdonald’s, Chick-fil-A only asks $10,000. The company also covers all other startup costs, like equipment and construction expenses. However, in exchange for the low cost of entry, you’ll pay the company a hefty portion of your revenues each year. And only the most qualified franchise applicants are accepted.
If you want to keep more of what you earn while still buying an affordable franchise, you could consider vending, kiosk, and food truck opportunities. They come with lower fees and a significantly lower equipment/location investment.
Healthier 4 U Vending is a vending option focused on making healthy food available on demand for businesses and retail spaces. Franchisees typically invest around $50,000 to get started, though pricier packages are available to help you ramp up faster.
Healthy YOU Vending is a similar opportunity, both in offerings and investment level. However, Healthy YOU Vending doesn’t charge franchise fees or royalties. You get the training and support of a franchise without the costs.
If you’re more interested in interfacing directly with customers, Le Macaron is a fantastic entry-level opportunity. You’ll sell french pastries using one of three business models — mobile cart, modular kiosk, or full cafe. The least expensive option, the cart, will run you $84,350.
Profitability is based on a wide range of factors, including local market conditions, profit margins, and franchisee efforts. There are some general guidelines you can follow to find lucrative franchise opportunities.
Look for franchises with low overhead and the possibility for high-volume sales. Both of these factors can contribute to a higher profit margin. To find a lower-overhead franchise, browse opportunities that don’t require large equipment investments and can be run with a limited staff. Most home based businesses fall into this category.. Service franchises, like lawn care or carpet cleaning operations, generally have lower overhead requirements compared to brick and mortar businesses like restaurants.
Franchises that require a physical location usually have higher overhead due to building purchase, build out, rent, and utility expenses. However, some of the fastest-growing opportunities like Mathnasium and FASTSIGNS require buildings, so don’t assume brick and mortars are inherently more challenging.
In the end, any franchise for sale can be profitable. Be sure to read through the Franchise Disclosure Documents (FDDs) for the franchise opportunities you have interest in. They will generally offer a three-year look back at the franchise’s unit totals, including those recently added and closed, as many will detail performance data from those franchisees. FDDs will be a great tool to help you determine potential profitability as well as your chances for success.
Franchises are an excellent option for those interested in business ownership because they offer reduced risk and proven business systems known to satisfy existing demand. As a result, franchise opportunities are more likely to be profitable than similar independent businesses.
Of course, there are no guarantees, and even highly-regarded franchises can fail. With a franchise, like any other business, you get back what you put into it. If you’re smart, lucky, and you work hard, there’s a good chance you could be successful with a franchise.
Yes, owning a franchise can make you rich. There are countless stories about people that made their fortune by purchasing and running a franchise. Franchises allow you to buy into a proven business system, removing some of the risks associated with starting a new venture.
However, it’s important to remember that franchise opportunities are what you make of them. You have to buy smart, based on your budget and the prevailing market conditions in your area. Do your research to be sure that the franchise you’re interested in isn’t in an industry that’s already saturated in your area.
And of course, you’ll have to work hard. No one ever got rich with a franchise without dedication and effort. As with any business opportunity, there’s a range of possible incomes based on countless different factors. Be sure to read through Franchise Disclosure Documents (FDDs) to make sure you understand the scope of likely revenues before you get started.
See also: Top 10 Traits of Successful Franchisees
Predicting your income as a franchise owner can be difficult. Variables such as the type of business, location, the economy, and even your personal dedication to making the franchise a success will all affect how much money your business will make. However, the best place to turn when examining your potential income is the franchisor's Franchising Disclosure Document (FDD), specifically Item 19 which shows individual unit earnings.
See also: How to Figure Your Franchise Income
It shouldn’t surprise anyone that four of the five largest franchises nationally and globally are in the convenience/fast food industries.
7 Eleven comes in at number one with over 62,000 locations worldwide. Paired with gross receipts of nearly $90 billion, the convenience store monster is a major retail force.
In terms of physical size, the second spot is Subway, sporting nearly 45,000 locations around the globe. Third on the list is the venerable fast-food giant, McDonald’s, with over 37,000 units and revenues exceeding $20 billion annually.
Starbucks, initially Seatle’s, and now the world’s favorite coffee brand, takes the fourth spot with just under 30,000 locations. And bringing up the rear is the only business to break the food mold. Kumon learning centers have nearly 26,000 locations worldwide and take the prize as the world’s largest tutoring franchise.
Franchise companies are generally reticent to release earnings figures, but estimates exist. In 2007, Forbes reported that Chick-fil-A operators take home an average income of $100,000. However, the chain has exploded in popularity since then.
More recently, the franchise trade organization Franchise City estimated that operators take home an average of $200,000 a year. Given that you can open a location for only $10,000, Chick-fil-A is one of the most profitable franchise opportunities available.
But don’t get your hopes up too high. The company turns down the lion’s share of franchise applications, favoring those most likely to succeed.
Franchise Gator’s top 10 franchises are as follows:
See also: Top 100 Franchises of 2021
A franchise business grants the rights to individual owners, or franchisees, to use the company's name and branding and sell its products and services. The company granting the rights is known as the franchisor. Franchise owners receive training, guidance and support from the franchisor but are required to run their individual location while adhering to specific standards and operating systems in order to maintain consistency and brand integrity.
In franchising, the parent company known as the franchisor sells the rights to operate individual locations under the company's name and branding and sell its products and services. The relationship is set up through the franchise agreement. These agreements vary from franchisor to franchisor, but typically allow an individual to run a franchised location for a set fee and specific amount of time. In addition to franchise and start-up fees, most franchises also require their unit owners to pay ongoing royalty and sometimes advertising fees. The franchisor provides its franchisees with ongoing guidance, training and support throughout the length of the franchise agreement.
If you're interested in starting a franchise there are a few steps you should take to get started. First, you'll need to find the franchise or franchises you are interested in. Maybe you already have a brand or two in mind, or maybe you are interested in a specific industry. Either way, browsing an online franchise directory such as Franchise Gator is a good place to start on your path to becoming a franchisee. You can narrow your search for the right franchise by industry, geographic location and investment level. Once you have identified franchise opportunities that interest you, submit your information using the online form and a representative from the franchisor will contact you to follow up and begin the process.
See also: How to Start Your Own Business
Buying a franchise is a process that takes careful consideration. First, you need to determine what type of franchise you want to buy. Are you already interested in a specific brand or industry? Researching franchise and business opportunities on a franchise directory site like Franchise Gator is a good place to get started. Next, you'll want to examine the requirements and terms including investment level to determine if it is a good fit for you. Submit your information to the franchisors that interest you, then it's time to begin your due diligence. Research the franchisor's background. Determine if your geographic location is a good area for this type of business and scope out the competition. Carefully review the Franchise Disclosure Document (FDD) and talk to current franchise owners. Make sure you have a good understanding of the requirements as well as the training and support provided by the franchisor before signing the agreement. Enlisting the help of a franchise lawyer and accountant can help ensure you are making a sound decision.
See also: Top 16 Questions to Ask a Franchisor
Perhaps the biggest advantage of buying a franchise is decreased risk than going it alone to start a business. Franchising provides entrepreneurs with an established name and branding as well as training and support which improves your chances of success. Of course this does not mean that it doesn't take hard work to build a franchise business, but having these elements in place provides a greater foundation than starting a business from scratch.
The two main types of franchises are business format franchises and product distribution franchises. Franchise businesses are available in more than 150 industries ranging from automotive and healthcare to food and education. There is no shortage of franchise types available for those looking to pursue their dream of owning a business.
See also: The Different Types of Franchises
Franchising can have many benefits but also comes with its own set of risks. The biggest advantage of buying a franchise is the training and support you receive from the franchisor as well as the name recognition. However, when you buy into a franchise system you are agreeing to operate your business as dictated by the franchisor with little autonomy. It's important to fully examine all of the pros and cons to buying a franchise before making your decision.
See also: The Pros and Cons of Franchising
As of January 25, 2021: