Christian Brothers Automotive Franchise Owner, Matt Hunter
Franchise Business Review has been researching, surveying, ranking, and reporting on the top franchises in North America for over 17 years. In delving into the data, year after year, there is one undeniable truth that consistently shines through. The potential success of a franchisee is significantly better when a franchise demonstrates high franchisee satisfaction. We all want to be profitable and reap the financial rewards of our hard work. But we also want satisfaction and fulfillment. The fact is that satisfied business owners and employees perform better. Our list of the Most-Profitable Franchises is a great place to start your research.
Finding the right franchise for you should be a very individualized process, one that matches your financial and business goals as well as your unique personality traits, skills, and interests. Our list of the Most-Profitable Franchises provides data and insights on profitable franchise opportunities that also have high franchisee satisfaction ratings. As you conduct your research, we recommend that you review our Most-Profitable Franchises list as well as these five key considerations. But first, here are five tips to help you along your journey.
1. Follow Your Passion
The most successful franchise owners are extremely passionate about their businesses. They often choose a business segment that not only interests them but inspires them. What’s your passion? What are your priorities? How would you most like to spend each working day? Look for a business concept that interests and excites you, and listen to your gut.
Do your due diligence. Compare multiple franchises in the same business sector and the aspects of each that are most important to you. Once you narrow your search to one or two brands, talk with franchise owners about their experiences as owners. When you discover the right business—one that makes sense both on paper and also ignites your passion—you’ll look forward to waking up every day to grow your business!
2. Look for High Franchisee Satisfaction
High franchise owner satisfaction drives high performance—and vice versa. While there are thousands of franchise investment opportunities available today, two-thirds of franchise businesses are rated average or below-average investments. Every franchise company will tell you that they are above average, but the truth is in the data.
Every year, Franchise Business Review invites all franchise companies based in North America with 10 or more franchise owners to participate in our franchisee satisfaction research at no cost. Through this in-depth research, we reveal the Top 200 Franchises with the highest satisfaction ratings. From our Top 200 Franchises list, we narrow the field even further to share data and insights based on business segments, areas of interest, investment levels, most profitable franchises, recession-proof franchises, and other criteria. We do this to not only recognize and celebrate the top franchises but also to help empower potential franchise owners to make better-informed investment decisions.
3. Develop a Realistic Financial Plan
Many franchise companies share their “top line” or gross sales/revenues. And while a healthy top line is certainly important, it is the bottom line or net income/profit of the business that really matters. When you’re talking with franchise companies, collect as much financial information as you can to gain a solid picture of the typical gross sales of the business, common expenses, cost of goods, and profit margins.
Most companies only put high-level information in their Financial Performance Representations (FPR), otherwise known as Item 19 of a Franchise Disclosure Document. Item 19 usually shows the average gross sales figures from a limited group of locations. This is a starting point but gross sales figures don’t really provide the whole picture of business profitability.
Develop your business plan based on realistic financial projections. Ask other franchise owners how long it took for their business to ramp up and start generating profits. Be sure to budget accordingly, and have a solid cash reserve in the event that your business takes a little longer, or costs a little more to get off the ground.
“The potential annual income that a franchise owner can earn is an important metric, but there are many factors that come into play,” said FBR founder and CEO, Eric Stites. “Unlike employees, franchise owners build equity in their businesses. It’s important to look at the whole investment, and have a good understanding of the long-term value of a business, as well as the annual cash flow the business may produce over time. Much of the wealth that many business owners ultimately realize comes in the form of long-term equity, which they cash out when they sell the business.”
Wild Birds Unlimited, the nature retail franchise company, has one of the most detailed Financial Performance Representations in the franchise industry. The company discloses average gross sales figures, average owner discretionary income, as well as average new store profitability over their first three years of operation.
Paul Pickett, Chief Development Officer at Wild Birds Unlimited, told us, “We spend a great deal of time educating our franchisee candidates about our store economics and the financial investment requirements. We want our franchisees to love what they do, but we also want them to be financially successful doing it!”
4. Plan for the Long Haul
Business ownership is a long-term investment strategy. If you’re hoping to turn a big profit in just a year or two, franchising may not be the right path. That said, many people have built significant wealth over time through owning and operating franchise businesses.
An important consideration is understanding the difference between income and equity. Of course, you want to earn a great income! If you have a profitable business, any profits you personally take out of the business are considered income. On the other hand, equity is the long-term value of the business itself that ideally grows over time. Many business owners build much of their wealth in the equity in their business and are able to cash in on the equity they’ve developed over time when they ultimately sell the business.
As a potential new business owner, it is always a good idea, to begin with the end in mind. Have a clear understanding of your investment goals and objectives. Put together a long-term plan and hire a good accountant and franchise attorney to help review your plans before investing in any franchise business. Life always throws a few curve balls, but having a solid, long-term plan will give you a strong foundation on which to build.
5. Franchise Success Requires Hard Work
Many franchisees tell us that building their franchise business was the hardest, but the most rewarding thing they’ve ever done. While franchising offers many great opportunities, owning and operating a successful franchise business requires a lot of hard work. The most successful franchisees we talk with every day have worked really hard to get to where they are.
“It’s important to have realistic expectations of what business ownership is all about,” explains Eric Stites. “Most franchise businesses—like any new business—require several years of hard work before they start to really take off. Many franchisees tell us that building their franchise business was the hardest, but most rewarding thing they’ve ever done.”
Before investing in any franchise, ask yourself the tough questions and do your due diligence. Reviewing our Most Profitable Franchises list based on franchisee satisfaction and key financial criteria is a great place to start.
Our Criteria For This Year’s Most Profitable Franchises
Our selection criteria for choosing this year’s Most Profitable Franchises were very stringent. We surveyed over 30,000 franchisees across more than 300 leading franchise brands.
First, we eliminated franchise concepts that have a minimum startup capital requirement of over $250,000. While this eliminated many solid companies right out of the gate, we wanted a list of highly-profitable franchise opportunities that were more financially attainable to the average franchise candidate.
Next, we looked at average franchise owner incomes from our most recent research data. While the median annual income for franchise business owners across all industries is under $100,000 per year, we wanted potential franchise investors to have a better-than-average shot at growing their annual income to a six-figure salary within a few years. Investing in any business comes with risks, and your financial success is never guaranteed. That said, we only selected brands that had at least 25% of their franchise owners earning annual incomes of $150,000 or higher.
Last, we looked at franchise owner satisfaction. Our list includes highly profitable franchises that also have outstanding franchise owner satisfaction. We know from our research that high satisfaction drives high financial performance. Strong franchisor-franchisee relations are at the core of successful franchising. In the end, we settled on 50 franchises that offer both a strong financial opportunity, as well as extremely high satisfaction among their current franchise owners.
Owner satisfaction, profitability, and long-term return on your investment are three of the most critical factors to consider before investing in any franchise business. We think our 2022 Most Profitable Franchises list is a great place to conduct your research.
