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Franchise Owners: A National and Metro Look

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

Roughly 5% of U.S. businesses with employees are franchises, according to LendingTree analysis of U.S. Census Bureau data. Below, we break down franchise ownership by several national demographics, including race, gender and industry. We also highlight the metros with the highest and lowest rates of franchise ownership.

Between the challenges that come with owning a business — like financing and finding the time to manage everything from logistics to employee benefits — and franchise-specific obstacles — like franchise taxes and loan down payments — getting into the franchise business can be difficult. Here’s what you should know about the current state of franchise owners in the U.S.

Key findings

  • 4.9% of U.S. businesses with employees are franchises. According to U.S. Census Bureau data, 130,492 businesses are partially or wholly owned as a franchise out of 2,686,480 reporting businesses.
  • Asian-owned franchises are most common. 9.9% of Asian-owned businesses are franchises, versus 5.5% of Black-owned businesses and 4.3% of white-owned businesses.
  • Accommodation and food services is the most heavily franchise-dominated industry. 19.7% of businesses in this industry are partially or wholly owned as franchises. Educational services is the second most common industry to see a franchise, at 12.4%.
  • El Paso, Texas, has the highest rate of franchise ownership in the U.S. 11.2% of businesses in El Paso are franchises — more than double the national average. El Paso is followed by San Antonio (9.5%) and Charleston, S.C. (8.8%).
  • Metros with higher costs of living tend to have the lowest rates of franchise ownership. San Diego and New York, two of the most expensive places in the U.S., have the lowest rates of franchise ownership at 3.2% each. Miami and Los Angeles are just ahead at 3.3% each.

Franchise ownership in the U.S.

Almost 5% of U.S. businesses with employees are franchises. According to the U.S. Census Bureau, 130,492 businesses are partially or wholly owned as a franchise out of 2,686,480 reporting businesses.

A franchise is an arrangement where a brand or company owner allows a third party to sell their products or services for a fee and royalties. The franchiser gets the benefit of an established company or brand, but that comes at a cost.

Contracts can last as long as 20 years. While renewals may be optional, they aren’t typically automatic. If the franchiser doesn’t comply with the contract, it can be terminated. In that case, it could mean losing the entire investment.

Becoming a franchise owner can be a lucrative investment, but it’s like any business because there are elements of risk. Here’s how franchise ownership breaks down across several demographics.

Race

Nearly 10% of Asian-owned businesses are franchises — the most of any race examined.

Asian Americans are the fastest-growing racial or ethnic group in the U.S., with its population up 81% (and 8.4 million people) between 2000 and 2019. This influx provides opportunities for more people of Asian heritage to become franchise owners. Potential labor market discrimination against native-born Asian Americans could also lead more to create franchise opportunities for themselves.

Franchise ownership (by race)

Race% of businesses that are franchises
Asian9.9%
Native Hawaiian and other Pacific Islander5.6%
Black or African American5.5%
White4.3%
American Indian and Alaska Native3.1%

Source: LendingTree analysis of U.S. Census Bureau data

White-owned franchises are one of the least common by percentage, but they make up the largest number of franchises of any racial or ethnic group by a wide margin. Considering white people make up 61.6% of the U.S. population, this makes sense.

And white Americans don’t face the same kind of discrimination as people of color. Franchise ownership may be seen as less desirable among this population, especially since it involves risks that traditional employment typically avoids.

Gender

There’s almost no difference in franchise ownership for men (4.7%) and women (4.2%). Women-owned businesses are on the rise in the U.S., though they only make up about a fifth of all firms.

Franchise ownership (by gender)

Gender% of businesses that are franchises
Men4.7%
Women4.2%

Source: LendingTree analysis of U.S. Census Bureau data

Industry

Accommodation and food services is the most heavily franchise-dominated industry, with 19.7% of those businesses being partially or wholly owned as franchises. Some examples of these kinds of franchises include major fast-food brands like:

From an industry standpoint, franchises like hotels and restaurants are recognized as having a high rate of return, and they tend to offer an opportunity to franchise with a company that has a long, proven track record.

For example, accommodation and food services was one of the top five industries that contributed to gross domestic product growth in 2021. In general, this industry also tends to be lucrative for both parties.

Educational services is the second most common industry to see franchises, at 12.4%. This could include establishments like Sylvan Learning, Kumon, Lightbridge Academy and Goddard School. Like the first-ranked industry, it’s focused on service-oriented businesses. Despite a steep decline in employment in this industry at the onset of the pandemic, it’s since recovered and seems poised to resume its high growth trajectory.

Franchise ownership (by industry)

Industry% of businesses that are franchises
Accommodation and food services19.7%
Educational services12.4%
Management of companies and enterprises11.3%
Arts, entertainment and recreation8.5%
Retail trade8.4%
Administrative and support and waste management and remediation services5.7%
Other services (except public administration)5.5%
Finance and insurance4.2%
Mining, quarrying, and oil and gas extraction4.0%
Real estate and rental and leasing3.4%
Transportation and warehousing3.2%
Manufacturing2.3%
Health care and social assistance2.2%
Wholesale trade2.2%
Construction1.9%
Information1.8%
Agriculture, forestry, fishing and hunting1.7%
Professional, scientific and technical services1.2%
Utilities0.7%

Source: LendingTree analysis of U.S. Census Bureau data

El Paso, Texas, has the highest rate of franchise ownership in the U.S.

In El Paso, Texas, 11.2% of businesses are franchises — the highest across the U.S. among the metros we analyzed. That’s more than double the national average.

Keep in mind that this data is based on the 50 metros with the most franchises. Each metro in the top 50 has at least 529 franchises. (This excludes places like Jonesboro, Ark., which has a 21.0% franchise ownership rate but only 282 franchises.)

San Antonio (9.5%) follows El Paso. Texas has a solid labor force, and earnings are on par with the national average.

“Both El Paso and San Antonio have lower costs of living than many other big American metros, as do many others at the top of the list,” says Matt Schulz, LendingTree chief credit analyst. “That’s far from the only factor at play here, but it could indicate that franchises might be more appealing opportunities to businesspeople in less expensive parts of the country.”

Coming in third place is Charleston, S.C. (8.8%). Like the other top-ranking metros on this list, Charleston also has a cost of living below the U.S. average.

High cost-of-living metros have the lowest rates of franchise ownership

San Diego and New York, two of the most expensive places in the U.S., have the lowest rates of franchise ownership at 3.2% each. Miami and Los Angeles are just ahead at 3.3% each, and both share that high cost of living.

At the same time, many of these metros have median household incomes that aren’t far different from the national median (though New York metro residents make over a third more than that median). In fact, Miami has a median household income below the national median. With less money to go around because of the higher cost of living, it can be difficult to come up with the cash that’s necessary to finance a franchise in the first place.

Another key factor seems to be regional: Texas and the southeastern U.S. dominate the top 10, while East Coast and West Coast cities make up a good portion of the bottom.

Full rankings

Franchise ownership (by metro)

RankMetroNumber of franchises% of businesses that are franchises
1El Paso, TX54111.2%
2San Antonio, TX1,5059.5%
3Charleston, SC6038.8%
4Dallas, TX4,9178.5%
5Little Rock, AR5578.3%
6Raleigh, NC1,1348.1%
7Houston, TX3,6278.0%
7Virginia Beach, VA1,0158.0%
9Colorado Springs, CO6157.6%
9Greensboro, NC5297.6%
11Indianapolis, IN1,2497.4%
11Oklahoma City, OK1,0247.4%
13Worcester, MA5686.9%
14Nashville, TN1,0316.6%
15Richmond, VA8186.5%
15Birmingham, AL5626.5%
17Austin, TX1,2726.4%
18Charlotte, NC1,3946.2%
19Jacksonville, FL8236.1%
20Columbus, OH8645.9%
21Kansas City, MO1,1505.8%
21Cincinnati, OH9635.8%
23Atlanta, GA2,7925.6%
23Providence, RI7565.6%
25Detroit, MI1,9545.4%
26Baltimore, MD1,2595.3%
27Philadelphia, PA2,5325.2%
28Tampa, FL1,6005.1%
29Sacramento, CA9915.0%
30Washington, DC2,4184.9%
30Las Vegas, NV7624.9%
32Cleveland, OH9024.8%
32Milwaukee, WI6834.8%
34Pittsburgh, PA9374.5%
34San Jose, CA8604.5%
36Riverside, CA1,1104.4%
37Chicago, IL3,9144.3%
37Orlando, FL1,0084.3%
39Phoenix, AZ1,5144.2%
40Denver, CO1,3704.1%
41Seattle, WA1,6074.0%
42Boston, MA1,6593.9%
43Minneapolis, MN1,3393.6%
44San Francisco, CA1,7103.5%
44Portland, OR9413.5%
44St. Louis, MO9063.5%
47Los Angeles, CA4,7583.3%
47Miami, FL2,2873.3%
49New York, NY5,9643.2%
49San Diego, CA1,0893.2%

Source: LendingTree analysis of U.S. Census Bureau data. Note: Only the 50 metros with the most franchises were considered.

4 things to know about becoming a franchise owner

Becoming a franchise owner can be an exciting step, but it’s not one to be taken lightly. It requires big investments of time, money and energy — with no guarantee of success.

Here are a few things you should know about buying a franchise:

No. 1: Requirements may vary

Franchises can have steep requirements for potential franchisees, varying by company.

For example, companies often require you to have a minimum net worth. They may also require a minimum personal credit score, previous industry experience and other qualifications that can end someone’s dreams of buying a franchise in a big hurry if they’re not met.

No. 2: The down payment

“You shouldn’t expect to finance the whole thing,” Schulz says.

Most companies require at least some sort of down payment to get started, which can be a huge hurdle for people looking to get into franchising.

Depending on where you get funding, you can expect the down payment to range from 10% to 30%. A $100,000 franchise loan would come to $10,000 to $30,000 before you even start selling. You’ll need to find a way to come up with that capital.

No. 3: Financing options

Beyond the down payment, you may want to finance the remaining costs of becoming a franchise owner. Some options include traditional bank loans, Small Business Administration (SBA) loans and business lines of credit.

“One of the advantages of buying a franchise is that the name, track record and reputation of the franchise might make it a little easier to secure that initial financing,” Schulz says. “Banks like to minimize their risk, and opening a new location of a well-known, long-established franchise may look less risky than starting a brand new business from scratch.”

No. 4: Franchise taxes

Once you open a franchise, you may have to pay a franchise tax, depending on where you live. This isn’t based on sales, however — it’s simply a tax you’d pay in exchange for running a franchise in the state.

As of a 2019 LendingTree compilation, 18 states and the District of Columbia had a franchise tax or something similar. You’ll want to look into those guidelines in your state when gauging if franchise ownership is a viable option for you.

Methodology

LendingTree researchers analyzed the U.S. Census Bureau 2019 Annual Business Survey.

Specifically, researchers estimated the franchise ownership rate in the U.S. and broke it down by race, gender and industry. We also examined franchise ownership rates across the 50 metros with the most franchises.

Responses within this study are based on all or part of a business being operated as a franchise.

 

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