Even the most driven, talented entrepreneurs face a very real risk of failure. Although business failure rates aren’t as high as many claim — 9 out of 10 businesses failing within five years is an often-cited yet erroneous figure — the Small Business Administration (SBA) confirms that about 50% of small businesses fail within five years and about 67% fail within 10 years. In other words, the business you open today is not likely to be around in a decade. This failure rate has changed little over time.
Newer businesses fail for many reasons. Even great business ideas can be overwhelmed by forces beyond an owner’s control, such as a sudden economic downturn or unscrupulous actions by employees. Other businesses are vulnerable to problems that can be fixed but often aren’t, such as poor management or high structural costs. And beyond these individual factors, many inexperienced entrepreneurs are simply afraid of going it alone — and failing due to lack of support from mentors and customers.
What Is Franchising?
Franchising can mitigate many of the problems that bedevil less experienced entrepreneurs, including professional loneliness and lack of mentorship. While the SBA stresses that business franchises fail at about the same rate as independently owned businesses, the model is attractive to entrepreneurs who value external support and don’t want to sink or swim based on the strength of an original business concept that may have been drawn up on the back of a napkin.
The franchise model varies from concept to concept and is governed by numerous factors. But at its base, a business franchise is an independently owned and operated business location that offers a predefined set of branded products and services. In other words, the location peddles a concept that already exists and, in most cases, has been extensively and successfully tested with customers. In exchange for the use of a recognizable trademark and brand, the franchise operator (franchisee) must follow guidelines established by the trademark’s owner (franchisor) and be managed by a traditional — although often lean — corporate structure.
Franchisees almost always make a substantial upfront payment, known as a franchise fee, for the right to open a franchise location. The franchise fee is usually a five-figure sum, typically between $20,000 and $60,000. Franchisees typically also make a monthly or annual payment, known as a royalty, to the franchisor. The royalty covers corporate operating costs and can vary widely — from as little as 1% or 2% of the franchisee’s gross sales, to 10% or more of gross sales, depending on the concept and industry.
Support and Quality Control
In addition to guidance and logistical support during build-out and opening, franchisors generally offer periodic consulting support and quality control once the franchisee’s location is up and running. Larger franchisors also reinforce the franchisee’s local marketing efforts — which largely rely on the recognizable brand — with a regional or national marketing campaign that supports the company as a whole. Some franchisors charge franchisees a separate monthly or annual fee, usually smaller than the franchise fee, to fund high-level marketing and promotional campaigns.
Franchise agreements typically govern the relationship between franchisees and franchisors, with the threat of the agreement’s revocation serving as the principal incentive for the franchisee to follow all the established guidelines and practices. Franchisees have no right to use the franchisor’s trademark except as defined by the agreement. As long as they follow the agreement, they’re permitted to operate their franchise as a traditional business, keeping all profits after accounting for franchisor-levied fees and local, state, and federal taxes.
Growth and Equity
If allowed by their franchisor, successful franchisees can open multiple franchise locations (units) governed by separate franchise agreements. Having a separate agreement for each new location permits the franchisor to revoke a single underperforming unit’s agreement without affecting the franchisee’s other locations.
Some successful franchisees operate holding companies that oversee dozens or hundreds of franchise locations, often leveraging multiple franchise concepts. A few, such as the 1,100-unit Burger King and Popeyes franchisee Carrols Restaurant Group, even trade on public stock exchanges.
Franchisees usually own the equipment, and sometimes the real estate, they use to operate their business. Because they don’t own the franchisor’s trademarks or other intellectual property, this arrangement provides them with some equity in the business. If and when they choose to move on from a particular location or exit the franchise business entirely, franchisees can sell their equipment and building, or lease them to the franchisee that replaces them.
Startup Costs and Time Frames
Franchisees might not have to start completely from scratch, but launching a new franchise location still takes lots of time and requires a substantial financial investment. The amount of time and money required varies widely from concept to concept, depending on the industry, the amount of support provided by the franchisor, costs for equipment and real estate, franchisee and employee training requirements, and other factors.
Lean concepts with hands-off franchisors and not much physical equipment can cost as little as $20,000 or $30,000 and can take just a couple months to start up once the franchise agreement is finalized. Mobile franchises — including those that provide professional services such as locksmithing or in-home services such as health care for seniors — are usually less costly and time-consuming to set up.
More involved concepts with hands-on franchisors and lots of real estate or physical equipment requirements can cost much more — in excess of $1 million for many recognizable restaurants and spas, and in excess of $20 million for many brand-name hotels — and can take anywhere from six months to two or more years to set up if new construction is required. It’s possible to reduce or eliminate real estate acquisition and build-out costs and substantially cut the startup timetables by buying the lease for an existing franchise location. However, existing franchise leases are also quite pricey.
Popular Business Franchise Opportunities in the United States
If you’re interested in cutting your entrepreneurial chops as a franchisee rather than going it completely alone, this list includes (in no particular order) some of the most popular, fastest-growing business franchise opportunities in the United States.
Franchisors aren’t required to publicly divulge lots of information about franchisee costs and performance, except as part of a formal prospectus for potential franchisees. That said, wherever the information is publicly available, I’ve noted each company’s geographical market, franchised location count, franchise growth rate, franchisee qualifications, average initial investment (including franchise fee and other startup costs), estimated annual revenue, and ongoing royalties and other fees. Unless otherwise noted, figures are current as of the first quarter of 2020.
Aside from the cost, corporate culture and levels of franchisee support are important considerations for prospective franchisees. Many franchise corporations are tightly held, so it’s often not possible to get an accurate feel for what goes on in the boardroom or in private meetings with franchisees, nor is it possible to say with certainty how much logistical support and mentoring a given company provides its franchisees. That said, we’ve included reliable information about corporate culture and franchisee support wherever possible.
It’s worth reiterating that starting a business franchise is expensive by everyday standards. With that in mind, this list excludes franchise opportunities that cost $1 million or more, on average, to launch in a single location. That all but eliminates certain franchise types, including hotels, and restricts others such as high-end spas, gyms, and pedigreed restaurant brands like McDonald’s.
Child Care & Education
These opportunities involve extracurricular education and child care.
Mathnasium is a tutoring concept that provides hands-on mathematical instruction and tutoring for children aged 4 to 17, mostly to supplement classroom learning. On-site tutors follow a standardized curriculum developed by the concept’s founders. Tutoring occurs in groups and individually, with the bulk of instruction occurring after school hours.
- Markets Served: United States and Canada. Largest U.S. markets include California, Texas, and Florida.
- Franchised Location Count: 1,000+
- Five-Year Growth Rate: 23% through 2015
- Franchisee Qualifications: Must be able to pay for startup costs out-of-pocket or with a third-party financing arrangement. Prior to opening, the franchisee must attend a week-long training session at Mathnasium’s Los Angeles headquarters.
- Average Initial Investment: $112,750 to $149,110
- Estimated Annual Revenue per Location: Not publicly disclosed, but each child typically pays a registration fee of ranging between $100 and $200, plus a membership fee of $200 to $300 per month. Revenue is the sum of registrations plus membership fees, multiplied by the number of children enrolled during the revenue period.
- Ongoing Royalties and Fees: The royalty is $500 per month for the franchisee’s first center only, plus 10% of gross receipts for all centers owned. The national marketing fee is the higher of $250 per month or 2% of gross receipts. Other fees include technology licensing fees (up to $110 per month) and convention fees ($250 per year).
- Special Considerations: Mathnasium requires franchisees to take a hands-on approach to their work, even if they own multiple franchises and hire employees to manage each one. Franchisees need to live near their Mathnasium unit or units and must attend all training sessions, corporate meetings, and conventions scheduled by Mathnasium’s corporate management team. Although most instruction occurs after school, centers do need to be staffed during the workday — at minimum, from 10am to 3pm on weekdays — to handle inquiries from parents.
2. Just Between Friends
Just Between Friends (JBF) is a somewhat unusual franchise concept. Instead of permanent stores, it’s built around time-limited consignment sales events that offer consigned children’s and maternity clothing at discounts of 50% to 90% off retail price. Franchisees organize each sales event, typically devoting 8 to 10 weeks of part-time work to planning the event and recruiting sellers. A franchisee pays a fee for each item a seller consigns, then marks up its price for sale at varying margins and pockets the difference.
- Markets Served: Mostly in the northern United States, coast to coast, and in larger Canadian markets. Texas is a rare southern market with solid coverage.
- Franchised Location Count: 150+
- Five-Year Growth Rate: 14% (2015)
- Franchisee Qualifications: Two to three years of prior sales experience is preferred but not required. Prior management experience is also preferred. Excellent computer and technology skills are a plus, as is parenting and community engagement experience — for instance, participation in parent organizations or school boards. Franchisees (or at least one member of a franchisee partnership, if applicable) need to live within 30 miles of their sale location or locations.
- Average Initial Investment: $38,544 to $54,509
- Estimated Annual Revenue per Location: Not publicly disclosed, but JBF advises that new franchisees generally earn “supplemental” income to start because sale events tend to be smaller during their first year or two, with the potential to scale up as sale events get larger or as franchisees accumulate new territories.
- Ongoing Royalties and Fees: The royalty is 3% of gross receipts per sales event, not including an annual marketing fee.
- Special Considerations: Just Between Friends is one of the lower-cost franchise opportunities out there, which makes it great for entrepreneurs without tons of startup capital. It’s also one of the rare opportunities that don’t require an all-in time commitment. The biggest tradeoff is lower earning potential — you’re not going to become a billionaire as a JBF franchisee. Corporate support is also thinner than you’re likely to find with more expensive concepts.
3. Huntington Learning Centers
Huntington Learning Centers is a youth tutoring concept that offers tutoring to kids in primary and secondary school, mostly as a supplement to classroom learning. Huntington’s methods were developed and perfected by the husband-wife couple that founded the concept in the late 1970s. Covered subjects include math, science, social studies, reading, writing, standardized exam preparation, and general academic skills.
- Markets Served: Coast to coast coverage in the United States, mostly in larger cities and affluent suburbs.
- Franchised Location Count: 300+
- Five-Year Growth Rate: Not disclosed
- Franchisee Qualifications: $60,000 in liquid capital and net worth of $150,000. No absentee franchisees are permitted — franchisees must be owner-operators and available on-site daily. Even still, 35% of franchisees own more than one location. No specific experience or credentials are required.
- Average Initial Investment: $127,060 to $268,940
- Estimated Annual Revenue per Location: $501,000 according to Huntington
- Ongoing Royalties and Fees: The annual royalty covers marketing and other related expenses.
- Special Considerations: Huntington is cheaper to launch and operate than many other education franchises. It’s definitely nice that prior teaching experience isn’t required, and feedback from current franchisees suggests that corporate support personnel are responsive, helpful, and highly experienced in all things related to education.
Senior & Disabled Care
These opportunities involve care for elderly and disabled adults.
4. Home Instead Senior Care
Home Instead Senior Care is an elder care concept that provides part-time, full-time (during business hours), and live-in care for seniors who need assistance but want to remain at home for as long as possible. Caregivers are authorized to provide a variety of nonmedical care, including house cleaning, personal hygiene, dressing, cooking, transportation, and other basic needs. Caregivers can also assist clients who require additional care due to Alzheimer’s, dementia, and other neurological conditions.
Care delivery is highly localized, with each franchise location determining which services to provide based on local demand. Care costs are dependent on the level of care and required time investment for caregivers.
- Markets Served: Coast to coast in the United States and Canada, with several expanding international markets, mostly in western Europe.
- Franchised Location Count: 600+ (North America only)
- Five-Year Growth Rate: 12% (2015)
- Franchisee Qualifications: $40,000 to $50,000 in liquid assets. No absentee franchisees allowed. No specific experience or qualifications are necessary, but Home Instead advises that at least nine employees (including the franchisee) are required to run a unit.
- Average Initial Investment: $115,000 to $125,000
- Estimated Annual Revenue: Not disclosed
- Ongoing Royalties and Fees: The annual royalty is 5% of gross receipts. The ad fee is 2% of gross receipts. Both are subject to change.
- Special Considerations: Like other elder care franchisees, Home Instead franchisees earn a substantial amount of their revenues from insurance providers and public agencies such as the VA. Home Instead provides support for billing and other logistical issues, but it’s important to keep in mind that clients themselves often don’t pay directly for services rendered. Aside from billing support, the corporate structure is rather thin and decentralized.
5. BrightStar Care
BrightStar Care offers a wider range of services than Home Instead. In addition to home care such as cooking, transportation, and cleaning, the company’s franchisees offer at-home nursing and general health care services, as well as medical staffing for hospitals, clinics, and other third-party service providers. Basically, franchisees are independent medical staffing agencies that follow a rigorous set of systems and procedures. BrightStar’s co-founders are former hotel franchisees, so they bring a keen eye for customer service into the mix.
- Markets Served: Coast to coast in the United States, with tentative expansion into the U.K., Western Europe, Australia, and New Zealand.
- Franchised Location Count: 330+
- Five-Year Growth Rate: 26% (2015)
- Franchisee Qualifications: At least $200,000 in liquid assets. No absentee franchisees are allowed — you must be an owner-operator.
- Average Initial Investment: $93,048 to $154,307
- Estimated Annual Revenue: The average BrightStar franchisee takes in $1.68 million per year, according to the company.
- Ongoing Royalties and Fees: The annual royalty is 5.25% to 6.25% of gross receipts, depending on the client type. The marketing fee is the greater of $250 per month or 3% of the previous month’s net billings. Other fees include a technology fee that’s the greater of $250 or 0.83% of net billings per month. These fees are subject to change.
- Special Considerations: In addition to prohibiting absentee ownership, BrightStar appears to discourage multi-location ownership. The vast majority of BrightStar owners operate just one unit, whereas multi-unit ownership is commonplace, if not the norm, for other concepts. The flip side of this is great quality control and hands-on corporate support without unusually high royalty fees. Also, the wide range of services offered by this concept, including nursing, creates more opportunities to respond to demand in your local market and grow as a result. The high net worth requirement could be problematic for some prospective franchisees.
6. Seniors Helping Seniors
Seniors Helping Seniors is an “intra-generational” home care service that provides nonmedical home care services — similar to what Home Instead Senior Care offers — for older clients. Franchisees employ “loving, caring, compassionate seniors who truly understand what it means to be aging” to provide these services. The goal is to create strong bonds between caregivers and clients who can relate to one another, rather than a businesslike exchange between relatively young caregivers and older clients who have little in common.
- Markets Served: Coast to coast throughout the United States, with particular focus on the South, Midwest, and West Coast.
- Franchised Location Count: 200+
- Five-Year Growth Rate: Not disclosed
- Franchisee Qualifications: Liquid assets of at least $50,000 and net worth of at least $150,000 required. Franchisees don’t need to be seniors themselves, although they do need to employ older caregivers if they don’t meet age qualifications.
- Average Initial Investment: $86,785 to $141,390
- Estimated Annual Revenue: Not disclosed
- Ongoing Franchise Fees: 6% of gross receipts, including a marketing fee.
- Special Considerations: It’s relatively cheap to start up a Seniors Helping Seniors franchise, and the net worth requirement is well within reach of many prospective franchisees. Culturally, Seniors Helping Seniors is more focused on the satisfaction that comes with doing good works than with profit above all else. That said, corporate support is somewhat thin, as franchisees are expected to self-motivate, and care delivery is more customized than that of many competing franc
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