Opening a franchise can be a great way to grow capital and expand into commercial real estate. However, as with all business ventures, they’re not guaranteed to succeed. Oftentimes, the franchise brand plays a large role in its success based on name recognition, fees, industry, and other factors. As we go further into 2020, these categories and brands top our list as the most likely to offer a return on your investment.
PRC Commercial Real Estate Loans Top 5 Franchises to Buy in 2020
The Pros and Cons of Owning a Franchise
Franchising is about risk reduction; they provide a higher chance of success as a business owner. Franchise owners receive training, guidance, and support from the franchisor, but they are required to run their individual location and adhere to specific standards and operating systems in order to maintain consistency and brand integrity. The biggest advantage of buying a franchise is the name recognition, as well as the training and support you receive from the franchisor.
However, franchises are not guaranteed to succeed, and the company is not going to bail you out if you have trouble. One of the main concerns when opening a franchise is the one-time franchise fee and the recurring royalties. Franchise fees can range from $20,000 to over $2 million. In addition, the royalties can be a flat fee or scale up as your franchise starts to succeed. Both of these options can work, but the one that’s best for you will depend on your short-term and long-term capital. In addition, because franchises have strict guidelines, business owners have less control over their decisions. Finally, franchise contracts can have long terms, and if you’re unhappy with the franchise, it can be time-consuming and expensive to get out of the contract.
What Makes a Successful Franchise?
Franchises can be less risky than opening a startup because owners can take advantage of an established operating system, target market, and ongoing support from the parent company. Successful franchises have several qualities in common. Several of these factors include having good brand recognition, a positive track record, and a unique offering. Equally important are the franchisor-franchisee relationship and the entry costs and ongoing fees. Franchise owners that are unhappy with their agreement may feel better off opening an independent store in the same industry or may find the fees too high to operate at a profit. Consider the industry and franchisee retention of a franchise before deciding on one to buy, and carefully look over the Franchise Disclosure Document (FDD) to gain an understanding of the franchise’s costs and fees, retention rates, and more.
Rising Industries/Categories
If you don’t have a specific industry or franchise category in mind, it helps to look at growing trends. In 1995, video rental stores probably seemed like a safe bet for the long-term, but there is only one Blockbuster with its doors still open. Industries such as fast food still have large profits, but healthier-sounding fast food stores are on the rise. Still, if you have experience in an industry, you’re likely better off going with what you know than choosing an industry with which you’re completely unfamiliar.
Some of the industries with the best chance of earning a return on your investment include the following:
1. Food and Beverage
2. Senior Care
3. Staffing
4. Beauty and Grooming
5. Retail
6. Health and Fitness
7. Signs and Design
8. Automotive
9. Finance and Tax Services
10. Travel and Hospitality
11. Cleaning Services
12. Education
These categories tend to be stable and have high enough profit margins to cover the cost of running the franchise and paying royalties.
Top Franchise Brands
Well-known franchise brands such as McDonald’s often have extremely high profits, but initially opening a store will be more expensive for the privilege of using such a well-known brand, which ultimately lowers your profit margins. However, with such high gross sales, the overall amount of profit you bring home is still very high. While profit margins and fees are often the first concern you may have when searching for a franchise, there are many other factors that impact how beneficial a franchise brand can be. Because the training and resources that a franchisor provides, having a solid support network can be key to your franchise’s success. In addition, the franchisor’s brand recognition, ability to grow, and corporate financial health can all affect how successful an individual franchise will be.
We compared several factors, including the cost and fees, brand growth, franchise support, and financial strength and stability to compile our list of the top franchises to buy in 2020.
- FASTSIGNS
- FASTSIGNS is in a rapidly growing industry. They offer training and support, including site selection, and their franchise fee is just shy of $50,000.
- Re/MAX
- Re/MAX is a well-known brand in a high-profit industry that has been established for over 40 years. Though the overall initial investment may be high, the franchise fee is typically just $25,000 to $30,000.
- Dunkin’
- Dunkin’ reigns supreme in the Northeast, and they have a solid hold on the breakfast and morning routine market. Though rather expensive to open, with franchise fees up to $90,000, they offer a solid support network.
- MaidPro
- MaidPro has the benefits of possibly creating recurring customers and not having to worry about wasted overhead. With a franchise fee of just $20,000, they’re inexpensive to start out.
- Planet Fitness
- Planet Fitness has an impressive five-year growth rate of 22% and a median annual operating income of $567,000. It also has a franchise fee of just $20,000.
Obtaining a Loan for a Franchise
Some lenders offer loans specifically for franchises, though you can finance a franchise with a traditional term loan. Some franchisors may also offer funding to help you establish your franchise. In addition, you may consider an SBA loan, which is backed by the Small Business Association and tend to have long term limits and lower interest rates. You also could consider non-traditional funding such as crowdfunding from investors.
At PRC Commercial Real Estate Loans, we offer financing to help streamline your commercial real estate loan. We connect you to government backed loan programs, and other creative small business financing solutions to help you succeed as a franchise owner in 2020 and beyond. We also offer financial advisory to help you determine which type of loan works best for you and your business needs. If you are interested in buying a franchise, reach out to one of the financial experts at Pioneer Realty Capital. To speak with an advisor, call 877-350-9416 today.
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