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There are hundreds of thousands of registered franchises in the United States, and more are being created each year. With these numbers, it’s not hard to understand why so many investors see franchises as a desirable investment opportunity—rather than risk investing in a new business, you have the increased security of strong brand awareness, and a customer base is already established. Maybe you’ve also started wondering how to invest in a franchise in order to expand and diversify your portfolio.
If so, you’ve come to the right place. Below is our complete guide to investing in a franchise in 2023 so you understand the full scope of the initial costs and profit potential before you get started. Read on to determine if franchise investment is the right move for you.
What is a franchise, and which ones are most popular?
If you’ve heard a lot about franchises in the investment world, but aren’t totally sure what they are, a franchise is a business model in which the owner licenses out grants for others to operate a branch of that business at a new location. This grant allows the franchise investor to use the established branding, sell the products or provide the services associated with the brand, and allow their promotions, marketing, and rotating offers to be steered by the owners.
For some business owners, the reduced control over offerings, design, and branding would be a serious deterrent—but the increased security of having a reputable and established brand behind you are what makes them so popular.
So, which type of franchise should you consider investing in? There is no shortage of options to choose from. Here are five franchise investment opportunities for you to consider, which have proven to have strong returns on investment:
- McDonald’s: This fast food chain has over 35,000 locations around the world and has become deeply embedded in diverse food cultures worldwide. Through the pandemic and past economic recessions, McDonald’s has maintained a strong position within the stock market and is expected to continue to do so.
- Wingstop: Though much smaller than McDonald’s, with just over 1,500 locations, Wingstop has proven to have a strong business savvy that has allowed the company to grow through the pandemic and increase sales in recent years through the employment of delivery-only “ghost kitchen” locations. Investing in Wingstop, a relatively small franchise with strong growth potential, could allow you to get in on investment early. They’re forecasting higher return on asset rates than others on average in the U.S. restaurant industry.
- Planet Fitness: This company has a high-margin business and offers its service at a budget-friendly price, which has allowed them to almost completely recover from pandemic losses. Business is going well, and based on current trends, analysts are strongly encouraging investment.
- Marriott International: As one of the largest hotel franchisors in the world, they have done relatively well during the pandemic, even while revenue for businesses across the travel industry fell. Although the future remains somewhat unclear for the travel sector, if you’re looking to invest in this space, Marriott International is a strong contender that’s predicted to see robust demand in the coming year.
- Domino’s: With a strong advantage over other pizza delivery franchises in digital ordering, national marketing campaigns, and overall value, Domino’s is predicted to have a big year in 2023.
While there is no shortage of franchise investment opportunities out there, these five have proven very durable and should be carefully considered as you evaluate which options best align with your investment goals and values.
How to invest in a franchise
Since you are most likely considering investing in franchises to generate passive income, and not because you’re interested in owning and operating a business of your own, there are a few ways to approach franchise investment. First, you could seek out an opportunity to fund a franchise while receiving returns and steering large-scale decisions pertaining to the business, but not actively overseeing daily operations. This is known as a semi-absentee business model, and is prevalent in restaurants, kiosk businesses, and hair salons.
Another route to seek out franchise investment opportunities is through an investment platform dedicated to this kind of asset. One such example of this is FranShares. Through this platform, individuals looking to break into the franchise investment space can establish high-yield investment portfolios and generate passive income through a fractionalized or crowdfunding investment model.
What does that mean? Essentially, FranShares uses funds from a group of investors to fund a franchise, then each investor receives a portion of the profits generated by the franchise.
Investing doesn’t mean you have to take on the responsibilities of managing the business, though. Instead, FranShares has a reputable and well-trained team to handle these tasks. This means that investors are able to rest easy knowing their investments are being well taken care of, without actually having to deal with any of the logistics themselves. The best part about this platform is that both accredited and non-accredited investors alike are able to use FranShares—and the minimum investment is just $500.
Pros and cons of investing in a franchise
Every investment opportunity has its pros and cons, and it’s imperative that investors carefully weigh each against their own circumstances and investment goals to ensure they’re positively adding to their portfolio. Here are some things to consider about franchise investment:
- Asset diversification: It’s an obvious perk, but it’s worth repeating. Investing in a franchise could open you up to different revenue streams and protect you from market shifts that negatively impact other areas of your portfolio.
- Increase your passive income: Using a platform like FranShares, you can increase your passive income through monthly revenue returns. In the event that a franchise you’ve invested in is sold for any reason and its value has increased, you will also receive returns on your investment.
- Low barrier to entry: Since you’re able to invest with a platform that covers liability and management responsibilities, and you can get started as a non-accredited investor with as little as $500, there are very few barriers to entry.
- Low liquidity: Currently, FranShares doesn’t have a secondary market, so investors should plan on holding investments for five years, which is a longer period than many investors prefer.
- Limited track record: Although investment platforms make it easy to break into the asset class, they haven’t been around long enough to have a strong track record.
Carefully consider your investment options as well as how you invest in a franchise, whether you do so independently or through an investment management tool.
Get started with franchise investing
Franchise investment can be a strong means of diversifying your investment portfolio because many franchises are better established than standalone businesses. They have more resources to ensure their success—and protect them from hardship, should they happen to face any. While no investment is guaranteed, the long track record that many franchises have allows you to make more informed decisions about which company is most likely to provide you with returns on your investment.
If you’re looking into how to invest in a franchise in 2023, remember to consider an investment platform like FranShares to see if they’re a good fit for you. Learning the ropes of a new investment type can be difficult for new investors, but the support FranShares provides can make this a less daunting prospect.