A franchise business can be immensely profitable. As expected, the most proven, popular franchises, such as McDonald's and Tim Horton's, tend to have much higher franchise costs but are more likely to generate high returns on investment (ROI). Disadvantages of Owning a Franchise
How much money can you make off a franchise?
While a Franchise Business Review study revealed that the average franchisee earns a profit of $66,000 annually, that number varies greatly (from $50,000 to $500,000) and many factors impact those numbers. So, with this great variation, how can you really know how much money you can make?
Can I make money by owning a franchise?
The reality for most franchisees is somewhere in between. Exactly how much money YOU will make as a franchise owner is a difficult question to answer. There are many factors that will influence your potential earnings – the biggest of which include the brand you invest in and your own personal performance as a business owner.
How much money do the owners of various franchises make?
Our research shows that 37 percent of food franchise owners earn less than $50,000 per year, and just 16 percent – the “top performers” – earn more than $200,000 per year. The average annual income reported by all food and beverage operators that we surveyed is $120,000 for businesses open at least two years.
Can you make money starting a franchise?
The franchisor doesn’t actually make much money if any at all from the upfront fee that a franchisee pays to purchase a franchise business. The investment cost of a franchise opportunity is simply there to cover the cost for the franchisor in terms of bringing a new franchisee on board. Making strong investments in new franchisees will ensure they get off to a great start. The following fees are usually covered:
How much do food franchises make?
They assume food franchise owners are the biggest moneymakers, but according to a Franchise Business Review report, 51.5 percent of food franchises earn profits of less than $50,000 a year and only about 7 percent of food franchises have profits over $250,000.
How much does a cleaning franchise cost?
This model is not to be confused with buying cleaning contracts which is a totally different model with a much smaller investment. Also not to be confused with a MASTER cleaning franchise which is more about selling franchise contracts. A master cleaning franchise is a great business for people with sales experience, and the average gross for a cleaning master franchise is $2,800,000, top earners at $5,800,000 . A master cleaning franchise will have an investment range of between $240k and $400k.
Why do we call Franchise City?
Smart investors call Franchise City because we have all the data on file. But more importantly, not everyone has the skills or background to successfully operate a senior care or staffing franchise. If you are a bad fit, even with the top franchises, you will not make money. A Taco Bell will have people walking in and buying a taco, but it doesn't really matter if you have no business skills, or are not a good communicator. With senior care, staffing and service-based businesses in general the owner is driving that business forward and they need to have specific skills in order to succeed. We provide a detailed skills assessment to all our clients as part of our free service.
What is the highest grossing franchise on QSR50?
The single highest grossing food franchise on the QSR50 is Chick-fil-A. An average Chick-fil-A generates 4.16 million dollars annually and your investment is only $10,000. But keep in mind that Chick-fil-A has a very different franchise model than other franchises and owners do not receive a traditional revenue split, or even ownership of the store. You'll earn a solid six figures, have limited risk, be part of a solid organization with traditional values but you do not own the store or gain any equity.
How much does it cost to buy a McDonald's?
Buying a Mcdonald's will cost you between $1,263,000 to $2,235,000 not including your real estate. Many people think these numbers include real estate, they do not.
Do franchises track net revenue?
Franchises collect royalties on gross earnings, so they typically don't track the net. We help our clients gather the net numbers to make a more informed decision.
Do food franchises have 20% margins?
There are some food franchises that do have 20% margins or higher, but you have to know where to look. ( Contact Franchise City for details) Multi unit owners can do very well but a single unit, unless you have a great location, is not going to generate a lot of money. Let's look at other industries to compare, ...
Why do people think franchises are the best way to go?
Some people think franchises are the way to go because they’re an established brand. But you shouldn’t jump to the conclusion that franchise ownership is the best business decision for you. It’s essential to understand the pros and cons of franchises to understand if owning one is a smart way for you to make money.
Who Might a Franchise be Best for?
After reading through the pro’s and con’s, buying a franchise might make sense if:
Who Might Want to Avoid Franchises?
Many franchise owners do best working directly in their franchise and overseeing employees and operations.
What does a franchisee pay?
Franchisees pay a franchisor a variety of franchise fees depending on the business and licenses.
What are the pros and cons of franchise?
After reading through the pro’s and con’s, buying a franchise might make sense if: 1 You’re brand new to running a business from scratch 2 Want structure and support 3 Don’t want to create business plans, policies, protocols, or do tasks like marketing
What are the complaints about franchises?
One of the biggest complaints about franchises is how little flexibility there is with anything. From the uniforms, color schemes and decorations, to the hours your business can be open, to prices, and location – the franchise may direct every part of the business.
What to watch out for in a franchise broker?
Watch out for slick advertising from a franchise broker, promises of easy money with little effort, or fast approval of a franchise loan.
Why is franchising bad?
The problems with franchising occur when franchisees expect the brand to do the work—immediate business success and monetary gain because the brand already has a committed customer base.
When was Franchise.com founded?
A Trusted Industry Leader Since 1995. Founded in 1995, Franchise.com was one of the first franchise recruitment websites in the world. Today, we continue to be the 'go to' place for people beginning their business opportunity search and the journey of franchise ownership as well as for those already involved in the world of franchising.
Is franchising a risk?
Business owners play the game of risk and return, and it’s no different for franchise owners. After all, whether you’re starting your own business from the ground-up or taking the reins on a business-unit from a franchisor, there’s always some risk involved. Franchising is different because some of the legwork is already done; you provide an initial investment, and the franchisor provides the business model framework, brand, systems, and marketing.
Can owning a franchise make you rich?
There’s no such thing as a guaranteed, get-rich-quick model—and any franchisor promising this is seeking the uninformed and naïve. Franchising requires calculated risk, timely investment, and a focus on development: how long after opening will it take to be profitable? Can I invest the money I’ve made into purchasing additional franchises? Can I grow a single franchise’s revenue through customer service and increased sales? Are there any depreciating values in my business model? Ignore these, and any hopes of getting rich disappear.
Why can’t franchises tell you how much money you’ll make?
The intention of this restriction is to protect you, the franchise buyer. franchisors can choose to provide financial representations about their business in their FDD, which is based on past financial performance of corporate and/or franchise units. It is important to note that most FDD's are updated once a year (typically before the end of April of each year) and if a franchisor decides to make a financial representation in their disclosure document it will typically show financial data from the prior year.
What is the job of a franchise owner?
Your job as a potential franchise owner is to take that data and build your own financial projections while talking to other professionals ( franchise attorneys, accountants, and family / friends / advisors with related business experience). It is also recommended that you try to obtain financial information from current and former franchisees - you can find their names and contact information in Item 20 and Exhibits in the FDD.
Where do I find a franchises financial representations?
The FTC requires all franchisors to provide an FDD on their offering during the franchise buying process. If you'd like an FDD on any of our brands just ask us.
What is a franchise disclosure document?
Instead they can provide and reference data that they provide you in a standard format - called a Franchise Disclosure Document (FDD). This document discloses important nuanced information on the franchise offer. To learn more about FDD's read our guide to the Franchise Disclosure Document.
What is franchise purchase?
In short, the purchase of a franchise provides you (The Franchisee) the rights to a business model and its trademarks for a period of time, in a defined territory, in exchange you provide the Franchisor (entity that sold you the franchise) Royalties and other fees for the term of the agreement for ongoing support.
How long does it take to review a franchise?
It is important for you as the buyer to review a brand in a non-biased way, which is why the FTC requires that you spend at least 14 days reviewing the brand's FDD.
Does buying a franchise guarantee you will run a profitable business?
At the end of the day, you are a business owner running another brand's playbook that has the potential to fail or to succeed. Buying a franchise does not guarantee that you will run a profitable business, generate the same revenue, or incur the same expenses.
How much does a franchise make?
For example, according to a report in the Franchise Business Review in 2016, education and automotive franchises averaged approximately $106,000 a year before taxes, whereas travel and entertainment franchises earned an average of $38,000. The food and beverage industry franchise came in at around $90,000 before taxes. All that said, some restaurants make much less than that and others defy the odds and make upwards of $1 million. So how do you evaluate how much money your franchise can make? Read on.
What happens if you buy a franchise?
Even if you do your research and all of the factors present a green light to move forward, once you buy the franchise, you will need to work hard to ensure that your operational costs are in line. If they get off by just a half of a percent, your profit can be seriously undermined.
What are the factors that determine a business's profit?
A critical factor in business profit is location and local market factors . For example, a franchise business located in a new development in a high-growth area might be able to experience significant growth. However, if there ends up being an oversaturation of that type of business in that area, one cannot expect the same profitability. If you are buying a brick-and-mortar business, the key is locating your business in a high-growth, high-traffic area next to already successful businesses on the correct side of the road for travelers coming to or from work or another local attraction.
How to make sure your costs are controlled?
To make sure your costs are controlled, pay close attention to your profit margin. It takes a lot of vigilance to consistently monitor labor costs and/or cost of goods sold, but it is critical to maximizing your profit.
How to get more earnings information than the franchise might provide on item 19?
So, how do you get more earnings information than the franchise might provide on Item 19? The best way to get detailed, accurate financial earnings and cost information is from current franchisees. Many owners will be happy to help you understand the financial performance of their business. Keep in mind, they likely asked the same questions before they became franchisees.
Why do people start their own business?
While understanding the financial side and having accurate projections is imperative for obtaining a loan, keep in mind that money is not the only the reason people decide to start their own business. For example, it might be worth it to you personally to choose a franchise with lower profits so that you can enjoy a more family-friendly schedule. It really depends on your personal goals.
What is the best way to make a smart decision?
To make a smart decision, it’s important to do a thorough examination of past expenses and explore potential new expenses such as renovations.
Why do franchisees ask how much money can I make?
One of the fundamental questions that prospective franchisees ask is "how much money can I make?" For a lot of very good reasons, the Federal Trade Commission (FTC), the government agency that governs franchising, has not made answering this question a requirement to sell franchises. Some of those good reasons include the inability to access consistent reliable information across the entire franchise network, questions of accuracy, and whether the data is representative since some franchises have various business elements that make it difficult or impossible for some brands to answer this question.
What to do if a franchise isn't provided?
You need information to make an informed decision about a franchise to invest in. If it isn't provided, then you should ask for it. If they can't or won’t provide it, move on to the next franchise. There are thousands of opportunities for you to choose from. Remember, the power lies with you.
What is the highest ranked franchise in the lowest investment category?
Brightstar is the highest ranked franchise in the lowest investment category. Brightstar provided financial performance representations including gross billings, payroll costs, payroll related costs and gross margin for two of their locations along with the demographics of where those locations were situated the first year they started franchising in 2006.
How many franchisors provided financial disclosures in 2014?
In 2014, 52% of franchisors provided financial performance data voluntarily. This increased by 27% in two years, and by 2016 two-thirds of all franchisors provided some financial disclosures.
What questions do franchisees ask?
One of the fundamental questions that prospective franchisees ask is "how much money can I make?". For a lot of very good reasons, the Federal Trade Commission (FTC), the government agency that governs franchising, has not made answering this question a requirement to sell franchises. Some of those good reasons include the inability ...
What percentage of franchise credit score is based on financial performance?
Close to 20% of the total FUND score is based on franchisee financial performance. This is important because your access to financing and the loan terms you receive may be affected based on the franchise system’s credit score. The chart below outlines the score ranges and what it means to a franchisee borrower.
Why did the franchise system change?
The change happened because buyers demanded more information . The franchise systems that share financial performance data grow faster because buyers tend to invest in those franchise systems that help them understand whether the opportunity aligns with their expectations and business objectives.
How to start a franchise business?
Here are some things to keep in mind when researching franchise opportunities: 1 Talk with as many franchisees as you can and confirm that your business projections and income expectations are realistic. 2 Understand that most business owners can’t take any money out of the business for the first few years during the startup phase, and it may take you even longer to start paying yourself a salary from your new business. 3 Plan accordingly and try to have alternative sources of income (i.e. a spouse’s salary) to live off of while your new business is getting off the ground.
How much does a franchisee make?
In the case of our food and beverage franchisee data, the median annual income is around $70,000, and if we include startup franchisees (those in business for less than two years) the median falls to around $50,000. Only 34 percent of all food franchise owners earned more than $100,000 last year – and many earned much less.
What is the item 19 in a franchise?
Many franchisors have started including an Item 19—the “financial performance representation ”—as part of their F.D.D. The latest trend in Item 19s is providing both gross and net numbers in order to really give candidates and franchisees a better idea of potential profitability, not just top-line revenue. Franchisors told us they have become much more frank in their discussions with franchisees about what exactly they’ll need for capital in order to be successful.
How much do food franchise owners make?
Our research shows that 37 percent of food franchise owners earn less than $50,000 per year, and just 16 percent – the “top performers” – earn more than $200,000 per year. The average annual income reported by all food and beverage operators that we surveyed is $120,000 for businesses open at least two years. Not bad, until you factor in the long hours and high initial investment that come with many food businesses. The good news is that our top food franchises report average earnings 15 to 20 percent higher than their competitors.
Do people in franchising do well?
It’s true that some people in franchising – we’ll call them the top performers – have done very well for themselves. These are most often the people that end up owning multiple franchise locations and have built a successful team of people around them. This group represents only about 20 percent of the franchisee universe, yet it is their success stories that attract thousands of people to invest in a franchise every year.
Is it important to have a well capitalized franchise?
The importance of a new franchisee being well-capitalized cannot be overstated. Prospective franchisees should carefully review a brand’s Franchise Disclosure Document (F.D.D.) and ask current franchisees how much they recommend a new franchisee have in the bank before opening.
How much does a franchise owner make?
The same study found that the majority of franchise owners earn less than $50,000 per year, while 7% earn above $250,000. 1.
How does a franchise work?
Here's how it works: Each and every year , franchisees must pay the franchise a fee equivalent to a percentage of sales. It also means that no matter how successful you are as a business owner and how innovative you are at driving revenue, you'll always have two partners: Uncle Sam and company headquarters.
How much does Burger King charge for franchise?
The unfortunate part is that royalty fees are pretty standard in the franchise world. In fact, Burger King charges its franchisees 4.5% of sales in addition to a $50,000 franchise fee, and Dunkin' Donuts has its franchisees cough up 5.9% of sales each year in addition to a franchise fee that can range anywhere from $40,000 to $90,000, depending upon the location. Subtract payroll, food costs, and taxes—in addition to these royalties—and it's easy to see why being a franchisee may not entail the life of luxury you imagined.
How much does McDonald's franchise cost?
For example, when opening a McDonald's, the franchisee must not only pay money toward the location, they must also pony up a $45,000 franchise fee for the right to operate the business for a period of 20 years. After 20 years, assuming the company agrees to renew the contract, another $45,000 franchise fee is charged.
What is the most important factor in determining the success or failure of a franchise?
You've probably heard many times that "location, location, location" is the most important factor in determining the success or failure of any business. The point is, unless the franchise sets up shop in a favorable location that's going to support the business, the franchisee will have an incredibly difficult time making ends meet.
What is the most popular franchise in 2021?
The most popular franchise in 2021 is McDonald's, followed by KFC and Burger King, according to FranchiseDirect. Outside of fast food, the most popular franchises were 7-Eleven, Ace Hardware, and Century 21. 3.
Why are McDonald's franchises limited?
While most franchises will limit the number of stores they open in a given area because of fears of market saturation and diminishing returns , many franchises will still try to fit as many retail locations into a given area as possible. That's why it's not uncommon to see five different McDonald's locations within a five-mile area—the corporate head is trying to squeeze every last dollar out of the territory. But the individual franchisee is really the one who suffers. Every time a new location opens within close proximity, their potential market is cut.
