If you’re itching to get into the small business game but don’t want to start from scratch, owning a franchise might just be the perfect solution. Franchising provides small business owners with a business model that’s already been proven successful, has name recognition with customers, and has ongoing corporate support and mentorship. Both lower one of the barriers to small business ownership and success: the risk that a business will fail.
In this post, we will explore the top five franchise industries and some key franchise trends — so you can stay ahead of the curve in the fast-paced world of franchising. We’ll also look at emerging opportunities for franchising, the key factors driving growth, and provide insights into the best practices for starting a franchise business.
Get an in-depth look at the latest franchising trends, challenges, and more in Guidant’s 2023 Small Business Franchising Trends report.
Top Five Franchise Industries and Key Franchise Trends
The top five franchise industries for 2023, measured by number of franchises expected according to the International Franchise Association (IFA)’s 2023 Franchising Outlook, are:
Franchise Industry Growth Expected, Number of Franchises in U.S., 2023
- Personal Services — 2.5 percent expected growth in 2023
- Quick-Service Restaurants — 2.5 percent expected growth in 2023
- Retail Food, Products, and Services — 2.1 percent expected growth in 2023
- Commercial and Residential Svc. — 2.1 percent expected growth in 2023
- Business Services — 1.8 percent expected growth in 2023
Two sectors, Personal Services and Quick-Service Restaurants (QSRs), are tied for first and second place at 2.5 percent. Both grew strongly in 2022, with Personal Services at an estimated 2.9 percent and QSRs at an estimated 1.9 percent. Two others, Retail Food, Products and Services, and Commercial and Residential Services, are tied for third and fourth place, both at 2.1 percent. Last year, Retail Food, Products, and Services rose an estimated 1.9 percent, and Commercial and Residential Services climbed an estimated 2.9 percent.
The Franchising Economic Outlook by IFA predicts that franchising will contribute about 254,000 job opportunities in 2023. The report also forecasts that overall employment in franchising will grow by three percent, reaching 8.7 million. Plus, the total economic activity of franchised businesses — measured by their nominal dollar output — is expected to rise by 4.2 percent to $860.1 billion this year. This is a significant increase from the previous year’s output of $825.4 billion in 2022.
Now let’s take a closer look at trends within each top-growing industry…
Trends by Industry
Growth in all these sectors was helped by a fairly strong economy in 2022, with high consumer spending and high employment. But businesses in all sectors also faced challenges, including high inflation (which can increase costs, constrain margins, and lower consumer demand) and economic uncertainty. In Guidant Financial’s 2023 Small Business Franchise Trends, 45 percent of respondents expected a recession in the near future, 35 percent were unsure, and 20 percent expected market conditions to stay the same.
1. Personal Services
The Personal Services sector includes home and health care, fitness centers, and beauty-related services — all driven by strong demand, such as more need for in-home health care. This year, this sector is expected to grow by 2.5 percent (from 117,348 businesses to 120,302). Employment in this sector is expected to rise 14 percent during the next few years just because of this demand. While the future outlook for growth is strong, the sector will also face challenges in hiring skilled labor. Its success could also be a mixed blessing as more and more franchisees enter the market. Finally, a recession that constrains consumer pocketbooks could affect the demand for beauty services and health and fitness centers.
2. Quick-Service Restaurant Industry (QSRs)
The quick-service restaurant industry (QSRs) has been thriving lately — and there’s no sign of that changing anytime soon. (The International Franchise Association separates this sector from Table/Full-Service Restaurants.) Compared with more expensive restaurants, the pandemic did not negatively impact QSRs. Not only that, but they benefit both from demand for an eating-out experience as more people work at home and the popularity of delivery services and pickup options. Franchises in the QSR industry are expected to grow by 2.5 percent in 2023 (from 192,057 businesses to 196,858). If the economy softens, however, demand could follow suit. Adverse economic trends, such as inflation and labor shortages, can also affect QSRs.
3. Retail Food, Products, and Services
Retail Food, Products, and Services growth is expected to be relatively high, driven by consumer demand and strong employment. One major trend in the sector is multichannel shopping, with online and physical locations both accessed by consumers. For 2023, this franchising industry has an expected growth of 2.1 percent — from 165,636 to 169,114 businesses.
Franchisees in this sector will need to pay attention to technology, with the seamless provision of online services and attendant services, such as making sure consumers can use both delivery and pickup. Price points will also matter in this sector. Consumers may delay or cancel luxury purchases or higher-cost items if the economy softens. Still, demand for lower-cost items is forecasted to remain strong.
4. Commercial and Residential Services
There’s good news ahead for those interested in the real estate and construction sectors: consumer demand and new construction are expected to remain robust. The work-at-home trend is driving demands for home remodeling. This year, Commercial and Residential Service franchises are projected to grow by 2.1 percent (from 77,850 to 79,485 businesses). Similarly, commercial real estate demand is expected to stay strong due to trends seen in other sectors — the more online shopping strengthens, for example, the greater the need for more warehouses. The growth is expected to moderate and slower than in previous years, however, due to supply cost pressure, labor shortages, and a slowing economy.
5. Business Services
Business Services’ strength is driven by services in finance and insurance, health care and social assistance, and professional, scientific, and technical services, all of whom are strong revenue generators. In addition, trends in the workplace, such as increased working from home, will boost growth in internet services, technology services, and businesses that outsource. The work-from-home trend also strengthens packing and mailing services. In 2023, Business Service franchises are expected to grow by 1.8 percent (from 100,533 to 102,343 businesses).
Emerging Opportunities for Franchising
One of the key emerging opportunities for franchising overall is the growth of specific areas of the country. The top 10 states for franchise growth this year in the 2023 Franchising Outlook are Texas, Illinois, Florida, Georgia, Tennessee, North Carolina, South Carolina, Arizona, Colorado, and Indiana. In Guidant Financial’s 2023 Small Business Franchise Trends survey of franchise owners, California, Texas, Florida, and Georgia were very strong states for franchise growth, as were Ohio, Arizona, Michigan, Missouri, Pennsylvania, and Washington closely followed suit.
States in the Southeast and Southwest, like Texas and Florida, generally have strong economies and employment pictures. They also benefit from robust population growth. Franchises in these areas can benefit from the population increase and a strong consumer pocketbook.
Others, like Indiana and Illinois, benefit from relatively low real estate costs vis-à-vis the rest of the country. As real estate costs have risen dramatically in many areas, lower-cost areas in the Midwest and elsewhere can benefit businesses. The low cost of real estate can also spur future population growth as people look for affordable homes. In-migration to more affordable real-estate cost states is expected to rise as more people work from home and move to these states because of the affordable housing, as they no longer need to be tethered to a specific location.
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Best Practices for a Franchise Business
Following best practices for a franchise business will help you be successful. Here are three key areas.
How To Find The Right Location
The right location is the key to success, especially in sectors that depend on foot or vehicle traffic or frontage advertising (such as coffee shops and drive-through QSRs). In fact, your franchise operation may provide assistance in finding a location to ensure that your customers won’t encounter any barriers to finding you or purchasing your products! Other franchises may provide specific directions and information about their location requirements. Be sure to acquaint yourself with this information if so thoroughly.
If you don’t have specific information, be sure to think through everything your business requires from a physical location. Will you need frequent deliveries to or from a warehouse, for example? If so, you need access and parking. Are you near head-to-head competitors? If so, is the market expansive enough to accommodate both of you?
Understand Local Regulations
As a franchisee, you must understand and comply with all relevant state, county, and municipal regulations that apply to your business. These can be many and varied; in fact, it’s prudent to consult an experienced attorney about local regulations. Regulations can apply to getting a business license, zoning, health standards, employment laws, and several other areas. Some states also have a number of laws pertaining to franchise relationships. Again, your franchise may also provide assistance here, but understanding local regulations is also a franchise owner’s responsibility.
Choose an Investment Partner
The upfront costs for purchasing a franchise vary widely, as do the business costs. However, starting to think about potential investment partners from the beginning is essential because businesses often need financing. In fact, 19 percent of franchisees in Guidant’s survey cited lack of capital/cash flow as their chief challenge in the business.
Do you want to focus on outside equity investors, who will own a share of the business along with you in exchange for their purchase of a part of it? If so, you will need an administrative structure that provides the investors with information about the franchise’s performance. Or will you explore debt methods like a bank or U.S. Small Business Administration (SBA) financing? If so, consider the impact of debt service. You can work with advisors to consider alternate forms of funding, such as Rollovers for Business Startups (ROBS), which can utilize your own retirement funds and leave you free of both outside ownership and control and debt service.
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Guidant Financial and Franchise Businesses
While purchasing and running a franchise can be a road to business success, it can also be complicated. But it doesn’t have to be. At Guidant, we have helped fund and support over thousands of successful business franchisees. We specialize in 401(k) business financing, both alone and combined with other innovative financing solutions. Plus, Guidant can help support you throughout the lifetime of your business with our streamlined business services — helping you get more time and money back to put into your business. Contact us today for information on how we can help you through the process, from choosing the right franchise to funding and launching the franchise business of your dreams.
Call us today at 425-289-3200 for a free, no-pressure business consultation to get started — or pre-qualify in minutes for business financing now!
“I knew that I needed a funding partner that would be a reflection of the community we are trying to serve — and that is really where Guidant shines.”
— Daniella Cornue, Le Village Cowork
