Most profitable franchises to buy in 2020

One of the easiest and potentially most profitable methods of becoming financially independent is investing in a franchise. Starting up a business from scratch can be a daunting task for many and franchises offer a way to make something of your own using pre-built templates. Because of these reasons and many more, investing in a franchise looks like one of the top investing decisions a would-be business owner can make. The questions that present themselves the most are what are the most profitable franchises in the world? That depends on many factors such as the industry and niche you are interested in. The size of the franchise is also a consideration that focuses on the number of locations that the parent company owns over an area of land. What are the revenues generated each year? That is, after all, the defining factor in gauging the profitability of any company. The methods for determining if a franchise is profitable are many. There is no single way or metric that outlines it thoroughly. Let us look at some of the most profitable franchise industries and try to single out what makes them so special compared to the less successful ones.

The most successful franchises have certain elements that seem to be consistent across all of them. The most profitable ones tend to have strong and efficient business processes and procedures. These need to be easily replicated across locations, cultures, and jurisdictions in order for the customers to have a consistent experience. On the other hand, the products and services that the franchise is providing need to be adaptable for different customers. For instance, you will not have a profitable fiscal year trying to sell alcohol in a middle eastern region. The products and services provided need to change and adapt in accordance with customer’s needs and wants that are always shifting over time. The biggest franchises in the world rely on their strict protocols that franchisees need to follow. If they have such a system in place, the franchisees will have exact guidelines that they have to follow in order to be a part of the franchise. These are just some of the indicators that a franchise has got things figured out and has you covered.

The main question on the mind of anyone thinking about investing in a franchise is how much money is there to make? And it makes perfect sense as no one would invest in something and not expect a return. The truth is is that there is no singular solution to this question. To make a franchise profitable means to leverage a plethora of factors and make them work in your favor. Each franchise unit is a separate entity and its financial or marketing success relies heavily on the location, market shifts, work ethics, etc. The best proactive measure you can undertake before committing to any business plan is to do as much research on as many factors as possible. Become as familiar as possible with franchise systems that you are interested in and wage the pros and the cons of doing business. If the cons outweigh the pros, you may be better off focusing your efforts and finances on another industry. The more knowledge you bring with yourself, the more prepared you will be and your role in the franchise will be easy going. What are some of the fields one needs to dive into to get a general sense of how a particular franchise will function? Let’s list a few key points that will help in making the best possible educated investment decision.

The Franchise Disclosure Agreement is always a good starting point. This document is mandatory for any franchise to have and fully disclose to potential franchisees. The following item is not required by law to be disclosed in the FDD, but an ever-increasing number of franchises are opting to include it. Pay special attention to Item 19 which contains earnings claim (also known as financial performance representations). FRPs, for short, offer you a clear picture of what you will need to do in order to make the franchise profitable in the near future. These are not crystal balls with a picture-perfect interpretation of the future. This metic is a kind of a guideline of what to expect and how to act accordingly. Study it carefully if you are serious in pursuing the franchise further.

The ever-important distinction not many people make is the one between revenue and profit. These are not interchangeable terms and stand for two separate things. Profit is the same thing as net income, but not the same as revenue. The cumulative amount of money a business acquires over a time period, usually a fiscal year, is called revenue. On the other hand, profit is the revenue that has its costs of operation deducted from the total figure. Deduct all the costs for operating the franchise from the revenue in a given time frame and whatever is left can be considered profit. The key is knowing what constitutes as operating costs. These include, but are not limited to inventory acquisition, administration expenses, various maintenance, office necessities, payroll, insurances, rent, various forms of taxes and much more. Depending on the industry and niche of your franchise there may be many more forms of costs associated with your business process. It might seem like a lot, but do not be discouraged. The reason is that usually operating costs are at their highest in the first year of doing business and slowly taper off and stabilize as time progresses. You will need to pay certain initial fees but those are usually one time ordeals. Later down the road, you will only need to cover the operating costs. It is like getting a car going, it takes the most energy to move from point zero, later on, you will have momentum on your side.

You need to be asking the right questions. The best and most time-efficient thing you can do before looking for franchises for sale is talking to people involved in ones that are already established. Use the previously mentioned FDD to pinpoint franchises in the desired industry that will speak and provide you with all the necessary information. The purpose of these activities is for you to create a clear picture of the future you could expect in this business. Questions can vary from industry to industry but there are some fundamental ones that are universal across all. The first question you will be needing a clear answer on is how much was the initial investment. It is the first obstacle, a barrier to entry, if you will, before actually doing business. Naturally, you will need to get that covered before hoping of getting anywhere further. Also, a good thing to know is if and by how much did the initial figure differs from the one disclosed in the FDD. The next crucial piece of information would be how long does it take for the franchise to turn a net profit. Some investors might find it less than lucrative to work and toil for years on end only to finally turn a profit five years down the road. It is for the best to gauge such information and determine if it is something that you are able and willing to handle. Consistency in making a profit is also a big factor. Is the market for said franchise turbulent, volatile and generally unpredictable? And if so, is it something that you can handle in the long term? Knowing what to expect from the future is a big part of being prepared to operate your business without hiccups. When talking about franchisors, you need to know how supportive and involved they are. There will be times you will require assistance and direction. You will need to be able to rely on them in case anything unforeseeable happens. Are there any particular items or services that you are obligated by contract to procure from the franchisor or certain vendors? If that is the case, where can you find the best rates on said items and services? Lastly, ask for any mistakes that they have made and would advise you to look out for. Most notably, if they could go back in time and go with another franchise, which one would it be? More importantly, why? Personal experience trumps all, try and extract as much information from it as possible and shape and ide of what your future with a certain franchise would look like.

Let’s look at some of the world’s most well-known franchises and see what makes them tick. The metrics which we are going to discuss are not the only ones that matter but will give us a general overview of how and why they are operating with such success.

McDonald’s

This fast-food restaurant franchise is the one that has started it all and has persevered through many decades all across the world. They have managed to thrive through most of the world’s cultures, establishing themselves as the go-to place for getting that all familiar fix. All of this does come with a price tag though. The initial investment will set you back anywhere from $1,008,000 to $2,214,080. The franchise fee is $45,000. If the franchise is that well-established and the return on investment is all but guaranteed, it is well worth the investment. McDonald’s is the world’s most popular brand that is recognized all across the world. They are popular and have the kind of experience rarely anyone else does in the global marketplace. If you have the finances, you cannot go wrong.

The UPS Store

The UPS Store is the highest-ranked retail shipping and postal service operator. Arguably, it is one of the most profitable franchises there is. They boast complete financial stability and are a recognized brand that offers dedicated training and support. A vast majority of the U.S. population lives no more than 10 miles of a UPS Store. Compared to the first franchise, The UPS Store boasts a substantially lower entrance and maintenance fees. The initial investment will costa you anywhere between $138,433 to $460,031. The franchise fees are just below $30,000. Again, a very fine example of a company with a long-lasting tradition, a recognized brand that has tonnes of experience in what they do.

RE/MAX

RE/MAX is a real estate franchise. It boasts an excess of over 7,000 franchises all over the world in over 100 countries. It has been operating for over 40 years which guarantees a lot of experience and brand recognition which is crucial for future endeavors. Most of those franchises are within the United States but expect them to be present anywhere where you can find a real estate market. Franchisers are reporting comfortable degrees of freedom and generous commissions. Also, the entrance and maintenance fees are apparently very manageable. The initial investments range from anywhere between $37,500 to $225,000 and the franchise fee is $15,000 to $32,000. Their advertising strategies are well-developed along with their business philosophy. Combine that with the ever-growing need for real-estate mediation and you are presented with an option you simply cannot go wrong with.

We have just covered some of the most well-known examples to illustrate what is it that we should be paying attention to when considering investing in a franchise. If you are evaluating a business investment of any kind, you need to know if the investment opportunity is worth the money, time and effort that you will have to put in upfront. There are plenty of other franchises that are recording record growths in a globalized and heavily competitive marketplace. Do the research and find out which ones are those in an industry you find yourself interested in. Look out for press releases that are praising achievements and milestones that franchisors have made. Also, be proactive and look towards the future. Some franchises will be much more sought after than others as the world around us and the needs of people in it are constantly shifting.