4.5 Franchising: A Popular Trend
- What makes franchising an appropriate form of organization for some types of business, and why does it continue to grow in importance?
When Amare Strayer decided to buy a franchise, he researched the usual suspects: Jiffy Lube, McDonald’s, and Quiznos Subs. Strayer, then 38, was a top executive at a dying technology firm. Instead of becoming another McDonald's franchisee, Strayer chose to remain in the technology sector by purchasing a Geeks on Call franchise. Geeks on Call is a company that provides on-site computer assistance via a large pool of experienced techies. Strayer makes residential and commercial "house calls" as a Geeks on Call franchisee.8
Choosing the right franchise can be challenging. Franchises come in all sizes and demand different skills and qualifications. And with somewhere around 3,000 different franchised businesses in the United States, Bostin had a lot to choose from—from cookie-bouquet peddlers and dog trainers to acupuncture specialists. Table 4.4 shows the top franchises for 2017 from various sources. Entrepreneur’s rankings utilize among other factors costs/fees, brand strength, support, and financial strength. Franchise Business Review focuses on owner satisfaction, whereas Franchise Gator utilizes a formula with factors such as financial stability and engagement.
| Top Franchises for 2026 | |||
|---|---|---|---|
| Entrepreneur Franchise 500 | |||
| Company | Industry | Rank | Initial Investment |
| Taco Bell | Food and Beverage | 1 | $611,000–$4,000,000 |
| Jersey Mike's Subs | Food and Beverage | 2 | $204,000–$1,300,000 |
| Dunkin' | Food and Beverage | 3 | $436,000–$1,800,000 |
| Popeyes Louisiana Kitchen | Food and Beverage | 4 | $471,000–$3,900,000 |
| Ace Hardware | Hardware Stores | 5 | $602,000–$2,000,000 |
| The UPS Store | Shipping Services | 6 | $216,000–$609,000 |
| Culver's | Food and Beverage | 7 | $2,600,000–$8,600,000 |
| Wendy's | Food and Beverage | 8 | $310,000–$2,800,000 |
| Hampton by Hilton | Hotel Chain | 9 | $15,200,000–$25,900,000 |
| Kumon | Education | 10 | $73,123–$165,000 |
| Franchise Business Review Most Innovative and Awarded Franchises | |||
| Franchise | Industry | Initial Investment | Min. Cash Required |
| Two Men and a Truck | Home Services | $107,100–$538,700 | $80,000 |
| Kona Ice | Food & Beverage | $102,365–$189,300 | $20,000 |
| NextHome | Real Estate | $16,250–$220,345 | $4,500 |
| 360clean | Cleaning & Maintenance | $21,800 – $35,600 | $15,000 |
| Cruise Planners | Travel & Hospitality | $2,295 – $23,465 | $1,945 |
| Dream Vacations-CruiseOne | Travel & Hospitality | $2,590 – $21,870 | $3,500 |
| Wild Birds Unlimited | Retail | $224,373–$379,957 | $40,000 |
| Christian Brothers Automotive | Automotive | $520,250 – $645,400 | $85,000 |
| Payroll Vault | Financial & Tax | $77,375–$111,885 | $100,000 |
| Tropical Smoothie Cafe | Food & Beverage | $300,000–$720,500 | $175,000 |
| Franchise Gator Top 100 Franchises | |||
| Franchise | Industry | Rank | Min. Cash Required |
| Zoomin Groomin | Pet | 1 | $90,000 |
| PostalAnnex+ | Business Services | 2 | $40,000 |
| Visiting Angels Living Assistance Services | Healthcare & Senior Care | 3 | $100,000 |
| Ledgers | Business Services | 4 | $50,000 |
| Fibrenew | Automotive | 5 | $25,000 |
| Salty Dawg Pet Salon + Bakery | Pet | 6 | $100,000 |
| College Hunks Hauling Junk & Moving | Cleaning & Maintenance | 7 | $70,000 |
| Kiddie Academy | Children's | 8 | $250,000 |
| The Brass Tap - Craft Beer Bar | Food | 9 | $250,000 |
| Maid My Home | Cleaning & Maintenance | 10 | $10,000 |
Chances are you recognize some of the names listed in Table 4.4 and deal with franchise systems in your neighborhood every day. When you have lunch at Taco Bell or Jamba Juice, change your oil at Jiffy Lube, buy candles at Wicks ’n’ Sticks, or mail a package at The UPS Store, you are dealing with a franchised business. These and other familiar name brands mean quality, consistency, and value to consumers. Franchised businesses provided about 8.9 million direct jobs with a $890 billion economic output for the U.S. economy.9
Franchising is a form of business organization that involves a franchisor, the company supplying the product or service concept, and the franchisee, the individual or company selling the goods or services in a certain geographic area. The franchisee buys a package that includes a proven product or service, proven operating methods, and training in managing the business. Offering a way to own a business without starting it from scratch and to expand operations quickly into new geographic areas with limited capital investment, franchising is one of the fastest growing segments of the economy. If you are interested in franchising, food companies represent the largest number of franchises.
A franchise agreement is a contract that allows the franchisee to use the franchisor’s business name, trademark, and logo. The agreement also outlines rules for running the franchise, services provided by the franchisor, and financial terms. The franchisee agrees to follow the franchisor’s operating rules by keeping inventory at certain levels, buying a standard equipment package, keeping up sales and service levels, taking part in franchisor promotions, and maintaining a relationship with the franchisor. In return, the franchisor provides the use of a proven company name and symbols, help in finding a site, building plans, guidance and training, management assistance, managerial and accounting systems and procedures, employee training, wholesale prices for supplies, and financial assistance.
Advantages of Franchises
Like other forms of business organization, franchising offers some distinct advantages:
- Increased ability for franchisor to expand. Because franchisees finance their own units, franchisors can grow without making a major investment.
- Recognized name, product, and operating concept. Consumers know they can depend on products and services from franchises such as Chick-Fil-A, Visiting Angels, and Sports Clips. As a result, the franchisee’s risk is reduced and the opportunity for success increased. The franchisee gets a widely known and accepted business with a proven track record, as well as operating procedures, standard goods and services, and national advertising.
- Management training and assistance. The franchisor provides a structured training program that gives the new franchisee a crash course in how to start and operate their business. Ongoing training programs for managers and employees are another plus. In addition, franchisees have a peer group for support and sharing ideas.
- Financial assistance. Being linked to a nationally known company can help a franchisee obtain funds from a lender. Also, the franchisor typically gives the franchisee advice on financial management, referrals to lenders, and help in preparing loan applications. Many franchisors also offer short-term credit for buying supplies, payment plans, and loans to purchase real estate and equipment. Although franchisors give up a share of profits to their franchisees, they receive ongoing revenues in the form of royalty payments.
Disadvantages of Franchises
Franchising also has some disadvantages:
- Loss of control. The franchisor has to give up some control over operations and has less control over its franchisees than over company employees.
- Cost of franchising. Franchising can be a costly form of business. Costs will vary depending on the type of business and may include expensive facilities and equipment. The franchisee also pays fees and/or royalties, which are usually tied to a percentage of sales. Fees for national and local advertising and management advice may add to a franchisee’s ongoing costs.
- Restricted operating freedom. The franchisee agrees to conform to the franchisor’s operating rules and facilities design, as well as inventory and supply standards. Some franchises require franchisees to purchase from only the franchisor or approved suppliers. The franchisor may also restrict the franchisee’s territory or site, which could limit growth. Failure to conform to franchisor policies could mean the loss of the franchise.
Franchise Growth
Many of today’s major franchise brands, such as McDonald’s and KFC, started in the 1950s. Through the 1960s and 1970s, many more types of businesses, including personal and business services, used franchising to distribute their goods and services. Growth comes from expansion of established franchises—for example, Subway, Pizza Hut, and OrangeTheory Fitness—as well as new entrants such as those identified by Entrepreneur and Franchise Gator among other sources. According to Entrepreneur magazine, the top three new franchises in 2025 are (1) Koala Insulation, (2) Travelin' Tom's Coffee, and (3) QC Kinetix, whereas according to Franchise Gator, the top three emerging franchises for 2026 are (1) Zoomin Groomin (pet industry), (2) PostalAnnex+ (business services), and (3) Mr. Electric (home services & repair). Ranking lists are generated based on different factors such as ease of opening, start-up costs, and potential for growth.10
Changing demographics drive franchise industry growth, in terms of who, how, and what experiences the most rapid growth. The continuing growth and popularity of technology and personal computing is responsible for the rapidly multiplying number of eBay drop-off stores, and tech consultants such as Geeks on Call are in greater demand than ever. Other growth franchise industries are personal services such as fitness franchises, retail food, and senior care.
The Next Big Thing in Franchising
All around you, people are talking about the next big thing—Closets By Design is the solution for a perfectly organized home, the workout at Planet Fitness is the answer to America’s fitness needs—and you are ready to take the plunge and buy a trendy franchise. But consumers’ desires can change with the tide, so how do you plan an entrance—and exit—strategy when purchasing a franchise that’s a big hit today but could be old news by tomorrow? Table 4.5 outlines some tips on purchasing a franchise.
International Franchising
Like other forms of business, franchising is part of our global marketplace economy. As international demand for all types of goods and services grows, most franchise systems are already operating internationally or planning to expand overseas. Quick-service restaurants, lodging, business services, and personal services are popular international franchises.
Franchisors in foreign countries face many of the same problems as other firms doing business abroad. In addition to tracking markets and currency changes, franchisors must understand local culture, language differences, and the political environment. Franchisors in foreign countries also face the challenge of aligning their business operations with the goals of their franchisees, who may be located across the world.
| Tips for Purchasing a Franchise |
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Is Franchising in Your Future?
Are you ready to be a franchisee? Before taking the plunge, ask yourself some searching questions: Are you excited about a specific franchise concept? Are you willing to work hard and put in long hours? Do you have the necessary financial resources? Do you have prior business experience? Do your expectations and personal goals match the franchisor’s?
Qualities that rank high on franchisors’ lists are passion about the franchise concept, desire to be your own boss, willingness to make a substantial time commitment, assertiveness, optimism, patience, and integrity. Prior business experience is also a definite plus, and some franchisors prefer or require experience in their field.
So what can you do to prepare when considering the purchase of a franchise? When evaluating franchise opportunities, professional guidance can prevent expensive mistakes, so interview advisers to find those that are right for you. Selecting an attorney with franchise experience will hasten the review of your franchise agreement. Getting to know your banker will speed up the loan process if you plan to finance your purchase with a bank loan, so stop by and introduce yourself. The proper real estate is a critical component for a successful retail franchise, so establish a relationship with a commercial real estate broker to begin scouting locations. Doing your homework can spell the difference between success and failure, and some early preparation can help lay the groundwork for the successful launch of your franchised business.
If the franchise route to business ownership seems right for you, begin educating yourself on the franchise process by investigating various franchise opportunities. You should research a franchise company thoroughly before making any financial commitment. Once you’ve narrowed your choices, ask for the Franchise Disclosure Document (FDD) for that franchisor, and read it thoroughly. The Federal Trade Commission (FTC) requires franchisors to prepare this document, which provides a wealth of information about the franchisor, including its history, operating style, management, past or pending litigation, the franchisee’s financial obligations, and any restrictions on the sale of units. Interviewing current and past franchisees is another essential step.
Would-be franchisees should also check recent issues of small-business magazines such as Entrepreneur, Inc., Startups, and Success for industry trends, ideas on promising franchise opportunities, and advice on how to choose and run a franchise. The International Franchise Association website at https://www.franchise.org has links to Franchising World and other useful sites. (For other franchise-related sites, see the “Working the Net” questions.)
Concept Check
- Describe franchising and the main parties to the transaction.
- Summarize the major advantages and disadvantages of franchising.
- Why has franchising proved so popular?