The Entrepreneur magazine releases a “Franchise 500 ranking” every year for the last 40+ years.
In this article, we are going to look at the list to try and figure out which companies might not deserve to be there. The items of our review are based on our analysis of the franchises’ Franchise Disclosure Documents, and we will look at key figures to understand which franchises might not be worth your time. In this analysis, we are going to start from the top of the 500 list and list the first 10 franchises you should dig into the numbers on.
For your understanding, some of the terms we will define in this article are defined below:
Although Taco Bell has done okay over the past 10 years, their Express model has failed tremendously. Taco Bell Express Units offer inexpensively priced, quality Mexican-style food for take-out eating. These are usually in locations where a larger, traditional store might not fit. The 3-year Failure Rate for this system is 60% and as such, we do not recommend starting a Taco Bell Express franchise. The industry median, in this case, is 12%. Note that this is not the same as a regular Taco Bell franchise, which does not face the same problems.
The UPS Store franchises for centers featuring shipping, packaging, postal, print, and similar business and communication services to be operated at Traditional and Non-Traditional locations. The Franchise for Sale Rate is 16% for the UPS Store, compared to the industry median of 7%. There is also pending litigation against the UPS Store, most of which alleges that the UPS Store and/or its franchisees charged excess notary fees.
The restaurant chain offers burgers, sandwiches, salads, dinners, frozen custard desserts, beverages, and other menu items in a quick-service setting. The for-sale rate is 11% for Culver’s franchises, compared to the industry median of 6%.
The chain is an after-school center that provides math and reading programs using the Kumon Method of learning. Children are given the opportunity to attend Kumon Centers twice each week throughout the year for approximately 20-30 minutes per subject, and complete daily assignments at home on non-Center days. Kumon has had a growth rate of 7% in the last three years – this is 10% less than the industry median in the same period. Additionally, its for-sale rate is 13% which is much higher than the industry average of 1% in the last one-year period.
This is a business offering fitness training facilities with exercise machines and free weights, fitness training services, tanning services, related services, and ancillary goods. For Planet Fitness, the for-sale rate is around 33% which is almost 5x the industry median of 7%. There is pending litigation against Planet Fitness alleging it failed to fulfill obligations to affiliates, made customers sign unlawful terms, and misrepresentation in different lawsuits.
Primarily provides professional residential and commercial cleaning; fire, smoke, water, and other damage Cleaning, restoration, mitigation, repair and reconstruction, and mold remediation services. The for-sale rate for Servpro locations is 19% while the industry median is only 6%. Servpro is fighting a former franchisee in court that alleges that Servpro violated its agreement by ending the agreement contrary to the terms decided in the agreement.
It is a beverage franchise, offering guests a variety of custom smoothies blended to support healthy and active lifestyles. Each proprietary blend is made with select whole fruits and organic vegetables without any artificial preservatives, flavors, and colors. Smoothie King offers other nutritional drinks and general nutritional products. However, its 3-year for-sale rate is 17% compared to the Food and Beverage industry average of 6%.
This is a surprise addition to the list for some of our readers, but the fast-food, burger giant has a Franchise for Sale Rate of 26% which is more than 400% of the industry median of 6%. That is why this franchise has ended up on our list. There is a ton of pending litigation against McDonald’s, alleging everything from racial discrimination to not fulfilling its cybersecurity obligations.
It is a primarily mobile business, offering the retail sale and installation of blinds and other window coverings. This franchise has a for-sale rate of 13%, compared to the industry median of 5% for the Home and Building Services industry. The franchise has seen litigation alleging unlawful termination which was settled without trial and a couple of other cases which have all concluded now.
It is a mobile store selling high quality repair and diagnostic tools and equipment. Snap-on manufactures and/or distributes these tools and equipment to professional mechanics and other tool users throughout the United States. The Franchise for Sale rate for this company is 31% compared to the industry median of 6%.
With that list, you know which franchises you should avoid. However, if you want to get a franchise reviewed by us for any potential red flags you should reach out to us and we will have an analysis of ours review it for you. we will also look at things like ongoing litigation and a variety of other issues that might make a franchise unsuitable for you.
Are you wondering what small business you should start off with? If you’re ready to start a business or if you are just exploring business opportunities available, we have designed an entrepreneur quiz that you can take to find the perfect business for you.
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