From Franchise Brand Review on January 4, 2016.
Franchising exemplifies the American dream. The 2015 economic output of over 780,000 independently owned and operated franchises in the United States was estimated to be $889 billion by the International Franchise Association’s (IFA) Franchise Business Economic Outlook report. While many brands and franchisees have achieved incredible success, not all franchise systems or franchisees are successful. Prior to investing in a franchise, it’s crucial you spend time to determine if franchising is right for you and which franchise best meets your business and personal objectives. A great place to begin your research is by reading this report, which takes you through factors you need to consider in order to give you confidence in your decision. We also feature 200 franchise brands that were ranked highest in franchisee satisfaction by those who know best—the franchisees who own them.
THE BENEFITS OF FRANCHISING
“Strong reasons make strong actions.” (King John)
The numerous advantages franchising offers over starting a business from scratch (see p. 8 of PDF) has led to its being one of the fastest-growing sectors of our economy. The primary benefit of investing in a franchise is that your chance of success is typically higher because you have a recognizable brand name and the support of a proven system. The franchise provides you with all the tools you need to succeed—training, marketing, and more. In addition, the franchisor keeps an eye on and makes plans to address possible issues so you don’t have to.
“I decided to invest in a Truly Nolen franchise in order to grow quicker by utilizing its corporate assets including its marketing department, fleet management, and corporate buying power,” says Truly Nolen franchisee Chris Ashley.
“Our focus is always on helping to maximize profits for our franchisees,” says Rick Silva, CEO of Checkers and Rally’s. “To help do so, we invest in innovation regarding every aspect of our business, which keeps it fresh for our guests, our employees, and our franchisees. Our menu is continuously evolving, we are constantly innovating in operations, and we harness new technology and systems. As a result of these and other efforts, we have achieved four consecutive years of same store sales growth system wide.” Silva’s advice to new franchisees is to ensure you have the right structure and support to handle all aspects of the business. He says it’s common for new franchisees to underestimate the time and expertise necessary to be successful.
When asked why she entered into franchising, Amazing Athletes franchisee Sue Anne Bigelow says, “You are part of a bigger community that has the same goals in mind, yet you have all the power and control to run your business independently and successfully.”
FINDING THE PERFECT MATCH
“Go wisely and slowly. Those who rush, stumble and fall.” (Romeo and Juliet)
There are hundreds of franchises within multiple sectors to select from as you can see from this year’s Best of the Best List (see p. 10 of PDF). Each one has a different vision, ideas, direction, and success track record. To help narrow down your choices, look at your skills, likes, background, training, and qualifications and build these factors into your choice.
“My husband and I spent almost a year researching franchises. We were looking for one that had the perfect combination of product offerings, investment cost, growth potential, and time commitment,” says Happy & Healthy Products franchisee Kim Cunningham. “As the mother of three children who I homeschooled, the Happy & Healthy Products home-based business model and its 100% natural frozen fruit bars and other snacks appealed to me.” Cunningham, who opened her franchise in 2010, expects her gross revenue will be $1.5 million within five years’ time.
Although 89% of franchisees Franchise Business Review surveyed for this report replied “Agree” or “Strongly Agree” in response to: “I enjoy operating this business,” our research shows that the five sectors with the most satisfied franchisees are: Sports & Recreation, Advertising & Sales, Real Estate, Senior Services, and Services. Each outperforms our overall franchisee satisfaction benchmark in every category including financial opportunity, training and support, leadership, operations and product development, core values, general satisfaction, and the franchisee community.
Strong franchisee satisfaction year-after-year is also something to look for when considering a franchise. Franchise Business Review’s Hall of Fame members are franchises that have made our list 10 separate times. This year’s newest inductees are:Budget Blinds, Palm Beach Tan, TeamLogic IT, and Truly Nolen.
It’s also important to see if the franchise you are considering has the traits that all successful franchises share. Our analysis of the top 20 franchises within this report—Culver’s, Pinot’s Palette, Precision Concrete Cutting, Sotheby’s International Realty, Home Instead Senior Care, Visiting Angels, Kona Ice, Wild Birds Unlimited,Budget Blinds, CertaPro Painters, FASTSIGNS, Heaven’s Best Carpet Cleaning,Zaxby’s, MaidPro, Sandler Training, Proforma, Sanford Rose Associates, Better Homes and Gardens Real Estate, Painting with a Twist, and The Exercise Coach—revealed the following:
- Over 94% of their franchisees believe (agree or strongly agree) their franchisor acts with a high level of Honesty & Integrity, compared to 80% of all other franchisees surveyed.
- The top 20 franchises outperformed the overall benchmark by 28% in the Training & Support category, the largest discrepancy observed across all of our survey categories, particularly regarding questions related to Marketing & Promotions, System-Wide Communications, Use of Technology, and Ongoing Training & Support.
- While there are no significant differences in weekly hours worked or frequency of working nights or weekends, franchisees of the top 20 franchises reported more flexibility in their schedules—78% said their schedules were flexible or very flexible compared to 68% of all other franchisees.
When narrowing down your franchise choices, how much money you can make is probably right up next to which sector you’ll enjoy working in the most. Our analysis of franchisees who have owned their business for two or more years determined the following sectors yield the highest average net income: Senior Care, Real Estate, Health & Beauty, Business Services, and Food. In general, 82% of franchisees we surveyed replied “Good”, “Very Good”, or “Excellent” in response to: “Overall, how would you rate your franchisor and the opportunity provided by this franchise system?”
“In our first year of business in 2004 we made $270,000 in gross revenue,” says Visiting Angels franchisee Carl Knight. “We are on track to earn $2.5 million in gross revenue in 2015 and project that we will generate $3 million in 2016.”
“Our franchisees who have been open for 24 months or longer average $1.275 million in gross revenue,” says Mike Stone, President of CertaPro Painters. Stone attributes these figures to several factors including CertaPro’s high level of franchisee training, its emphasis on brand experience, and its “Path” program, which is a step-by-step road map on how to build a profitable painting business. It shows franchisees the way to grow their business in terms of business mix, leadership development, hiring order, online support, and training.
Do not make the mistake of equating business gross revenue with personal income. In most cases, a franchisee’s personal income is significantly lower than the profits that their business generates. To determine how much income you might make, the cost of labor, rent, supplies, insurance, royalties, ad fees and all other business expenses must be deducted from the gross revenue figure. If the Franchise Disclosure Document (FDD) of the franchise you are considering has an Item 19, Financial Performance Representations, you will be able to obtain insight regarding gross revenue. Speaking with as many franchisees within the system you are considering is a good way to find out how much actual profit they make. You will likely discover that profit varies greatly from one franchisee to another. We believe having a solid understanding regarding how much money you may make by investing in a franchise is so critical, that we created a three-hour online course entitled “How Much Money Can I Make?”. It is available as part of our Franchise Buyer’s Toolkit at www.FranchiseBusinessReview.com/toolkit.
Once you have whittled your franchise choices ideally down to three, the next step is to thoroughly investigate them to ensure they have staying power and to find out if they have the expertise and resources you need to be successful. The best ways to find out if they do are to ask the franchisor (see p. 20) and franchisees (see p. 21) pointed questions. In addition, you can ask the franchisor if they have third party franchisee satisfaction data to share with you. Many of the franchises featured in this report share their full franchisee satisfaction survey results at www.FranchiseBusinessReview.com.
“Before you purchase a franchise, talk to as many franchise owners as you can,” says DreamMaker Bath & Kitchen franchisee Lee Willwerth. “Do everything possible to understand the financial prospects of the business model, and make sure you are being liberal with your assumptions of the cash required to start the business. Always assume it will take more cash than you think and more time than you think to get to profitability. It takes time to learn the ropes in a new industry.” Willwerth says that achieving work/life balance was the main reason he went into franchising. Although it took many years, he says the business, which he purchased in 2004, now runs well without his presence. Prior to going into franchising, Willwerth owned a custom software development business that required him to travel extensively.
We recommend that before you sign any agreement that you should carefully analyze the FDD and engage the services of a franchise attorney. He or she can alert you to any red flags.
“Be sure to have a franchise attorney review the franchise contract,” says CruiseOne franchisee Paula Kaisner. “They’ll notice important things you most likely will not and can help clarify any questions you have.” Kaisner says she loves her job because she can focus on the travel products that interest her most and work whichever hours are best for the business and herself.
A step-by-step breakdown regarding how to strategically invest in the right franchise is presented in our Franchise Buyers Toolkit.
WHAT FRANCHISORS SEEK IN FRANCHISEES
“We are such stuff as dreams are made on.” (The Tempest)
You may think you are in the driver’s seat when it comes to which franchise you’ll purchase, but franchisors are selective about who they allow to join the brand. They will be looking at the qualities you possess as well as your finances to ensure you are a good fit for their network. They will not necessarily look for you to have any industry-specific experience, but for you to have a proven track record of success in your career.
“Our franchisees do not need painting experience,” says Stone of CertaPro Painters. “They must, however, have leadership attributes including confidence, persuasiveness, and tenacity. They are not going to be painters, they are going to be business leaders.”
“We look for someone who isn’t going to let their ego get in the way of following our system and is able to build strong relationships,” says Larry Meigs, CEO of Visiting Angels.
“Franchisees must be willing to do the work on the front end to build their business,” says Mike Powers, Managing Director of Painting With a Twist. “There is no substitute for being personally present, interacting with customers, and leading your team.”
FUNDING YOUR DREAM
“To raise a present sum: therefore go forth.” (The Merchant of Venice)
It’s essential to crunch the numbers in order to know how much you will truly have to invest in getting a franchise open and running prior to purchasing one. Franchise fees range from as little as $500 to millions of dollars and set-up fees vary greatly as well. Almost all new franchises require initial advertising, inventory, and promotional expenses. Others may involve build-out, inventory, equipment, insurance, rent, signage, grand opening, and other costs. In addition, you must be certain to have enough money saved to live comfortably until your business is generating enough profit to provide you with some income. Once your business is off the ground, ongoing expenses will include royalties, marketing, and interest payments if you took out a loan. Depending on the franchise model, additional ongoing expenses may include rent, utilities, lease payments, salaries, uniforms, and more.
“We realize that the wheels of long-term franchise growth are oiled by the profitability of our franchise partners,” says Powers. “Our zero royalty and no mark-up policies on alcohol sales and mandatory supplies help them to maximize profitability and fuel future growth.”
Regarding financing your franchise, many franchises facilitate third party financing. Home equity loans, 401K rollovers, and loans from friends and family are popular options for people purchasing a franchise for $100,000 or less. Small Business Association (SBA) backed loans and conventional bank loans are commonly used to purchases more costly franchises. Our Franchise Buyer’s Toolkit provides a detailed franchise funding walkthrough as well as other tools that will help you successfully navigate a franchise purchase. We also offer a full suite of financing services to ensure you get the capital you need at www.fbr50.com/franchise-financing-options/.
“We have several preferred lending partners that are eager to lend to our franchisees and support their growth,” says Silva of Checkers and Rally’s. “We’ve also leveraged a long-term relationship with BoeFly that provides franchisees with access to over 5,000 lending options.”
“I worked with Guidant Financial to fund my franchise fee through my 401K,” saysSandler Training franchisee Rochelle Carrington. Carrington said she chose to leave her magazine publishing sales career to enter franchising because she wanted a better work/life balance. “I am able to attend all of my girls’ events and love setting a great example for them about what you can accomplish as a business owner.” She purchased her franchise in 2007 and reports having $1 million gross revenue in 2015. She estimates that the gross revenue of her business will be $1.2 million in 2016.
BECOMING A FRANCHISEE
“Things won are done; joy’s soul lies in the doing.” (Troilus and Cressida)
From first thinking about going into business on your own, to finding out about franchising, to choosing and researching a franchise takes time. We can’t stress enough how important it is that you do your due diligence in order to ensure the franchise you choose is within a strong market that will hold its appeal to both clients and you for years to come, in good economic times and bad.
“As an international organization, we’re always participating in a recession somewhere, yet our model succeeds because our core clients consist of small to medium-sized businesses that are less recession fragile than larger companies and because of the depth of our programs, which means we have ones that fit every budget,” says Dave Mattson, President & CEO of Sandler Training. “In addition, our technology enables us to deliver long distance training, which eliminates the need for travel expenses.”
“Healthy and delicious never goes out of style,” says Linda Kamm, CEO of Happy & Healthy Products. “People have been seeking out our good-for-you grab-and-go 100% natural gluten-free products for nearly 25 years.”
Success in franchising—as with any small business—requires patience.
“It is important to remember that owning a business is a marathon, not a sprint. Don’t expect to see results right away, it takes time to build a book of business and become profitable,” says Debbie Fiorino, Senior Vice President of CruiseOne/Dream Vacations. “Make sure to create a business plan and set goals that are attainable, to take advantage of every training opportunity so you can better serve your clients and provide them with a remarkable experience, and network with other franchisees to learn from them.”
There is no doubt that franchising is an incredibly rewarding career for many.
“It’s hard work, but at the end of the day we feel like we are giving back by providing a needed service,” says Visiting Angels franchisee Carl Knight. “We enable people to stay in their homes and adult children to have a parent/ child relationship with their parents instead of being in a caregiver role.” His advice to new franchisees is not to expect to make six figures in your first year and to hire people before you need them so that you can better transition from being self-employed to being a strategic business owner who focuses on directing and navigating the business. When he began as a Visiting Angels franchisee in 2004, Knight did all the hiring, firing, scheduling, bookkeeping, and marketing. Today he has two managers and he took 17 weeks off last year.
“Owning my franchise has given me the flexibility of being my own boss and the ability to control my own destiny,” says U.S. Lawns franchisee Stephen Loomis. “I can make this business whatever I want it to be based on how hard I push it. Many people are afraid to try franchising because they want the security of a nine to five job; however, there is no greater security than knowing that you own something that cannot be taken from you and that you can create as much wealth for yourself as you want.”
As you explore franchise concepts, please keep in mind that, as Fiorino alludes to, a franchise is not a get-rich-quick investment. Just like any small business, it requires time and effort to be successful. Also, it is important to realize that franchisees’ level of success within the same system varies. Some franchisees have incredible business acumen, while others do not. Some may be in a prime location, while others are not. Choosing the right franchise from the get-go will certainly improve your chances of success. A good place to begin your search is our List on page 10. Next, check to see if any of the brands you are interested in share their franchisee satisfaction reports at www.FranchiseBusinessReview.com. If they do, you’ll learn a lot about their leadership, culture, training and support, and financial outlook.