Top 26 Franchises for Hispanics

The last few years have been dreadful for both franchisors and franchisees: reduced sales and plugged credit lines have put a damper on the industry as a whole. Yet if you survived the recession unscathed and believe the worst is behind us, there are a number of appetizing prospects still out there.

PODER’s annual list of the Top Franchises for Hispanic entrepreneurs comes at a time of great distress and uncertainty, but also of potential promise for future franchisees. As in the past, we selected companies that operate profitable businesses while also demonstrating an exceptional level of Latino participation and support for the Hispanic community. We developed the list based in part on a rigorous analysis of several factors, including historical performance, brand identification, franchisee satisfaction, training, ongoing support and financial stability.

Equally important determinants, however, were the percentage and number of Hispanics who either own their own franchise or manage company-owned units; the overall minority representation within the system; and the percentage and number of Hispanics who make up top management (defined as an annual salary in excess of $60,000).

Unfortunately, there is no magic bullet for selecting what might be the best franchise for a prospective franchisee, since factors such as a brand’s market penetration in a given region or demographics in a certain market can ultimately tilt the scale in different directions. This list also does not include companies that did not respond to our survey.

You will note that there are several commonalities in the list. For instance, there are 15 franchises in the service sector, including eight in the janitorial or maid service industry. Contrary to what one might assume, there are only seven food companies on the list. All but three of the companies listed are members of the International Franchise Association, and just five have been franchising for less than 13 years, a strong testament to their long-term success.

It is also important to highlight that eight of the companies have a total investment of less than $60,000 (less than the industry average), and more than half the companies listed have franchise fees of less than $30,000, with many dipping below $20,000.

Newcomers to the list include El Pollo Loco, Fiesta Auto Insurance, Pizza Patrón, Pronto Insurance, Stratus Building Solutions and VR Business Brokers.

[Do Your Research]

While the list below is a great start, it is only that. Your final selection should be a reflection of your strengths and weaknesses, your life experiences and your financial resources. It is absolutely imperative that you do a thorough inventory of your capabilities before proceeding. If you lack the necessary liquidity, the managerial experience needed to properly run a business, or don’t have the chemical make-up to be your own boss, then franchising might not be an investment you should make.

Keep in mind that the penalties for failure in a franchise are both severe and long-term. You may be personally liable for outstanding bank loans, equipment loans or a long-term lease.

The investment process should take three to six months and should not be hurried because of outside pressure from either family members or, more especially, from franchisors who want to sign you up before you are ready. Keep in mind that there are over 3,000 North American franchise systems, many of which offer similar products and services, but which might differ in terms of the franchise fee, ongoing royalty payments and long-term support.

The two most important aspects of your due diligence are: 1) contacting enough existing and former franchisees to ensure that you feel comfortable with the level of support and commitment you will receive from the franchisor, and 2) doing a realistic and detailed cash flow statement so that you have a good sense of whether your franchise will generate the funds needed to justify the investment.

[Comparing Finances]

Fewer than 35 percent of franchisors provide historical sales, expenses and profits of existing franchisees (or company-owned stores). Because there are no industry-wide statistics on average earnings, prospective franchisees should take the time, possibly with the help of experienced attorneys or consultants, to come up with a realistic financial road map of the future. Make sure to take into account the period during which the business will undoubtedly sustain a negative cash flow in order to have adequate working capital to weather the storm.

The companies listed in PODER’s Top 26 require a total investment between $1,000 and $14.6 million. The earnings, or salary, franchisees can expect to make vary widely depending on the business model they choose. It is almost impossible to compare a mutli-million dollar investment for a hotel against the minimal start-up costs of running a maid service franchise. For most investors, the real payoff comes after they sell the business in 10 or 15 years at a multiple of earnings.

In terms of your timing with regard to buying a franchise, now might be a great time to start the investigative process. Most in the industry would agree that the past two years have been devastating for the franchising community. From the franchisee’s perspective, both the bank and SBA loans necessary to start a business have been impossible to secure, and the overall sales picture has been very negative.

From the franchisor’s point of view, their fortunes were severely undermined over the past two years as well. A franchisor’s financial success is determined by franchise royalties and franchise fees, which are collected from franchisees when they sign up (generally $15,000-$30,000). No new franchises, no fees collected. Franchisee royalties are the percentage of sales (from 3 to 6 percent) paid by the franchisee to the franchisor for being part of their “system.” With the economy in the doldrums, the average franchisee’s sales were down 15 percent on average, which translates to a 15 percent reduction in funds flowing to the franchisor.

Because of the compounding effect of reduced cash flows, many franchisors have been forced to lay off key personnel. The good news is that many also reduced their franchise fees to attract new candidates.

Notwithstanding the above stumbling blocks of the past two years, the economy in general and the franchising industry in particular are gradually improving. To the extent that you take your time doing your research and due diligence, you should be in good shape to receive the funding you need.

*Rob Bond is president of the World Franchising Network, an information company that manages 15 websites and publishes four annual books on franchising.

PODER's Top 26 Franchisies for Hispanics: