Franchise 500

Entrepreneur's Franchise 500: How We Decide Who Makes the Cut

Entrepreneur's Franchise 500: How We Decide Who Makes the Cut
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This story appears in the January 2016 issue of Entrepreneur. Subscribe »

There’s a lot that goes into putting together the first, best and most comprehensive franchise ranking in the world. Here’s a behind-the-scenes look at Entrepreneur’s 37th annual Franchise 500®.

The process began in July 2015, when we asked franchisors to participate in our survey. Each submission was vetted before being entered for data analysis; 951 companies made the first cut. Of those, the top 500 became the Franchise 500® ranking, based on financial and statistical data from July 2013 through July 2015.

Only franchise companies that supply a full Franchise Disclosure Document (FDD) or Canadian Disclosure Document and whose information is verified by Entrepreneur can receive a listing. To be eligible for the Franchise 500®, a franchisor must have a minimum of 10 units, with at least one located in the U.S. 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 to these rules is Canada-based companies that are expanding only in Canada.)

All companies 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. Financial data is analyzed by an independent CPA.

We do not measure subjective elements such as franchisee satisfaction or management style. The objective factors are plugged into our exclusive Franchise 500® formula, with each eligible company receiving a cumulative score.

Franchise companies are listed according to industry categories. Ranked companies are shown 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®. These companies are listed in alphabetical order under “Not Ranked.”

If you’re searching for a specific company, check the Index, which starts on page 257. The full ranking in numerical order can be viewed online at Entrepreneur.com/franchise500.

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 a franchise 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. 


KEY TO THE LISTINGS

Year began/franchising since

This 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 2013, 2014 and 2015 are listed.

Startup costs/Franchise fee

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

Royalty

Most franchisors require franchisees to pay an ongoing royalty fee. Specific fees are listed in this column, typically expressed as a percentage of monthly gross sales.

Financing offered?

More than three-quarters of the franchisors in our listing offer either in-house or third-party financing of their costs to qualified franchisees.

Homebased opportunity?

This identifies companies that offer the flexibility of running a business from home, with no retail space required.

Kiosk/Express unit available?

Some franchise companies offer kiosk opportunities; others offer smaller express units that typically cost less than a full-size unit.