A franchise can be a way to enter entrepreneurship without starting from nothing. There are four key factors to consider when opening a franchise.
Franchising appeals to entrepreneurs who want to start a business without spending years building something from scratch. However, opinions about franchising can vary widely. “Some people say, ‘Oh no, that’s a terrible idea,’ while others love it,” says franchise consultant Teri Villanueva. To help her clients find the right franchise, Teri asks, “What’s the end goal? What do they want the business to accomplish for them?”
The International Franchise Association (IFA) recognizes more than 300 franchise business models in industries ranging from roofing to pet grooming. Some require a physical location and a large upfront investment, while others can be run from a home office or vehicle. Picking the right franchise opportunity depends on your priorities and resources.
What is a Franchise?
A franchise is a business model where you (the franchisee) operate a business under the established brand of a larger company (the franchisor). Franchising allows the franchisor to expand its reach through independent operators, while franchisees benefit from managing a business under a recognized brand with a proven business system.
“It’s basically a license to use the franchise’s trademark, systems, and name in exchange for an initial franchise fee and ongoing royalties,” explains Teri. “But with those royalties, you get a lot of support and training from the franchisor.”
Advantages of Owning a Franchise
1. Operating under a known brand
2. Access to a proven business model
3. Training and support
4. A community of other franchisees
If you want to start a business but don’t want to create everything from scratch, a franchise could be a good fit. Some benefits include:
Operating Under a Known Brand
One of the main benefits of a franchise is brand recognition. Building a brand like Taco Bell or H&R Block could take decades, but by opening a franchise, you can leverage their existing customer base—if you’re ready to cover the franchise fees.
Access to a Proven Business Model
When you join a franchise, you skip the need to create and test a business model. Instead, you follow the franchisor’s established operating system. “I hear good things from people who follow the system,” says Teri. On the flip side, “some people may not like the limitations.”
Training and Resources
Franchisors provide training to new franchisees to ensure consistency. This can be very helpful if you’re new to the field or to owning a business. “A common misconception is that you need prior experience in the industry,” says Teri. “The franchisor will train you on the industry and how the system works.”
Community
Starting a business can be lonely, but as a franchisee, you become part of a community. “You can see what other owners are doing and connect with them,” says Teri. “People are willing to help each other.”
Factors to Consider When Choosing a Franchise
1. Industry growth
2. Budget
3. Franchisor financials
4. Experiences of other franchisees
When deciding which franchise is right for you, Teri asks clients questions like, “Do they want a physical location or a home-based business? How much are they willing to invest? How many employees do they want?” Some key things to keep in mind:
Industry Growth
If you’re unsure which industry to enter, the IFA publishes an annual report on franchise growth predictions. According to Teri, franchises in personal services—like beauty, health, and education—are expected to grow the most in 2024.
“People are eager for experiences and pampering themselves after COVID,” says Teri, explaining why services like eyelash extensions and waxing are expected to do well. Other growth areas include quick-service restaurants, retail, and home maintenance.
Budget
Your finances play a major role in determining which franchises you can afford. For instance, opening a McDonald’s requires $500,000. Teri advises that if you’re opening a brick-and-mortar business, you’ll likely need at least $300,000. However, home-based franchises can start with as little as $100,000 to $150,000.
Franchisor Financials
While the franchisor’s profit doesn’t guarantee your franchise will be profitable, it’s a good starting point. You can find financial information in the Franchise Disclosure Document (FDD), which franchisors must provide to potential franchisees before signing any agreement.
Franchisors decide what financial details they share, such as average franchisee income or gross sales. However, as the FTC points out, high-performing units can skew averages, and gross sales alone don’t show profits.
Other Franchisees’ Experiences
To better understand potential earnings, Teri recommends talking to current franchise owners. “Ask other owners how many customers they needed to break even,” Teri suggests. “Get insights from those who are already in the business.”
Franchise Business Opportunities for 2024
1. Senior care
2. Day care
3. Child education and enrichment programs
4. Beauty services
5. Pet services
6. Quick-service restaurants
7. Second-hand retail stores
8. Home repair and renovation
There are hundreds of franchise options available. The right one for you will depend on your budget and goals. Here are some of the top opportunities for 2024:
1. Senior Care
With rising life expectancies, the demand for senior services, such as in-home care, is expected to grow. Businesses like Visiting Angels have lower start-up costs, around $125,460 to $171,150, and franchisees report average annual gross sales of nearly $1 million.
2. Day Care
Childcare services are expected to grow in 2024. For instance, The Learning Experience, which provides early education, has seen significant growth. Start-up costs range from $600,000 to over $5 million, and there are royalty and advertising fees to consider.
3. Child Education and Enrichment Programs
You don’t need a large building to enter child services. Mobile businesses like British Swim School offer a more affordable entry point, with first-year costs of around $110,000.
4. Beauty Services
Specialty beauty services like waxing and eyelash extensions are expected to see continued growth. European Wax Center, the largest wax service operator in the U.S., has start-up costs ranging from $396,600 to $554,950.
5. Pet Services
The pet industry continues to grow, with Americans spending $147 billion on pets in 2023. Pet Supplies Plus, for example, saw an average of $2.6 million in annual sales per store.
6. Quick-Service Restaurants
Quick-service restaurants (QSRs) remain a solid option in franchising. With rising real estate costs, QSRs often require less space than full-service restaurants. Kona Ice, a mobile food truck, is a popular low-cost option.
7. Second-Hand Retail Stores
Resale stores offering affordable, sustainable options are expected to attract more customers. Uptown Cheapskate, for example, has start-up costs ranging from $376,936 to $610,986.
8. Home Repair and Renovation
As home sales increase, services like fencing and roofing are in demand. Mighty Dog Roofing, with start-up costs of $200,000 to $300,000, has seen steady growth in this sector.
Franchise Business Opportunities FAQ
– What is the most profitable franchise business?
Visiting Angels, Wetzel’s Pretzels, and Taco Bell are some of the franchises with strong profitability.
– Do franchise owners make a lot of money?
On average, franchise owners make about $102,910 a year, which is higher than the U.S. average salary.
– Are there drawbacks to owning a franchise?
Franchisees have to pay upfront fees and ongoing royalties, and they have less control over how the business operates compared to starting a new business independently.
