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Understanding the Franchise 500 Ranking

How Entrepreneur compiles its megalist of the world's top franchise systems.
December 12, 2010
URL: http://www.entrepreneur.com/article/217723

Before you dive into Entrepreneur's 32nd Annual Franchise 500®, a few words about how we compile this megalist--the world's first, best and most comprehensive franchise ranking.

The process began in July 2010, when we asked franchisors to participate in this year's survey. Each submission was vetted before being entered for data analysis, with 760 companies making the first cut. Of those, the top 500 companies made the Franchise 500® ranking, based on financial and statistical data from July 2008 through July 2010.

Only franchise companies that supply full Franchise Disclosure Documents (FDDs) or Canadian Disclosure Documents--and whose information Entrepreneur verifies--can receive a listing in this issue. To be eligible for the Franchise 500® ranking, a franchisor must have a minimum of 10 units with at least one franchise located in the United States. The company must be seeking new franchisees in the U.S., and it cannot be in Chapter 11 at the time the ranking is compiled. (The exception is Canada-based companies that are only expanding in Canada.)

All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years a company has been in business and the length of time it's been franchising, startup costs, litigation, percentage of terminations and whether the company provides financing. An independent CPA analyzes financial data. We do not measure subjective elements such as franchisee satisfaction or management style, since these are judgments only you can make based on your own needs and experiences. The objective factors are plugged into our exclusive Franchise 500® formula, with each eligible company receiving a cumulative score. The 500 franchises with the highest cumulative scores become the Franchise 500®.

Franchise companies are listed according to their industry categories. Ranked companies are shown under the headings with their rank listed to the left of their names. As an additional research tool, we list franchise companies that are not ranked in the Franchise 500®. If you're searching for a specific company, search the Franchise Zone

Remember that the Franchise 500® is not intended to endorse, advertise or recommend any particular franchise. It is solely a research tool you can use to compare franchise operations. Entrepreneur stresses that you should always conduct your own independent investigation before investing money in a franchise. Read the FDD and related materials carefully, get help from an attorney and a CPA in reviewing any legal or financial documents, and talk to as many existing and former franchisees as possible and visit their outlets. The best way to protect yourself is to do your homework.

Research compiled by Tracy Stapp with assistance from Mahendran Arullendran, Kelly Cornilliac and JoAnna Mitchell; financial analysis by David R. Juedes, CPA; graphic design by Nancy Roy; additional assistance from Andy Munoz, Crystal Nay and Arshi Khan.

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Key to the Categories

Year began/Franchising since
This category shows how long a company has been in business and how long it has been franchising. Both are good to know when you're trying to decide whether you should go with an established system or be one of the first franchisees.

Available U.S. regions and Seeking foreign?
Check out these columns if you want to know whether a franchise system is expanding in your area and whether a company requires its franchisees to buy master franchises or multiple units.

No. of franchises/Company-owned 
Find out a franchise company's size and how quickly it's growing. The numbers of franchise and company-owned units for 2008, 2009 and 2010 are listed.

Startup costs/Franchise fee
Look here for the total startup costs needed to open a franchise (without financing). This figure is affected by real estate and construction costs (if applicable), equipment, inventory, location, type of business and many other variables. Startup costs include the initial franchise fee; however, for easy reference, the franchise fee is listed separately as well.

Royalty
You want to know if you need to pay a continuing royalty fee, which most franchise companies require. Specific fees are in this column, typically expressed as a percentage of monthly gross sales.

Financing offered? 
More than two-thirds of the franchisors in our listing offer either in-house or third-party financing of their costs to qualified franchisees.

Homebased opportunity?
Which franchise companies offer you the flexibility of running your business from home.

Kiosk/Express unit available?
Some franchise companies offer kiosk opportunities, while others offer smaller express units that typically cost less than a full-size unit.