Facts About Franchises

Opening up a franchise can be a much safer decision than opening up a new business independently. An even safer decision is to purchase an existing established franchise. Here are some facts about franchises according to The International Franchise Association (IFA):

  • According to the U.S. Commerce Department, fewer than 5% of Franchises were terminated on an annual basis.
  • In a study by Arthur Anderson & Company of 366 franchise companies, nearly 97% were still in business after 5 years.
  • In contrast, a study by the U.S. Small Business Administration revealed that 62.2% of all new businesses FAILED within their first 6 years of business.
  • Nearly 50% of all domestic retail sales were from franchise businesses.
  • 1 in 12 U.S. business establishments is a franchise. 
  • A new franchise opens every 8 minutes of every business day.
  • There are approximately 3,300 Franchisors and over 750,000 franchise units.
  • The total number of people employed by franchising is over 9 million, with 8 to 14 employed per business.
  • Franchised businesses create more than 170,000 new jobs each year.

Types of Franchise Agreements

Before you consider what kind of franchise to investigate, it is extremely helpful to find the right entry level of franchising. Franchises are usually classified into four different categories or levels. Choosing the right level of franchising for personal and professional satisfaction is almost as important as choosing the right franchise.

Single-unit Franchises

A single-unit franchisee has the right to operate one franchise unit. Most franchisees enter the world of franchising by owning one unit. It is an excellent way to gain an understanding of the franchise system before considering additional units.

Multi-unit Franchises

The franchisee acquires more than one unit of the franchise usually at reduced initial franchise fees. A good sign of the health of a franchise organization is that many of the franchisees are multi-unit owners.

Area Development Franchises

This license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the area development franchisee must open a certain number of franchises during a certain period. As long as the area development franchisee stays on track in opening franchises in the area, he/she has an exclusive area where no other franchisees are allowed to open a franchise. Area development franchisees also typically pay reduced franchise and royalty fees.

Master Franchises

Sometimes called a regional developer, a master franchisee has all the rights of an area developer and usually assumes a larger area. The main difference is that the master franchisee, in addition to opening franchises at reduced franchise and royalty fees, can also sell unit franchises, multi-unit franchises and area development franchises, and profit from those sales. The master franchisee usually receives a part of the ongoing royalties paid by each franchisee. There may be additional income available from distribution of products through the franchisees in the area and possibly some real estate interests in franchisee locations. The master franchisee will usually operate at least one unit for income generation, for use in franchise sales, and for use as a training facility. Master franchises are rare, and when they are available, they are usually sold quickly. Because of the multiple revenue streams associated with a master franchise, the potential return on investment is substantial.

How do Get More Information

Brokers in the Business Brokers of San Antonio office are specifically certified to represent and sell franchise opportunities. Often times a good candidate for a franchise is a "corporate refugee" (a right sized manager from the world of big business having a mixture of management and business skills).  Our office has a full time franchise consultant, Tom Raymond, who works with people in a consultative manner to find a new franchise opportunity that is consistent with your interests. Tom has over 20 years of franchise experience to help you find the right fit for your lifestyle requirements.

If you are interested in learning more about whether a franchise may be a good solution for your financial requirements, please contact our office and we will provide you the information for a local franchise origination specialist that can help you find the right business to match your lifestyle.

Contact Business Brokers of San Antonio for more information.