What are the Best and Worst Franchises to Invest In?

These days, there are hundreds of franchise business models to choose from. And as franchise consultants, we strongly advocate choosing the franchise opportunity  that best fits your passion, skills, and budget. Becoming a franchise owner will require a major investment of time, talent, and treasure. You will be putting in long hours (especially during the startup phase) getting everything set up and guiding your new business to profitability. If you are not passionate about the business you start, it will be a difficult road to prosperity.

All that said, it is also important to find a franchise business model with a strong track record of success. If the company you work with does not have a successful track record, you are in for an uphill climb. No matter how enthusiastic you are, you must ensure you are part of a winning brand. Otherwise, you will have a very hard time making the business work.

Our friends over at FitSmallBusiness.com have compiled a list of the 50 best and 50 worst franchises over the past 16 years (from 2000 to 2016). The data is pulled from the Small Business Administration (SBA). SBA loans are a major source of financing for franchise startups, so it is useful to examine the SBA loan default rates of various franchise models to help determine which franchisees are making it, and which ones are going under.

Here are the top 10 from each list:

Top 10 Best Franchises Based on SBA Loan Default Rates

  • Straight Shot Express Delivery: 0% Loan Default Rate
  • Farmer Boys: 4.35% Loan Default Rate
  • InstyPrints: 6.25% Loan Default Rate
  • Comfort Keepers: 6.25% Loan Default Rate
  • Zeppe’s Pizzeria: 8.7% Loan Default Rate
  • Buffalo Wild Wings: 8.89% Loan Default Rate
  • Jet’s Pizza: 9.09% Loan Default Rate
  • Visiting Angels: 9.52% Loan Default Rate
  • Complete Nutrition: 9.68% Loan Default Rate
  • Great American Cookies: 10.53% Loan Default Rate

Of the top 50 performing franchises on the SBA default list, more than 75% had paid their loans in full between 2000 and 2016, indicating strong potential for revenue generation and profitability.

Top 10 Worst Franchises Based on SBA Loan Default Rates

  • Wings-N-Things: 88.89% Loan Default Rate
  • Noble Roman Pizza: 88% Loan Default Rate
  • Image Sun Tanning: 83.33% Loan Default Rate
  • 24Seven Vending: 81.08% Loan Default Rate
  • La Paletera: 76.47% Loan Default Rate
  • Orangetheory Fitness: 76.47% Loan Default Rate
  • Juice Zone: 75% Loan Default Rate
  • Wireless Toyz: 72.50% Loan Default Rate
  • Play N Trade: 72% Loan Default Rate
  • Executive Tans: 72% Loan Default Rate

All franchises on the 50 worst list had loan default rates exceeding 50%, and 7 of those on the top 10 list had failure rates that exceeded 75%. You can view the entire list and accompanying article here.

Some thoughts regarding this data:

The Franchise Brand is More Important than the Industry

On both the best and the worst lists, there are lots of food franchises. Of course, food covers a wide range of brands and models, and some will obviously perform better than others. But one thing about food franchises sticks out to me — there is a wings franchise in the top 10 on both lists. Buffalo Wild Wings comes in 6th on the top 10 list, and Wings-N-Things is #1 on the worst list.

Both companies serve wings, so what makes the difference? The difference is the franchise brand itself; the marketing methods, brand reputation, and support offered to franchisees. These factors all need to be taken into account before you invest your hard-earned money partnering with a franchise brand.

Senior Care is a Major Growth Industry

For several years, I have been very high on the senior care industry. With 10,000 Americans turning 65 each day and the Baby Boomers entering full retirement, senior care franchises are going to be a hot business for at least the next few decades. The SBA default data helps confirm this view. You will notice that in the top 10 alone, there are two senior care franchises: Comfort Keepers (#4) and Visiting Angels (#8). Overall, there are three in the top 50, with Home Instead Senior Care coming in at #32. By contrast, not one senior care company shows up on the top 50 worst list.

If we drill even deeper, we will find that all three of these franchises provide non-medical care to seniors; meaning they provide meals, companionship, grocery shopping, light housekeeping, etc. There are other senior care franchise models that provide health care administered by licensed nurses. This model is a bit more difficult because the owner needs some knowledge of medical care, and the in-home caregivers must be nursing professionals.

So from this data, we can conclude that in-home senior care is a strong business model for those who have a passion to serve the elderly population in their community and want to make a good living doing it. That said, you still need to be careful to choose a brand with a strong track record of success.

Cleaning Franchises are a Good Option

Though there were none in the top 10, Merry Maids (#17) and Molly Maids (#25) showed up in the top 50 best franchises. And like senior care, no cleaning franchise ended up in the 50 worst list. Cleaning has another thing in common with senior care; low overhead. Both franchises can be operated out of a small office (or even a virtual office) as the services are performed at the location of the client.

Pizza is Still a Favorite, but be Careful

Two pizza franchises are in the top 10 best franchises; Zeppe’s at #5 and Jet’s Pizza at #7. Some better known names such as Little Caesar’s and Papa Murphy’s also make the top 50 list. On the flip side, there are some pizza franchises on the bottom 50 list as well. Most notably, Noble Roman Pizza is rated the second worst franchise with a default rate of 88%. What is clear from this data is pizza is still a favorite food among American consumers. However, the startup costs are high (in the low to mid six figures at least), and competition is heavy. For this reason, choosing the right brand and location is extremely important.

Think Twice about Tanning and Golf

Two industries that had plenty of representation in the bottom 50 were tanning and golf. Two tanning franchises showed up in the top 10 worst (Image Sun Tanning at #3 and Executive Tans at #10). There were also three golf franchises in the bottom 50 (now defunct Pro Golf of America #19, Golf Etc. at #36, and Golf U.S.A. at #40). No golf companies show up in the 50 best, and only one tanning franchise makes the list (Tanworld at #22).

Tanning and golf are two industries that are often mentioned when people talk about “following their passions.” The challenge with these industries, however, is their seasonal natures — at least in many regions of the country. For example, golf season in the northern U.S. lasts only 4-6 months. Tanning, on the other hand, is hardly in demand at all in the southern U.S., and only popular in the north during the winter months. These factors must be looked at carefully before getting into this industry.

What’s Your Next Move?

We hope you found our thoughts on the 50 best and 50 worst franchises helpful. While it is always important to choose a franchise model in an industry that best suits your passion, skills and budget, this data shows that you must also pick a franchise that is in a viable industry and one that has demonstrated the ability to succeed in that industry.

At National Franchise Business Solutions, we work with over 600 of the top franchise brands across a wide range of industries. Through a proven multi-step process, we help match aspiring entrepreneurs to the right franchise brand. Our services are unlimited and completely free, and there are never any additional fees if you end up purchasing a franchise through our services. For more information, please contact us by filling out the form at the bottom of this page.

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A Brief Q&A on Franchise Funding

E2 VisasQ: Why is a franchise easier to get funded than a new business?

A: Simply put, franchises are less risky than new businesses. Franchises tend to come with established brands that already have a proven model and several-to-thousands of success stories already on the books. For that reason alone, any bank that has a ‘franchise unit’ or ‘franchise underwriters’ will be far more likely to finance you if you come to the table with a solid franchise plan compared to someone claiming that they can create success without a proven roadmap and existing brand positioning. In fact, if you don’t have a solid franchise plan in hand, or you talk to a banker that isn’t part of a franchise-oriented department, the chances are very good that the bank will insist that you have 100% collateral available before they give you any financing at all — which means you would have the option of paying out-of-pocket and skipping financing altogether.

Q: If I can afford to pay for a franchise out-of-pocket, why would I pursue financing?

A: Two words: leverage, and security. One of the key concepts behind maximizing your long-term profitability is called leverage: being able to invest more money than you actually have into a venture. The idea being that the more you can invest up-front, the shorter the total time-to-profitability, and thus the greater the long-run profit. At the same time, the most common problem in running a franchise is failing to have enough money in reserve to make it to the break-even point — and financing allows you to keep a greater amount of cash in an emergency fund than paying for everything up-front.

Q: How much should I borrow?

A: Wrong question. Instead ask ‘How much do I have to borrow?’ In balance to the last question: the more you borrow, the greater the impact if your venture fails — and you must account for the chance that you will fail. The point of financing isn’t to overleverage; it’s to maximize your chances of success by being amply-funded while also not taking on so much risk that a failure will drive you into bankruptcy. This is where a rock-solid business plan based on highly-conservative financial projections comes into play; with those documents and an experienced accountant, you should be able to reverse-engineer a loan that optimizes your chance for making a modest living in the short-term, breaking even in a secure and reasonably swift manner, and collecting a (hopefully somewhat immodest) profit down the road.

Q: Are there options beyond a simple bank loan?

Of course! Even within the ‘traditional’ banking system, there are several levels of financing that you can access. Then of course there are the many non-bank sources of financing you can approach:

  • The Small Business Administration and other business-related (usually State) organizations insure small-business loans to franchise owners. Technically, the loan still comes from a bank, but with the SBA’s backing, you’ll be far more likely to obtain financing.
  • Some franchisors will offer financing through an in-house system. Compare options carefully, because some can seem like traps for the unwary, but most are fair.
  • Other non-bank lenders can be extremely challenging to properly assess. The best advice is to inquire at your local Small Business Development Center and double-check a non-bank lender in the Better Business Bureau before you delve into that realm.

Funding is obviously one of the major considerations you must evaluate when deciding whether or not to purchase a franchise. Other considerations include skills, passion and interests. Many franchise recruiters will try to persuade you to buy into their brand simply because you are financially qualified. However, this is not always the best advice. It is much better to speak with a franchise broker who has access to hundreds of national brands across a wide range of industries and can objectively analyze which Best franchise opportunity is right for you.

At Franchise City, our brokers use a unique and proven 20 step process to match clients with their ideal business opportunity. There is no fee for our service and the franchise fee is the same whether you go through a broker or the company recruiter. For further information about franchise funding and all other aspects of franchising, contact us by filling out the form below.

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