The nature of franchise ownership

Franchise ownership refers to a business arrangement where an individual or entity, known as a franchisee, gets the right to operate a business under a brand or trademark that’s already established. The established brand is owned by another entity and called the franchisor. The franchisee essentially purchases the rights to use the franchisor’s business model, brand name, trademarks, and operating systems.

A franchise relationship can be mutually beneficial since franchisees benefit from the recognition, reputation, and loyal customer base that the brand has already built. This can give them a competitive edge over independent businesses that need to establish their brand from scratch.

Franchisors also typically provide comprehensive support to franchisees. Franchisees can leverage the expertise and resources of the franchisor, helping them navigate the challenges of starting and running a business.

A business in the franchise industry operates based on standardized systems and procedures established by the franchisor. Franchisees are expected to adhere to these guidelines to maintain consistency and ensure that customers receive a similar experience across different franchise locations. This includes aspects such as product/service quality, branding, store layout, and customer service.

Factors to consider when choosing a franchise

There are several considerations you’ll want to make when you’re considering whether to start franchising, or which is the best franchise to choose.

These include:

• Profitability: You’ll want to make sure that the franchise you choose is profitable, first and foremost. Make sure the startup costs aren’t too extravagant, and that the franchise disclosure document shows a good amount of potential earnings. Make sure the local market isn’t too saturated to make a profit.
• Level of support: Look into how involved the franchise will be in getting your business up and running and keeping it operating. Check that there will be support in areas like the initial training, ongoing guidance, and assistance in areas such as site selection, marketing, and operations. 
• Fees: Franchise ownership typically involves an initial franchise fee and ongoing royalty payments to the franchisor. The franchisee may also be required to contribute to advertising or marketing funds. In return, franchisees gain access to the franchisor’s brand, support, and business model, which can help them increase their chances of success.
• Autonomy: While franchisees enjoy the benefits of an established brand and support from the franchisor, they also operate within certain limitations. Franchise agreements often outline specific rules and guidelines that franchisees must follow. This can restrict the franchisee’s ability to make independent decisions or deviate from the franchisor’s established business model.
• Expansion opportunities: Franchise ownership can provide opportunities for growth and expansion. Franchisees may have the option to open additional franchise locations within a specific territory or even expand into new territories. This allows franchise owners to leverage their success and build a larger business network.
• Contract: Franchise ownership is governed by a legal agreement between the franchisor and the franchisee. This franchise agreement outlines the rights and obligations of both parties, including the term of the franchise, fees, termination conditions, and intellectual property rights.

What businesses will thrive in 2023?

While no one has a crystal ball to see into the future, there are some educated guesses we can make about what sorts of businesses will probably do well in 2023. Based on historical trends, you can expect the following six popular franchises to thrive:

• Fast food and restaurants — The top franchises in the U.S. are consistently fast food services, so it’s a good bet that they’ll continue to be some of the best franchise brands to invest in. Even before the COVID-19 pandemic, fast food and fast casual restaurants have done well, especially as franchises. Americans can be very loyal to their favorite fast food chains, and franchises provide consistency and give the customer what they expect. 
• Convenience stores — Whether they’re on the corner in an urban neighborhood or attached to a rural gas station, convenience stores are very popular franchise opportunities across the U.S. 
• Fitness and wellness chains — In the past few years, gyms and other fitness service providers have become some of the top franchises in the U.S. Crossfit, high intensity interval training, yoga, and pilates are all extremely popular. 
• Hair salons and beauty services providers — Franchises that provide beauty services like haircuts, hair styling, nail services, waxing, and similar services tend to do well. 
• Cleaning and janitorial services — With offices opening back up, people are looking for help keeping spaces clean. Cleaning services are also in high demand for personal homes, rental properties, and hotels. 
• Real estate services and property management — While the market may be cooling off in some places, residential real estate is still going strong in many places, and 2023 should continue the trend. Property management companies are also growing, as buyers need help to manage real estate that’s being used as rental property or short-term rentals. 

If you’re a small business owner looking to convert into a franchise in 2023, these are some good ideas of industries that will probably do well.

What was the most profitable franchise to own in 2022?

According to SmallBizTrends.com, these were the top 10 most profitable franchises last year:

1. Anytime Fitness
2. McDonald’s
3. UPS Store
4. Jersey Mike’s Subs
5. Dunkin’
6. Sport Clips
7. 7-Eleven
8. Papa Johns
9. Mathnasium
10. JAN-PRO

What is the #1 most profitable franchise?

SmallBizTrends.com found that the most profitable franchise in 2022 was Anytime Fitness, which is a popular gym with potential for high profitability. Monthly fees for members and personal training bring in the majority of its revenue. The initial investment to start an Anytime Fitness franchise falls between around $381,000 and $783,000. 

Which is the fastest growing type of franchising?

There is a wide variety of types of franchises that are growing in popularity, including:

• Fast food
• Convenience stores
• Retail stores
• Real estate
• Fitness
• Education and tutoring
• Cleaning and janitorial services
• Hair salons
• Business services

Choose the one that makes the most sense for your finances, your location, your abilities, and your interests.

What is the fastest growing franchise in the world?

According to Entrepreneur, the fastest growing franchise in the world for 2022 was 7-Eleven. Convenience stores are one of the best franchise opportunities for business owners because they provide a range of options and services for people. 

Century 21 Real Estate was the second fastest growing franchise in the world, followed by KFC in third place. These franchises also represent some of the most popular franchise opportunities currently on the market. 

What are the top 3 businesses with the most franchises?

When looking globally, AmericasBestFranchies.com found that three fast food franchises have the highest number of franchises around the world:

• McDonald’s
• Subway
• KFC

These franchises can appeal to customers all over the world and currently have establishments in many countries.

What is the biggest franchise right now?

According to AmericasBestFranchies.com, McDonalds is the leading franchise across the globe — and has been for decades. There are currently more than 38,000 McDonald’s locations around the world. A big part of the reason McDonald’s keeps growing is its investment in technology and improvements made to its menu in recent years.

Is owning a franchise passive income?

While owning a franchise can be a lot of active work, if you set up your business properly, it can be passive income. Many franchise owners go into the business with the intention of building passive income. By using the business model, they may own multiple locations of the same franchise business to do so. But it’s important to recognize that you have to put hard work in the beginning of your franchise to ensure its success. 

Why do franchises fail?

As a business opportunity, franchises may seem like a great investment. According to FranchiseWire, they have a lower rate of failure than most startups. But there are several reasons that a franchise might fail:

• Choosing the wrong franchise for marketing conditions — It’s important to determine if the local market has enough demand to support your franchise. Doing research before you agree to take on the franchise can make all the difference. 
• Undercapitalization — It takes money to run a business, including a franchise. Even though the franchisor should have a number of the important operating processes set up for you — including branding, daily procedures, and the overall business model — you need to make sure you keep up with regular costs like inventory, marketing, and payroll, all beyond your initial investment and any royalty fees. 
• Overestimating skills — Even with a good operations manual and plenty of training and support, a franchise owner needs to have good management skills, including communication, time management, and sales capabilities. Before you start a new franchise, make sure you know how much work will truly go into the business and be honest with yourself regarding the skills you have to make it a successful franchise.  
• Disinterest — As with any business, if the business owner isn’t interested in running the company, there’s a good chance they won’t succeed. It takes effort to make a franchise succeed, even with help from the franchisor. 
• Lack of support from the franchisor — Most franchise owners get support and training from the parent company, but not all franchise owners get what they need to ensure success. When you’re researching a franchise, make sure you know just what to expect from the franchisor, especially if this is your first time starting a business. 

How much money do you need to start a franchise?

Franchise cost is a major factor in deciding to start your own business through a franchise. Depending on which franchise you opt to start, you can expect to need as little as $10,000 or as much as $5 million, according to ADP. Most franchises tend to cost between $100,000 and $300,000 in initial investment, depending on the industry and location, as well as what type of franchise it is. There are low-cost franchises available, although they may not be as profitable or successful as other franchise opportunities. 

There are many startup costs associated with starting a franchise, including the initial franchise fee. The total investment required may be more than those first few payments, so make sure you go through the franchise disclosure document (FDD) fully to understand other costs, like royalties.

Other startup costs you can expect as part of your total investment in the franchise are:

• Real estate costs
• Property improvements 
• Equipment, inventory, and supplies
• Furniture and fixtures
• Employee training
• Marketing and advertising 
• Insurance

Because a franchise can take some time to be profitable, you’ll want to make sure that you have enough working capital to cover the costs of owning and operating the business for at least a few years. Having liquid cash available for payroll and other expenses is vital to your business’s success until your gross sales catch up to your business expenses.  

You may consider business financing to help you with the franchise cost, such as small business loans. In order to qualify for most loans, you’ll need good personal and business credit. Of course, having business credit means having a business. So, if you’re just starting out with a franchise, you probably don’t have credit history as a business owner. It’s a good idea to learn how to establish business credit before you start looking into business loans.

Business credit cards are another way to help you get working capital to start your business, and they tend to be easier to qualify for than business loans. But they do often come with higher interest rates, so it’s important to make sure you can afford to pay the monthly minimums so you don’t build up too much high interest debt.

Nav can help you find the right business financing to start your new franchise. We take basic information, like your credit scores and annual revenue, and help determine which options you’re most likely to qualify for. Sign up today and start seeing your financing opportunities.  

FAQs about popular franchises

Is owning a 7-Eleven profitable?

As with any business, profitability depends on how well you run the business. The Lewer Companies, who run the 7-Eleven franchise, do offer quite a bit of support for franchisees, including building and real estate expenses, equipment advertising, training, bookkeeping and accounting, and business advising, all of which can be very helpful for a franchisee. They also split gross profit with franchisees and offer health benefits, retirement planning, and other employee benefits. Finally, 7-Eleven offers a franchise financing program which can help cover most of the cost of opening the store as well as inventory and operating expenses. This is an unusual franchise offer, and may help ensure success. Still, you have to make sales numbers in order to be profitable, and a 7-Eleven franchise owner will take about 5% of the store’s sales as profit at the end of the day. 

How much is a Domino’s franchise?

According to Franchise Help, you can expect to pay anywhere from $120,000 to $462,000 to open a Domino’s Pizza franchise. While the initial franchise fee is $25,000, other investment costs add up. The royalty fee is 5.5% and the franchise agreement is 10 years, with the opportunity to renew. You should also plan to have at least $75,000 in liquid cash to start the franchise. 

How much is it to buy a Taco Bell franchise?

While the initial fee to franchise a Taco Bell is $45,000, the company won’t approve you as an owner unless you have at least $750,000 in liquid cash available. You also have to have a minimum net worth of $1.5 million or more, according to Eater. Overall, you can expect to spend upwards of $1.2 million to start a Taco Bell, although the average yearly sales will usually top $1.4. million.   

How much is a Papa John’s franchise?

Franchise Help estimates that you can spend anywhere from $130,000 to $850,000 to open a Papa John’s Pizza franchise. The initial fee is $25,000, but they require you to have $250,000 in liquid cash to consider you as a franchisee. There are non-standard Papa John’s Pizza franchises that cost less, with a franchise fee of $5,000. You should still expect to pay at least $27,000 to open a non-standard Papa John’s. 

How much is a Starbucks franchise?

Starbucks stores are all company-owned, which means that they don’t technically offer franchise opportunities. However, they do offer some licensing opportunities, which allows you to open a Starbucks store in facilities or businesses. Licensing gives the parent company more control than a franchise opportunity. If you wish to license a Starbucks, you can expect to pay at least $315,000 on average. The company requires that you have $700,000 in liquid assets in order to be considered as a licensee, according to Yahoo.  

What support does a franchisor provide?

A franchisor typically helps the franchisee in many ways. These include initial trainings, site selection, build-out of the site, operation and procedure manuals, marketing and advertising materials, and ongoing support with regular communication and field visits. They can also help the franchisee get better terms with vendors and suppliers and provide the technology needed to operate.

Are franchises less risky than starting a business from scratch?

Franchises are often considered less risky than starting a business from scratch, primarily due to the support and established systems provided by the franchisor. The brand is already established, the franchisee receives initial and ongoing support, and the processes are already standardized. However, there’s always some risk. Franchisees are subject to the success and reputation of the overall franchise system, and individual franchise locations can still face local market conditions and competition.