Sure, the best franchise business investment for you will depend on your management and operational skills, your passion, and people skills, as well as the market and the competitive landscape in your community. But are there some franchises that are just intrinsically better?
Our team at America’s Best Franchises has identified some of the Best Franchises to Own in 2014 by checking on a simple but powerful criterion: low, annual turnover ratios to the number of U.S. franchise outlets. We are featuring those franchises with stellar success rates into a special section — click on the link above or use our main navigation. We’ll be adding to the list over time.
What is a turnover ratio? “Turnover” refers to a franchise that simply terminates or ceases to continue operations for whatever the reason. For our purposes, the turnover ratio equals the average annual terminations and franchises that ceased to operate divided by the number of US franchise outlets for each of the last three reporting years.
It’s a simple measure for a complex phenomenon. After all, not all companies that close or experience cessation of business failed. Cessation of business could be a result of death of an owner or partner, health issues, or even a divorce. Some may simply choose to retire. In fact, a 2002 study found that fully one third of small businesses that close consider their business successful. They closed, but didn’t fail.
What’s more, when franchises fail, the reasons for failure can cover a wide range of possibilities. Some franchisees underestimate the amount of work and investment required to own and run a business successfully and fail through their own lack of preparation. There’s also the question of fit — one franchise might work well for one person but not for another, because of temperament or experience. The best franchise concepts work hard to choose franchisees who are likely to succeed, but, unfortunately, they can’t foresee every mismatch.
Still, numbers over time say something. The U.S. Bureau of Labor Statistics says that about half of all new businesses survive for five years and one third survive for ten years. They’ve seen about the same figures for decades and feel confident that this is the normal pattern.
Franchises with longevity have an advantage. Their business model and operations system has been tested over time. They’ve made mistakes along the way and worked out the kinks. New franchisees benefit from a system tried and now true. That reduces a lot of the trial and error that can eat up time and money in the early months (or years) of a new business. Franchisees also have support. Some of the businesses that go under after one or two years might have been able to succeed in the long run if the owner had received the kind of advice and encouragement a franchisee receives — not to mention the training and practical support in the form of marketing programs, national name recognition, and management software that many of our best franchises make available to new franchisees.
Nonetheless, any new business comes with some risk. Not all franchise businesses succeed. It is important, then, to identify franchise systems that historically have had a consistent growth pattern and low turnover ratio. It doesn’t necessarily mean your going to make a lot of money. It simply means the franchisor is good at identifying top franchisee candidates for their system, the business model is sound, and the system works in a variety of locales.
Anytime Fitness, for example, has a turnover rate of less than 2%, and Sport Clips has a turnover rate of less than 1%. These are impressive numbers.
If a franchise business beats the odds on business failure consistently, it’s clear that the franchise is doing something right. That’s why we want to single out these Best Franchises to Own. Visit our Best Franchises to Own – 2014 page to find the best franchise for you.