This article discusses the following:
- What is a franchise?
- The benefits of buying a franchise
- Forecasted growth of franchises
- The best types of franchises to buy in 2022
- Things to consider before buying a franchise
- Financing your franchise
As an entrepreneur, you have probably long dreamed of being your own boss and being successful. Maybe you own a small automotive shop and would like to do something bigger, like buy into a Meineke Car Care franchise. Or you own a burger joint but would like to upgrade to a national chain. It might surprise you that franchised businesses have an 8% higher success rate than traditional independent businesses. And some franchises can be purchased with a lower investment than you would need for a business that you would start from scratch.
If that got your attention, you might be wondering which are the best types of franchises to buy in 2022. Stay tuned to find out, but first, a closer look at the franchise industry and the benefits of owning a franchise business.
What is a franchise?
A franchise business is an independently-owned extension of a parent company (franchisor.) The franchisor grants a license to the prospective franchisee (buyer of the franchise) to use its proprietary processes and sell its products or services under the franchisorâs name.
In exchange for the rights to operate a franchise, the franchisee must pay the initial fee and other costs associated with the privilege of doing so.
What are some benefits of buying a franchise?
The largest benefit of buying a franchise is that you get to fast-track your business and avoid a lot of the groundwork associated with starting a new business from scratch. There are other benefits as well.
Instant brand recognition for your business
Perhaps the biggest challenge in building a new business is establishing brand recognition. With a franchise, you already have a popular and well-known business with a customer base and a proven business model. Consumers already know what your business can offer them. And every major franchiser already has customers who are fans of its products or services.
Mentorship and assistance programs
The franchisor will supply you with almost everything you need, including an advertising guide or plan and proprietary knowledge for operating the franchise business. Youâll have the assistance that many business owners only dream of to guide you through while operating your franchise.
Higher success rate
With all of the processes already in place and a product already loved by consumers, itâs hard for things to go wrong. Franchise businesses have higher success rates than businesses that go solo.
Lower business costs and higher profits
Thereâs a certain amount of buying power you can count on when operating a franchise. Because youâre part of a vast network, your products and other supplies cost less. This means it costs you less to run your franchise business. And because youâre paying less for supplies, your franchise has higher profitability.
Easier time getting business loans
Because there is less risk of your franchise business going under, itâll be easier to get funding when you need it. When a financial institution feels your business is bankable, theyâll have fewer objections to loaning you money.
Less work for you
If you already own a business, you understand how much is involved in making it successful. There are many steps to building a company, and itâs hard work. So what makes a franchise any different? Itâs the perfect turnkey business opportunity and takes much less effort to get up and running. A franchisor has had years of experience developing the perfect business model. Theyâve mastered marketing and design, the type of products that work, staffing needs, and the metrics involved in their franchiseâs operations. And you inherit it all when you buy a franchise. For a first-time business owner, that means everything.
Forecasted Growth for Franchises in 2022
According to the International Franchise Associationâs (IFA) 2022 Franchising Economic Outlook, franchising is expected to have a 2.2% growth in 2022, despite the current challenging economy.
By the yearâs end, itâs projected that there will be 17,000 new franchise locations, resulting in more than 792,000 franchise businesses in the U.S.
Because of increasingly higher numbers of people working remotely, business services, including IT, accounting, broker, advertising, and packing and mail services, will still dominate the franchise business establishments, even though they will see a smaller growth of 1.4% in 2022. The IFA projects that business services franchises will account for 100,727 franchised business locations.
The sector predicted to have the most growth is personal services, including fitness and personal training, health and wellness, hairdressing, and recreation-type franchises. It is expected to increase by 3.1%.
Franchise businesses in the commercial and residential services sector, including construction, real estate-related franchises, property management, and commercial cleaning services, will experience the second-highest growth rate in 2022 and are expected to increase by 2.7%.
Lodging and fast-food and full-service restaurant franchises will see the next highest growth rates of 2.1%, 2.5%, and 1.3%, respectively.
If youâre wondering what states will see the highest franchise growth rates, Texas, Florida, Arizona, South Carolina, and Idaho are projected to be among the best states to open a franchise.
On the other hand, California, New York, Illinois, Pennsylvania, and Massachusetts are considered riskier states to open a franchise at this time because they will take longer to recover from pandemic-related economical problems.
The Best Types of Franchises to Buy in 2022
There are thousands of business franchise opportunities to choose from in the U.S. Some are large national brands with widespread recognition, while others are smaller, regional franchises.
In terms of profitability, the three top franchises in the U.S. are McDonald’s, Dunkinâ Donuts, and the UPS Store.
Entrepreneurâs Franchise 500 rankings also included Taco Bell, The UPS Store, Popeyeâs, Planet Fitness, Tropical Smoothie Cafe, and the convenience store chain 7-Eleven, on its list of best franchises for 2022.
Five of the top 10 and 11 of the top 20 franchises are restaurants or fast-food businesses.
Smoothie and healthy-eating franchises are also at the top.
Looking deeper at the top 40 franchises, commercial and residential cleaning franchise businesses also seem to be in demand. And fitness centers, ice cream parlors, and some hotel chains are a few other in-demand franchises right now.
Looking ahead, the pandemic likely changed much of the business landscape. Some sectors are seeing a rebound from pandemic lows and will likely do well in 2022. Others have had to adjust their business models as consumers changed how they do business.
For instance, telehealth was the norm in healthcare over the past two years. Meanwhile, food franchises temporarily switched to serving customers via drive-through or curbside service and required face coverings for in-house seating. Professional workers also worked remotely rather than going into the office. Interestingly, some of these trends have set off a new way of doing business and have become normalized, even as the pandemic has stabilized. These trends will be something to keep an eye on if youâre considering purchasing a franchise in the near future.
Things to Consider Before Buying a Franchise
Before investing in a franchise, do your research to make the best decision and increase your odds of having a successful franchise business. Here are some other things to think about:
- Is the franchise a good match for you? For instance, if the type of franchise investment youâre considering is something that doesnât interest you at all, perhaps youâll want to look for one that suits you better to avoid growing bored. A franchise that leverages your interests, work experience, training, and skills makes sense.
- What is the local market like? As with any business venture, before embarking on one full speed ahead, youâll want to evaluate the local market. For instance, if there are already too many similar businesses in the area youâre considering operating your franchise, you may want to reconsider the type of franchise to own or relocate to open the one you want.
- What can the franchisor offer you. Will they provide resources and training? Most franchisors have requirements regarding their franchisees. For instance, some will require you to have a minimum net worth. Research franchise business opportunities from all angles to ensure that they offer at least as much as they ask.
- Is data available to determine what you can expect in terms of profit? The majority of franchisors will have this important information so you can assess the potential profitability of your future franchise. Youâll want a franchise with a proven track record of producing high yields and revenue you can count on.
Moving Forward With Your Franchise Business Plan
The first thing youâll want to do to move your franchise plans forward is to choose a franchisor thatâs right for you. The Entrepreneur list is a great place to begin your research for the best franchise opportunities in 2022. But youâll also want to consider what might work best in your city and the type of business youâd enjoy operating.
Then youâre ready to see what is required by the franchisor and begin the franchise application process. At the same time, youâll need to have a business plan. So, tally up those startup costs and fees, then figure out what kind of investment is required to buy your franchise.
It can cost less than $25,000 to invest in a new franchise business or as much as several million for your initial investment.
Youâll likely have a cash shortfall when it comes to making your purchase, so youâll want to evaluate your franchise financing options.
Funding Your Franchise
The cost of buying a franchise varies dramatically from one franchise to another. Some franchisors have minimum down payment requirements, while others allow you to finance the entire purchase.
There are several financing options you can look into to help pay for your franchise business.
1.Â Â Â Franchisor Loan
Many franchisors offer seller financing to their franchise owners. Some loan the money directly themselves, while others use a lending partner. But even if that seems like a winning deal, you should explore all options to get the best financing for your franchise.
2.Â Â Â Bank Loan
Itâs challenging to get a bank loan these days. But sometimes, a bank will be more likely to finance a franchise because of its success rate. This is especially true if you have good credit and a solid business plan. But be aware that the application process for a bank loan is lengthy and exhaustive. A bank will also require a substantial down payment (up to 25%) and/or collateral, such as a lien on your home. All-in-all, it could take months before a bank decides whether or not it will approve your franchise loan.
3.Â Â Â Small Business Administration, or SBA, Loan
The SBA has loan programs for commercial real estate loans, term loans, and more. The Administration provides loan guarantees for business owners by partnering with banks and other financial institutions. However, the loan process is even more rigorous than banks are when applying for business loans through the SBA. It could take quite a while just to learn if youâre approved for the loan. Should you decide the SBA is an option worth considering, their SBA 7 loan can potentially help fund your franchise for up to $5 million.
4.Â Â Â Online Lenders
Online lending providers have become one of the best ways to finance a business franchise. They can provide much faster funding than the SBA or a bank. Instead of waiting months to learn if youâll get financing, online financing approval with a top platform, such as Biz2Credit, can happen as fast as 24 hours.
The Bottom Line
If you have your sights set on business ownership in 2022, owning a franchise is one of the best ways to do it. There are fewer risks, and youâll partner with a brand and business model that has instant recognition and a proven track record.
Understanding which franchise industries are thriving and which align best with your own skills and expertise can provide you with an advantage and offer you the highest chance of success.
Another thing to consider is that buying a franchise isnât the only way to capitalize on a franchised enterprise. If you already have a successful business, you may be able to expand your business by opening other franchise locations. Franchising potentially offers multiple revenue streams, including royalty fees, distribution fees, etc.
But any franchise venture requires a large investment. While there are different funding options to explore, business owners today realize that time is money. Time is not often on your side when it comes to SBA or bank financing. But fast funding with an online lending provider like Biz2Credit can put you in the driverâs seat towards fast franchise success in a matter of days.
Need proof? Watch Bilal Bhatti talk about his franchise journey and how Biz2Credit was instrumental in helping him to expand his operations.