A recent financial outlook for small businesses stated that more than 40% are still having problems securing sufficient financing to grow and maintain their businesses. They can thank the financial crisis for the lack of liquidity, though it has improved immensely over the past couple of years and is projected to continue to recover through 2011. (If you like being your own boss, this is not the job for you. Check out Is Buying A Franchise Wise?)
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Funding to start a small business is also lacking, with the government pushing local and national banks to further free up capital. Starting a franchise is one of the most popular vehicles for aspiring small business owners, but they too have fallen victim to much tighter lending across the country. As such, it has become even more important to choose a franchise that has a solid likelihood of being able to secure funding and surviving to make hefty returns for the small business owner. From combing a number of top franchise rankings, below is a list of five popular franchises.
Subway bills itself the "the world's largest submarine sandwich chain", which is a narrowly defined category but has indeed proven popular as it has grown to more than 34,000 locations in nearly 100 countries across the globe - more than any other fast-food chain, including giants like McDonald's. A number of sources have it listed among the top franchises given its staying power over the past decade and healthier focus compared to competing fast food and quick service restaurants out there.
Subway is also one of the more affordable franchises in terms of lower initial start up costs. The company website lists the initial franchise fee at $15,000, that total start up costs well below $100,000. Average failure rates were also pegged below 10%, which is impressive, given the high failure rates of smaller businesses in general. It may be difficult to strike it rich with a single Subway franchise, but it could represent a good starting point for many initial franchise owners.
- Dunkin Donuts
Food is one of the most popular franchise options, and Dunkin Donuts has consistently ranked as one of the top coffee and baked goods franchises. All locations are franchised, and along with the Baskin-Robbins ice cream brand operates nearly 10,000 locations. Company information details it is the top retailer of coffee, selling 1 billion cups in a year.
Startup costs have also been listed at under $240,000, though there are minimum net worth requirements for aspiring franchisees. Dunkin Donuts is extremely popular on the East Coast, and is still expanding across much of the U.S., along with international locations.
- Oreck Clean Home Center
Away from the food category, Oreck was recently listed among the top new franchisees. For those not familiar with the company, it sells vacuum cleaners and related cleaning products and accessories. David Oreck founded the company in 1963, and it continues to be family owned.
The store base is pretty small overall, which could be a drawback, but also means competition is likely to be less intense and the company does have a good reputation as a higher end vacuum company. Start up costs vary, depending on store size, location and other features.
- The UPS Store
With the acquisition of Mail Boxes Etc. in 2001, UPS entered the retail store base to better allow customers to ship packages and carry out similar small business activities. The store base has grown to almost 5,000 locations in North America, and has been the most popular in the postal and business services category.
Given UPS is a giant company, it provides its own funding for interested franchisees. Start-up costs are above average, and start at approximately $150,000, but overall failure rates are below average.
- Dairy Queen
Returning to the food category one last time, Dairy Queen has been around for more than 70 years. As a result, it may not qualify as a hot concept, but it does have staying power and failure rates below 10%, which is what really matters when deciding which franchise to open. It is also part of Warren Buffett's Berkshire Hathaway, which also speaks to its consistent sales and profit trends over the years.
There are nearly 5,000 Dairy Queen locations and start-up costs are pretty high, so make sure you do your market research first. Smaller locations could be opened at a lower price point, though.
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The Bottom Line
The above franchises have solid reputations and in many cases years of growth have proven they can stand the test of time. Jumping on a more recent or popular concept can also pay off, but is likely to be more risky. Of course, entrepreneurs must also balance in start-up costs and the ability to secure a small business or bank loan, but the overall endeavor can be easily worth it, as there are also thousands of success stories when it comes to opening your own franchise. (Skip the first step and build off of someone else's successful business mode. Check out Share The Wealth With Franchises.)