What if you could start a business tomorrow that had a reputable brand that people knew, a product or service with proven demand, and established processes and systems to run that business successfully? That may sound too good to be true, but it’s a few of the main reasons many entrepreneurs choose the franchise method for starting a business. A franchise allows business owners to bypass a lot of the hurdles that they would face starting a new company from the ground up. If you’re interested in starting a franchise, below are 7 potentially profitable* franchises to own in 2022. Jersey Mike’s Subs Buildingstars Pillar To Post Home Inspectors PIRTEK Ace Hardware The UPS Store Complete Weddings + Events What Is a Franchise? A franchise is a type of business structure that involves a parent company (franchisor) licensing its brand image, products, processes, and other proprietary information to another owner (franchisee) in exchange for a fee. Franchising is one of the most popular methods for opening a new business because it provides the franchisee with brand equity, a proven product or service, an established supply chain, and many other resources needed to operate that exact business successfully. The ability to circumvent a lot of the issues that startups face when launching a new brand makes owning a franchise desirable. In fact, a recent study by FRANdata predicts franchise growth to hover around 2.2% in 2022—roughly 17,000 new franchises. How to Choose a Profitable* Franchise Choosing a profitable franchise is one of the most important factors when deciding which franchise to own in 2022. With record-high inflation, disrupted supply chains, changing consumer trends post-pandemic, and economic uncertainty from overseas conflict, choosing the right franchise can make all the difference in how successful (profitable) you are. Unfortunately, franchise profitability is not always predictable. Many factors affect how profitable a single franchise is, including: The location of that specific franchise The industry within which the entire franchise operates The parent franchise’s adaptability and product development The owner’s business acumen and work ethic There’s no single predictor of future profitability for a franchise—factors related to the franchise as a whole, the single franchise unit, and external consumer or market forces can have significant influence. With that disclaimer out of the way, below are some considerations for people interested in owning a profitable franchise in 2022, as well as 7 potentially profitable franchises to own. Franchise Revenue Does Not Mean Franchise Profitability Revenue is not the same as profit. It sounds simple, but it can be difficult to truly grasp the difference before owning a business—and all its expenses. Revenue (sales) simply refers to the inflow of money from operating your business. If your franchise sells $1M of products throughout the year, that would be considered its revenue. However, that doesn’t mean you have $1M in the bank. Running a franchise comes with expenses like franchise fees, rent, equipment, inventory expenses, employee salaries, and advertising budget. These costs are necessary to operate your business and achieve the revenue you do. Profit is what you have left from revenue after paying all your expenses. Different profitability ratios analyze profit at various stages in your business, but generally, high revenue and low expenses lead to a profitable franchise. This means entrepreneurs looking to own a profitable franchise must consider the expenses needed to operate that business. These expenses could include initial franchise fees as well as start-up costs like the down payment needed to secure your franchise location. Additionally, think about the ongoing costs, both fixed and variable, that you will incur while running your franchise. Will you need to purchase a fleet of vehicles to scale your business? Can you avoid overhead by operating your franchise remotely? Both revenue and expenses influence franchise profitability—so looking for high-earning, lean franchise opportunities is a great way to find a profitable franchise to own. Research and Due Diligence Can Prevent Choosing the Wrong Franchise* Choosing a franchise should not be done lightly. It’s likely one of the biggest financial and personal investments you’ll ever make—so take your time to research, review, ask questions, and exercise due diligence before moving forward. You can actually learn a lot about a franchise’s potential profitability throughout this process, especially if you comb through the Franchise Disclosure Document (FDD). The FDD, previously known as the Uniform Franchise Offering Circular (UFOC), is a legal document provided by the franchisor to potential franchisees disclosing critical information about the business and the franchise relationship. The FDD has 23 different sections, which are all important to review, but Item 19 and Item 21 are particularly important for assessing profitability. Item 19: This section of the FDD provides financial performance representations (FPR). The franchisor may offer estimates and forecasts for sales, income, or profits based on reasonable assumptions within the market or historical performance. Franchisors are not legally required to include FPRs in Item 19 and can satisfy the requirements by stating that they “do not make any representations about a franchisee’s future financial performance…”. If your franchisor includes information in this section, you can use that to anticipate potential profitability, and if they don’t include FPRs, it may give you pause as to why they wouldn’t share this information. Item 21: This section of the FDD requires franchisors to provide specific financial statements demonstrating the current financial health of the franchise. New franchisors (within the first two years) have more flexibility with the information required in this section, but more established (over three years) businesses have additional disclosure requirements. The franchisor’s balance sheet, cash flow statement, and other financial documents can give you additional insight into the potential revenue and costs associated with operating a franchise. You can also find more information about the franchise and its potential profitability outside the FDD. If the franchise has multiple franchisees already, consider contacting the owners and asking them questions. Their answers can give you more clarity on the business itself as well as its profitability. Don’t rush into owning a franchise. Taking your time to research and understand the nuances of a specific franchise will improve your chances of turning a profit—or at least mitigate the risk of a bad investment. Control What You Can Control* Unfortunately, there are a lot of external circumstances out of your control that can affect profitability within your business. From lockdowns decreasing revenue and causing supply chain issues to rising inflation eating away at profit margins, it can seem as if you have little control over your franchise’s profitability. However, there are many other areas and decisions within owning a franchise that you do have control over and that can lead to increased franchise profitability. Choose the right location: Where you decide to open your franchise location is one of the most important decisions you will make, and it can either hurt or help your chances of operating at peak profitability. Even historically profitable franchises can suffer in the wrong location because of convenience, visibility, accessibility, safety, or misestimated market. Align the franchise with your passion: Choosing a franchise in an industry within which you have an interest or passion can prevent burnout and stagnation. A recent study by CB Insights found that 5% of failed startups cited lack of passion as the main reason. While not necessarily indicative of profitability, being passionate about your business can help you and your team stay motivated and focused, which can increase your chances of success. Hire the right employees and keep them engaged: Employees directly influence a franchise’s profitability. In fact, a study by Gallup states that highly engaged teams have 21% greater profitability. Great employees and company culture don’t just increase sales and improve customer service, they also reduce absenteeism and turnover, which are added expenses to your bottom line. 7 Profitable Franchises to Own in 2022* So, what are some of the most profitable franchises to own in 2022 with the above considerations in mind? Below are 7 potentially profitable franchises (in no particular order) for you to consider owning in 2022. Jersey Mike’s Subs Franchise500 Rank (2022): #4 Industry: Food Founded: 1956 Franchise Units: 1,973 Franchise Fee: $18,500 Total Fee Estimates: $144,668 – $786,233 Why Did Jersey Mike’s Make Our Profitable Franchise List? Jersey Mike’s makes a phenomenal Italian sub, but beyond great food, they also made the list of most profitable franchises in 2022 because of the stability of the fast-casual food industry, a streamlined supply chain, growing brand equity, advanced technology, and incredible support from the franchisor. Unlike many franchisors, Jersey Mike’s will often pay for franchise remodels and new technology. They actually covered the cost of retrofitting more than 1,800 franchise locations in 2020 with new equipment that would improve the operations of each franchisee—a $75,000 cost per franchise, or $175M total. Jersey Mike’s is also the highest-rated restaurant franchise that you can open with an initial investment under $1M in Entrepreneur’s Franchise 500 rankings for 2022. This makes owning a Jersey Mike’s franchise relatively affordable, safe, and opportunistic. Buildingstars Franchise500 Rank (2022): #278 Industry: Commercial Cleaning Founded: 1994 Franchise Units: 964 Franchise Fee: $795–$46,995 Total Fee Estimates: $2,245−$53,200 Why Did Buildingstars Make Our Profitable Franchise List? Buildingstars may not be a household name, but it’s one of the fastest-growing franchises in the country thanks to excellent franchise training and onboarding, flexible franchise options, and thriving industry—commercial cleaning. With the pandemic bringing sanitization and cleanliness to the forefront, businesses, like Buildingstars, operating within the commercial cleaning space have some forecasted stability. For added security, they also offer new franchisees a starting base of customer accounts averaging $1,000−$5,000 in monthly gross revenue. Buildingstars is a franchise you can own for under $10,000. They offer three levels of franchise options, ranging from an entry-level that costs less than $3,000 to a “Master Franchise” option, which can approach $50,000. Owning a Buildingstars franchise comes with financial assurance because of the industry and the provided sales funnel. The low upfront investment and overhead also contribute to why it made our list of profitable franchises to consider in 2022. Pillar To Post Home Inspectors Franchise500 Rank (2022): #313 Industry: Home Inspections Founded: 1994 Franchise Units: 555 Franchise Fee: $24,500 Total Fee Estimates: $40,445−$49,645 Why Did Pillar To Post Home Inspectors Make Our Profitable Franchise List? Pillar To Post Home Inspectors has been the top-ranked home inspection franchise for five consecutive years in Entrepreneur’s Franchise 500. Home inspections are services required during the home buying and selling process, which over the last two years have hit record levels. While rising interest rates may slow down the real estate market some, as of February 2022, home sales are still well above the pre-pandemic pace. Not only is the industry desirable, but the business model itself is affordable to run. Since it’s a service-based business, franchisees don’t need a physical storefront or inventory. You’re able to run a lean business and keep overhead to a minimum. In Item 19 of their FDD from 2021, Pillar to Post Home Inspectors reports an average gross revenue of $256,988 per franchise location. While this estimate can vary based on demand and market, it’s a great indicator of what you could earn as a franchisee, and combined with the low overhead and thriving industry, it makes Pillar to Post Home Inspectors a viable franchise option. PIRTEK Franchise500 Rank (2022): #105 Industry: Industrial Maintenance and Repair Founded: 1980 Franchise Units: 547 Franchise Fee: $20,000−$50,000 Total Fee Estimates: $201,400−$869,300 Why Did PIRTEK Make Our Profitable Franchise List? You may not be familiar with PIRTEK, but it’s a B2B business that provides equipment, maintenance, and service repair for hydraulic hoses used by machines in other businesses. Hydraulic hoses are part of machines used in different industries like construction, transportation, automotive, defense, agriculture, and manufacturing. To avoid downtime, these businesses hire PIRTEK to maintain or repair these hydraulic hoses. Many of the industries using hydraulic hoses are expected to see significant growth in the coming years. For example, domestic manufacturing is on the rise thanks to international supply chain issues and record-high inflation rates. President Biden even outlined a plan to incentivize manufacturing in the US. Beyond demand, PIRTEK also has two tiers of franchise options. Tier 2 has an estimated investment of $201,400 and Tier 1 is around $386,000. Each of these options come with training, equipment, vehicles, and other proprietary systems needed to run PIRTEK. This flexibility allows you to be more cautious with your upfront investment while still providing the resources needed to operate the business successfully. If you already have relationships with businesses that use heavy machinery or plan to open a business near these types of companies, a PIRTEK franchise can be a profitable option based on forecasted demand and the flexible investment opportunities. Ace Hardware Franchise500 Rank (2022): #12 Industry: Retail Home Improvement Founded: 1924 Franchise Units: 5,554 Franchise Fee: $5,000 Total Fee Estimates: $292,000−$2.12M Why Did Ace Hardware Make Our Profitable Franchise List? If you love home renovation projects and have a net worth over $400,000, then you should consider owning an Ace Hardware franchise. Ace Hardware is part of the $300B home improvement industry, and a 2021 study from Statista estimated roughly $63B in hardware sales throughout the US. Entrepreneur consistently ranks Ace Hardware inside its top 25 franchises based on variables like fees, growth opportunity, financial stability, franchisor support, and brand strength. This alone makes Ace Hardware one of the most respected and popular franchises. With almost a century of brand building under its toolbelt and a reliable product mix with consistent, proven demand, it’s a safe and profitable franchise to own. If you are considering owning an Ace Hardware, remember that it is a physical retail store, so location will be critical. The UPS Store Franchise500 Rank (2022): #2 Industry: Postal and Business Services Founded: 1980 Franchise Units: 5,359 Franchise Fee: $29,950 Initial Investment: $185,306−$474,193 Why Did The UPS Store Make Our Profitable Franchise List? The UPS Store is one of the largest brands in the world, and franchisees gain access to this brand equity as well as world-class training, dedicated support, and several other benefits. Since 2017, The UPS Store has finished inside the top five in Entrepreneur’s Franchise 500 rankings. According to Item 19 from The UPS Store’s 2021 FDD, the average adjusted gross sales per store in 2020 was $607,750. As we discussed previously, sales does not mean profit, so you need to consider the expenses that come with running a franchise location including rent, royalties, franchise fees, payroll, inventory, and other relevant expenses. Because you can work on operating more efficiently and lowering overhead and expenses, an average revenue over $600,000 gives you a lot of room to turn a profit. Additionally, more than half (52%) of The UPS Store franchisees have multiple locations, which provides optimism over their profitability. Complete Weddings + Events Franchise500 Rank (2022): #484 Industry: Wedding/Event Services Founded: 1974 Franchise Units: 193 Franchise Fee: $18,000−$42,500 Initial Investment: $38,300−$93,550 Why Did Complete Weddings + Events Make Our Profitable Franchise List? Complete Weddings + Events is considered one of the best low-risk franchises you can own. Not only is it listed in the Franchise 500, but it’s been featured on CNBC as one of the top 10 low-cost franchises that can make you rich. Complete Weddings + Events is the largest event-services company in the US, and is the perfect franchise opportunity for entrepreneurs who are organized and good at coordinating events and managing people. While many weddings and events were canceled over the last two years because of the pandemic, several were delayed and are beginning to take shape. The increased demand as well as low upfront costs makes owning a wedding and event franchise a potentially profitable opportunity. Get Funding to Start Your Franchise The best franchise for you to own in 2022 may not even be one of the franchises above, and that’s okay! Running a successful franchise is about finding one that fits your interest and that you believe has the best chance to succeed within your market. Regardless of the franchise you decide to open, Lendio is here for you. Our mission is to help business owners find vetted lenders and to guide entrepreneurs, like yourself, toward the best strategic financing solution based on your specific needs. Whether it’s start-up financing or a business line of credit, we want you to know your options and understand the pros and cons of each. Visit our online funding center to find the loan or financing option that works best for your needs. FAQs What franchise has the highest success rate? Sports Clips is the franchise with the highest rate of success based on an average SBA default rate of 1.89%. To calculate the highest success rate for franchises, we included the total number of SBA 7(a) loans from 2010-2021, the number of those that were charged-off (meaning the loan was uncollectable), and the SBA loan default rate. These three metrics give us the top 5 franchises with the highest success rate listed below. Sports Clips: SBA Default Rate (1.89%) | SBA 7(a) Loans (317) | Loans Charged Off (6) The UPS Stores: SBA Default Rate (0.00%) | SBA 7(a) Loans (224) | Loans Charged Off (0) Orange Theory Fitness: SBA Default Rate (0.00%) | SBA 7(a) Loans (206) | Loans Charged Off (6) Quality Inn: SBA Default Rate (0.52%) | SBA 7(a) Loans (193) | Loans Charged Off (1) Dunkin’ Donuts: SBA Default Rate (1.10%) | SBA 7(a) Loans (182) | Loans Charged Off (2) What is the best franchise under 10k? Jan-Pro Cleaning and Disinfecting is the highest-rated franchise on the Franchise 500 list (30th overall) that can be started with an initial investment under $10,000. The other best franchises under $10,000 include Momleta, Buildingstars, and Complete Weddings + Events. What is the best fast food franchise to own? Subway (7.32% SBA loan default rate) and Jimmy John’s (6.15% SBA loan default rate) are two of the best fast food franchises based on SBA loan success rate. Taco Bell (#1), Popeyes Louisiana Kitchen (#3), Jersey Mike’s Subs (#4), and Culver’s (#5) are the best fast food franchises on Entrepreneur’s Franchise 500 list with all 4 ranking inside the top 5 overall across all franchises. *Your profitability in any franchise endeavor is based on a number of factors, and our list does not guarantee your success or profitability if you choose one of these franchises. The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. 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