Owning a franchise is safer than starting your own independent business—the 2-year success rate for franchises is 8% higher than independent small businesses. Not only are franchises more likely to succeed than traditional businesses, but franchising is becoming a more popular route to business ownership. The International Franchise Association (IFA) released its annual report, which anticipates franchise growth of 1.9% in 2023. The additional revenue stream for parent brands (franchisors) is a huge incentive for offering franchise opportunities, and the improved technologies and supply chain logistics have made it easier for brands to scale franchises. So, what is a franchise, and what are the best franchises to own? Let’s dive into these questions and look at some of the best franchises to own in 2023. What Is A Franchise? What Is A Franchise? A franchise is an extension of a parent company (known as the franchisor). The franchisor licenses trademarks, business processes, and other proprietary information to franchise owners. A franchise is an extension of a parent company (known as the franchisor). The franchisor licenses trademarks, business processes, and other proprietary information to franchise owners. Franchising allows you to sell goods or services under the original brand’s name. By owning a franchise, you're avoiding many of the hurdles of starting a completely new business. A franchise owner will typically pay upfront and ongoing fees for the right to operate the franchise. An example of a franchise is McDonald's. Most locations are franchises run by a franchisee who pays the McDonald’s corporation to use their brand name, equipment, ingredients, processes, etc. Franchises only work because the franchisor has garnered enough brand equity or other proprietary value to pass on to other locations. The act of franchising involves scalability, and franchises need explicit support from franchisors to succeed. For example, if McDonald’s didn’t provide franchisees with ingredients or recipes, each location would deliver a different experience from the others—making it no different from any other burger restaurant. But McDonald’s ability to scale their business and deliver consistent quality from one location to the next along with its massive marketing budget, technology solutions, and other benefits makes it one of the most successful franchises year in and year out. How to Choose a Profitable Franchise When you’re seeking the most profitable franchise for your situation, the focus is really finding the right franchise. People are unique, situations vary, and market need and location all become factors. In other words, a franchise that may play in Poughkeepsie could be a dud in Daytona. Taco Bell currently sits atop the Franchise 500 list, but would it still be the most profitable franchise if every entrepreneur opened a Taco Bell? Even more importantly, would you feel excited or passionate about running one? Choosing the best franchise is about finding the right one for you within the market you intend to operate. Because every situation is different, consider the following questions when deciding which franchise is best. Why are you interested in starting a franchise? While being passionate about pizza or hardware can influence which franchise you’ll enjoy running the most—don’t neglect other considerations like whether you want to be there full-time, whether you plan to open more locations, or whether you want to run a completely remote franchise. How much liquid capital do you have? The initial franchise costs are different for every franchisor. While you’ll need between $55,000 and $65,000 to become a Lendio franchisee, you’ll need more than $500,000 to start a Taco Bell. Choosing the right franchise means finding one that fits what you’re willing to risk financially. What does your market look like? The best franchise is usually the one with the best chance to succeed within the market you intend to operate. Franchising a Kumon Math & Reading Center may make sense in a community with underserved educational systems while a city with new home developments may need a franchise like Budget Blinds. Look at your location, competition, industry trends, and other factors to help determine which franchise makes the most sense in your market. Franchise Revenue Does Not Mean Franchise Profitability Revenue is not the same as profit. It sounds simple, but is 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 Franchising 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. First, What Are the Worst Franchises to Own in 2023? Last year’s “worst” list was a bit different because large sectors of the economy had ground to a halt. It’s obviously a bit different this year and the red-flagged industries (restaurants, hotels, and tourism services) are back in business. Based on data and research from 2020 to 2022, the worst franchises to own based on SBA loan defaults are: Dickey’s Barbeque Pit (27 defaults) Subway (21 defaults) Anytime Fitness (17 defaults) Note: Loan defaults are concerning because they’re a strong indication that the location couldn’t make enough revenue to pay back its loan in its allotted time. Once you do a bit of digging on these three franchises, you see where the breakdown happened. For Dickey’s Barbeque Pit, while corporate financials appear strong, many franchise owners and workers cite a toxic work environment, exorbitant prices, and lackluster support from higher-ups to help the franchise succeed. Subway, on the other hand, was stymied by a flawed development program. Despite having a household name and a seemingly healthy profit margin, this franchise investment also makes no guarantees for success. Anytime Fitness is the fourth largest fitness brand in the United States, with over 2,000 locations in America and a handful of international locations. However, the number of franchise units has declined in recent years. With the franchise’s significant investment and start-up expense, as well as ongoing fees, it will take investors at least 10 to 20 years to recoup their initial investments in the business—without accounting for inflation or compounded interest rates. These three franchises mirror common issues seen in the majority of franchises, including: Sales cannibalization from opening too many units too close to each other High employee turnover, which puts stress on the owner and manager to keep staff at a minimum Back-breaking 70- to 80-hour workweeks for owners just to break even Now, What Are the Best Franchises to Own in 2023? As we’ve discussed, the best franchise to own is relative, so we’ll take a look at some of the best franchises to own in 2023 based on a few key categories. Best Low-Cost Franchises: Your budget will have a huge effect on the franchise options available. If you have limited financial resources or want to avoid overleveraging yourself, then look for the best, most affordable franchise. Best Franchises in Emerging Industries: Nobody wants to open a franchise in a dying industry. If you can find a franchise in a growing market, then you can better position yourself for future success. Best Franchise for Risk-Mitigation: Many entrepreneurs choose franchises because of their safety. There are several blue-chip franchise options to mitigate the risk of failing. FranchiseFranchise FeeTotal InvestmentIndustryFranchise 500 RankCruise Planners$6,995 (Regularly $10,995)$6,995−$24,000Travel Agency135thNational Property Inspections (NPI)$34,900$40,700−$43,000Property Inspection244thCard My Yard$7,000$7,750−$16,800Sign Rentals299thJan-Pro Cleaning And Disinfecting$1250-$50,000$2,150−$55,000Commercial Cleaning30thThe UPS Store$29,950$120,929−$474,193Postal, Print, and Business Services2ndTaco Bell$25,000−$45,000$575,600−$3.3 millionFood1stDunkin'$40,000−$90,000$437,500−$1.78 millionFood11th7-Eleven$100,000−$1 million$100,000−$1.23 millionConvenience Store9th Best Low-Cost Franchises to Own in 2023 Starting any business requires capital, but when you start a franchise, you have additional upfront and ongoing franchise fees. The initial investments needed to open a franchise can range from a few thousand to more than $1 million depending on the franchise—some even have net worth and liquidity requirements. If you’d like to open a franchise in 2023 without making a large investment, then consider some of the following low-cost franchises. Cruise Planners Initial Franchise Fee: $6,995 (Regularly $10,995) Estimated Total Investment: $6,995−$24,000 Industry: Travel Agency 2022 Franchise 500 Rank: 135th The World Travel and Tourism Council (WTTC) projects the travel industry to rebound to pre-pandemic levels in 2022. This is great news for travel agencies like Cruise Planners. Founded in 1994, this travel agency brand has grown to offer more than just planning cruises. If you own a Cruise Planners franchise, you own a full-service travel agency as an American Express Travel Representative. Cruise Planners is consistently recognized as one of the most affordable franchises to own, but more than that—it has a great reputation for training, a robust technology suite, and frequent leadership retreats. The typical franchise fee is $10,995, but they are offering it for $6,9995 in response to the pandemic and also have other discounts and flexible options. Learn more about owning a Cruise Planner franchise. National Property Inspections (NPI) Initial Franchise Fee: $34,900 Estimated Total Investment: $40,700−$43,000 Industry: Property Inspection 2022 Franchise 500 Rank: 244th The pandemic caused an unprecedented housing boom with low mortgage rates and scarce inventory. While experts do expect real estate to normalize, many think the next few years will continue to be a seller's market. This is great news for companies supporting the home buying/selling process like National Property Inspections (NPI). NPI was founded in 1987 and offers comprehensive home and commercial inspection services. Franchise owners get access to 35 years of brand equity, industry-leading training programs, and a dedicated marketing coach, among other benefits. With an estimated total investment under $45,000, it’s one of the more affordable franchise options. They also offer a 20% discount to military veterans, firefighters, police officers, and first responders. Learn more about owning a National Property Inspections franchise. Card My Yard Initial Franchise Fee: $7,000 Estimated Total Investment: $7,750−$16,800 Industry: Sign Rentals 2022 Franchise 500 Rank: 299th If you’re looking for an affordable franchise opportunity that’s a little unconventional, Card My Yard is the perfect option. In 1994, two families had the idea of bringing greeting cards to the front yard with custom signage for special occasions. Almost 30 years later, they are the premier yard sign brand with more than 450 franchises throughout the country. If bringing joy to your community sounds like a fun business, you may be the perfect franchisee for Card My Yard. Best of all, you can own one with an investment of less than $10,000. As a Card My Yard franchise owner, you get access to a turnkey eCommerce website, ongoing training, and marketing collateral.Learn more about owning a Card My Yard franchise 404. 2023 Best Franchises to Own in Emerging Industries When deciding on which franchise to start, it’s important to consider market trends. After all, you wouldn’t want to start a business in a dying industry. Below are some of the best franchises to own in markets that are thriving now and for years to come. Jan-Pro Cleaning and Disinfecting Initial Franchise Fee: $1,250−$50,000 Estimated Total Investment: $2,150−$55,000 Industry: Commercial Cleaning 2022 Franchise 500 Rank: 30th Jan-Pro was founded in 1991 and has grown into one of the largest commercial cleaning brands. In response to COVID-19, many experts predict the commercial cleaning industry to see steady growth in and beyond 2023. It’s not just traditional offices hiring commercial cleaners either—other businesses like movie theaters and sports venues are looking to professional cleaners as a way to rebuild trust with patrons. The increased demand within the commercial cleaning industry makes owning a Jan-Pro franchise a potentially great investment. Learn more about owning a Jan-Pro franchise. The UPS Store Initial Franchise Fee: $29,950 Estimated Total Investment: $120,929−$474,193 Industry: Postal, Print, and Business Services 2022 Franchise 500 Rank: 2nd The UPS Store has many services and operates in a variety of industries, but the most promising lies within the local courier and delivery market. Online shopping and direct-to-consumer are expected to see 15% growth this year. Couriers like UPS will play a large part in the equation—whether delivering the packages or managing the returns. Franchise owners of The UPS Store immediately receive the most valuable logistics brand name, valued at over $22 billion. They also gain access to world-class training, a vetted catalog of products and services, and the opportunity to scale to other locations (52% own multiple stores). Learn more about owning The UPS Store franchise. 2023 Best Food Service and Restaurant Franchises to Own Taco Bell Initial Franchise Fee: $25,000−$45,000 Estimated Total Investment: $575,600−$3.3 million Industry: Food 2022 Franchise 500 Rank: 1st A list of the best franchises in 2023 wouldn’t be complete without Entrepreneur’s #1 franchise, Taco Bell. Not only did they top the list for 2022, but they were #1 last year and have been inside the top 20 since 2012—the definition of blue-chip. While opening a Taco Bell is not cheap (they have a $1.5 million net worth requirement), if you do open one, you stand to benefit from one of the most powerful franchises in the country. In fact, some estimates have Taco Bell owners earning between $80,000 and $100,000 annually. In addition to stability as a franchise, owners don’t need to actively run the locations—they can continue enjoying their vacation homes. Learn more about owning a Taco Bell franchise. Dunkin' Initial Franchise Fee: $40,000−$90,000 Estimated Total Investment: $437,500−$1.78 million Industry: Food 2022 Franchise 500 Rank: 11th Dunkin' is now more than just donuts, as they have grown into one of the most powerful food brands in the world. More importantly, they are one of the more consistent franchises year after year. While they fell in the Franchise 500 rankings from 2nd in 2021 to 11th in 2022, they have not dropped below 13th for the last 10 years. Becoming a Dunkin’ franchise owner is not easy or cheap. You’ll need a net worth between $250,000 and $500,000, and you’ll spend about $1 million on average to open a location. However, if you are able to afford a Dunkin’ location, you can earn up to $124,000 a year. Learn more about owning a Dunkin’ franchise. 7-Eleven Initial Franchise Fee: $100,000−$1 million Estimated Total Investment: $100,000−$1.23 million Industry: Convenience Store 2022 Franchise 500 Rank: 9th The convenience industry earns more than $650 billion annually, and 7-Eleven is synonymous with convenience. Since 1946, 7-Eleven has been working to build one of the most iconic brands—and you have the opportunity to benefit from this work by franchising. Becoming a 7-Eleven owner is a little easier than the two franchises above—you only need $50,000 to $250,000 in cash and an average total investment of $650,000. In addition to a great brand, you’ll also get one of the most consistent franchises as rated by Entrepreneur. Over the last decade, their average franchise ranking is 7.2.Learn more about owning a 7-Eleven franchise. How to Get Started With Owning a Franchise If you’re interested in going the franchise route with your new business venture, the first place to start is choosing the right franchisor as your partner. The list above is a great place to find some of the best franchises in 2023, but you may also want to consider looking at successful businesses in your city to see if they have franchise opportunities or review other popular franchises from the Franchise 500 list. After you’ve decided on the perfect franchise, you’ll need to begin the application process and make sure you meet minimum qualifications. Once approved, you’ll need to get the capital to cover the initial investment fees. If you don’t have the liquid capital yourself, you may want to look into franchise financing solutions. Then, you’ll review and sign your franchise agreement, pay any outstanding obligations, and attend any mandatory training. After that, you’ll be ready to launch your franchise and start hiring staff.While starting a franchise is typically more difficult than an independent business, the benefits of an established brand, proven processes, and other technology solutions make it a safer investment. You can also improve your chances for success by choosing one of the best franchises to own in 2023.