By Haddon Libby
Taco Bell, The UPS Store and Hampton by Hilton have something in common. Each of these businesses sells franchises to entrepreneurial folks looking to build businesses.
In the United States, 8.5 million people work for one of 792,000 franchises that create more than $800 billion in economic output. Restaurants represent one-third of all franchises with business services like The UPS Store the second largest segment at roughly 15%.
Most companies offering franchises look for a franchising fee and percentage of revenues. An additional cost to most franchises is the initial cost to build, stock and promote the new location. Some franchisors finance new operators while others have relationships with banks that may finance the new location.
McDonald’s creates the most revenues of any franchising company at more than $120 billion followed by 7-Eleven, KFC and Burger King. The cost to acquire one of these franchises is high. An average McDonald’s franchisee typically commits to a minimum number of stores. The initial investment in a franchise is $2.5 million with a royalties rate of 8% or more on every dollar earned.
Entrepreneur Magazine ranks the Top 500 franchising opportunities in the United States each year. McDonalds ranks as the 14th best franchising opportunity at present with Taco Bell ranking at the top. With over 8,300 locations, franchisees represent more than 80% of all Taco Bell locations.
To own a franchise of this Irvine-based business may cost $25-45,000 with an initial investment that can range from $600,000 to more than $3 million. The franchisee also must pay at 10% royalties’ rate. The term of the contract is for 25 years with the owner required to maintain $2 million in cash and a $5 million net worth.
To own a Popeyes Louisiana Kitchen franchise will require a franchise fee of $50,000 and an initial investment of at least $400,000. A franchise is offered for 20 years with a royalties’ rate of 9%.
Jersey Mike’s ranks as the third best franchise opportunity with more than 2,500 locations. This company has grown its franchisee base by nearly 50% over the last three years. While the franchise fee is more reasonable at $20,000, the agreement is for only 10 years before a renewal is required. The royalties rate is 11.5%. With a net worth requirement of only $300,000 and minimum cash levels of $100,000, this is a more affordable option relative to many of the fast food burger options.
The UPS Store is the highest ranked opportunity that does not involve food. With more than 5,500 locations, most franchisees own more than one location. The franchise fee ranges from $10,000 to $30,000 and lasts for ten years. The initial investment is $100,000 or more with a royalty rate of 8.5%.
Started in Japan back in 1954, Kumon Learning Centers are the sixth best opportunity according to Entrepreneur Magazine. The franchise fee is quite reasonable at $2,000 although it is only good for five years. With an initial cost of at least $75,000, the royalties rate is $40 per student each month. There are more than 25,000 locations.
Not yet in California, Culver’s comes in eighth amongst franchising opportunities. This company sells frozen custard and burgers. The franchise fee is roughly $50,000 with an initial investment of more than $2.5 million and royalties rate of 6.5%.
A hair stylist might want to be part of Great Clips. With more than 4,400 locations, the franchise fee is $20,000 with a royalties rate of 11% and initial cost of at least $200,000.
This article touches on only a few of the hundreds of opportunities for entrepreneurs. For more information on franchising opportunities, visit www.entrepreneur.com/franchise 500.
Haddon Libby is the Founder and Chief Investment Officer of the RIA firm, Winslow Drake. For more information on our services, please visit www.WinslowDrake.com.
