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How to Start a Bakery: A Step-by-Step Guide (2024)

July 27, 2023

How to Start a Bakery: A Step-by-Step Guide (2024)

Have you ever wanted to make people happy with yummy cakes or tasty breads? Ever thought about entering one of the fastest-growing industries for small businesses? It may be time to start a bakery!

Today we’re revealing insider information on how to start your own baking business.

We connected with Puran Deep, a successful bakery owner who runs the wildly popular Wild Wheat Bakery in Kent, Washington. In 2019, his bakery exceeded over $1 million in revenue!

Now, we’re passing his expert advice on to you. We’ll show you step-by-step how to plan, start, and grow a thriving bakery business in this $30 billion per year industry.

In addition, we’re giving answers to popular questions like these:

Click any of the links above to jump ahead to that section.

How Do I Start My Own Bakery?

You’ll find everything you need to know in this step-by-step guide for starting a bakery!

If you are new to the bakery world—or haven’t ever stepped foot in a kitchen—it’s a good idea to visit some bakery businesses to glean information and practical experience. Small business owners are often happy to share what they know.

We interviewed Puran Deep (P.D.) from Wild Wheat Bakery in Kent, Washington. P.D. started four different businesses in the past and now runs Wild Wheat, a cafe-bakery often featured in The Seattle Times and the winner of many “Best of Kent” awards.

See the YouTube video about how to start a bakery below.

P.D. grew tired of the rat race and wanted to start his own business. That’s when the opportunity to purchase Wild Wheat, an established bakery-cafe with an excellent reputation, landed on his desk.

P.D. bought an existing bakery, but he still has tons of advice to offer to someone starting from scratch. We’ll share his expert tips and other practical advice as we proceed through the steps for starting a bakery as a new business.

You have to treat everybody that walks in this door with great customer service. Make sure they are getting what they need. Make sure you’re giving them quality food. Over 50% of our customers on a daily basis are our regular customers.

Another alternative is to buy an existing bakery.

Step 1. Consider Bakery Business Ideas

Chef holding a plate with bread

The first step of starting a bakery is considering the different types of bakery ideas you’re interested in. Retail bakeries, home bakeries, and wholesale bakeries are viable options.

Recently, the baked goods industry has grown significantly, so it’s a good time to get started. Several options are available for starting your own bakery business.

Bakery Cafes

• Average Annual Revenue: $1.52 million per year
• Average Profit Margins: 5.4%
• Startup Cost: $100 (at home) to $3M (Panera Franchise)
• Time To Revenue: 1-6 months
• Annual Market Growth Rate: 1.1%
• Best for: Cooks, chefs, people who love cooking

A bakery cafe offers tables where customers can sit down and eat in a dining area. It combines the benefit of freshly baked goods with the enjoyment of a small restaurant business.

Like a small restaurant, this type of business also provides coffee, other beverages, and an extended menu. Wild Wheat Bakery offers an extended breakfast menu featuring omelets and other egg dishes.

As an added component, P.D. roasts his own coffee beans on location. Customers can enjoy a cup in the cafe or take home the beans to brew themselves.

A perfect example of a Bakery Cafe is the world-famous Ferrara Bakery in New York City.

Wholesale Bakeries

Marseebaking website landing page

This type of bakery business does not keep a storefront and acts as a supplier to restaurants, grocery stores, etc.

Wholesale bakeries benefit from predictable and reliable sales to retail businesses. Wholesale bakeries sell to customers who buy in bulk. And there’s no worry about the upkeep of a retail bakery.

Finding grocers, local coffee shops, and restaurants to carry your product is the key challenge of a wholesale bakery. This critical aspect may be difficult for a new business trying to break into the baking market.

However, it is very important for any bakery. We asked P.D. why wholesale is so important for a bakery, and here’s what he told us:

You have your staff; you have your employees that are producing a certain number of breads or whatever they’re making. It’s not a huge cost for them to produce a little bit more with the same employees and the same equipment, but you can increase your sales significantly.

Marsee Baking is a wholesale bakery that operates in Seattle and Portland and would be a great model to build your business on.

Counter-Service Bakery

Typically, small counter-service bakeries expect customers to pick up their orders and go. One benefit is that it limits the time and energy spent on customer service.

Part of the larger category of retail bakeries, it’s possible to combine a counter-service bakery with a wholesale bakery. The bakery would sell baked goods to grocers or restaurants and provide pick-up and/or delivery service to retail clients.

Clark Street Bakery in Los Angeles started in an apartment and now has four counter-service locations.

Food Truck Bakeries

Upflip website food truck business article

One of the most affordable ways to open a bakery is through food trucks. Food truck bakeries have become a viable option for running your own business. For more information on how to get started, check out our blog post on How to Start a Food Truck Business.

The Teal House Coffee and Bakery food truck is one of the most well-known around Austin, Texas!

Home Bakeries

Cottage industry businesses can be a simple way to dip into opening a bakery without a large investment. For those wondering how to start a home bakery, simply alter the steps in this business guide to meet your home baking needs.

Baking can be done with a few simple ingredients, so it’s about simplicity and nostalgia – people are reminded of their childhood.” – Paul Hollywood – Celebrity Chef and Judge on The Great British Bake Off

Specialty Bakery Cakes

Many business owners succeed with specialty bakeries like a cake business. One of my favorites is Freed’s Bakery in Vegas. They create custom wedding cakes and other treats for special events. Check out their fidget spinner cake below.

How to Start a Bakery Business From Home

Many people start a bakery from home simply by selling their baked goods to friends and family. You might not need a formal business plan, but check into local regulations on how to run a bakery from home without a commercial kitchen.

Step 2. Perform Market Research

Marketresearch website bakery cafes

You might wonder whether starting a bakery business in your area is viable.

It’s important to know what’s happening in the baking business in order to meet customer needs. This market research report provides tons of information and industry data about Bakery Cafes in the US.

The good news? Bakeries are on the upswing!

Even so, it’s important to research your local business environment for things like:

  • Demographics
  • Local Market Trends
  • Competition
  • Budget
  • Target Audience

All of this information will be vital later when you build your business plan.

According to P.D., knowing what customers need is critical to running a business. He says:

…you have to have the right mindset, you have to take care of the customers and know their needs.

So, before you even get started in business, find out what potential customers want by doing your research ahead of time.

When considering which baked good offerings to provide, know that certain segments of the market are larger than others, as seen below:

  • Bread: 32%
  • Rolls: 19%
  • Cakes: 15%
  • Retail bakery products: 10%
  • Soft cakes: 8%
  • Pies: 2%

Step 3. Understand Your Local Business Laws

Because it can take time for agencies to process paperwork, it’s important to understand business licensing early in the process. The bakery industry deals with food, so the Health Department in your area should be your first contact.

Licensing and registration varies between states and even within local jurisdictions. One excellent resource for learning the basics is the Small Business Administration. The required permits depend on the type of bakery and location.

Run through this list for a cost estimate of your licenses and permits:

  • Business License – Around $50. Based on location/type/size. Renewable.
  • Food Service License: $100-1000. Based on size, # of employees. Renewable.
  • Employer ID Number (EIN) – Free. Issued by IRS for tax purposes. Takes time.
  • Certificate of Occupancy – Around $100. Proof of final inspection. Locally issued.
  • Fire Department Permit – $50-200. Inspection of ovens, etc. Locally issued.
  • Food Handler’s Permit – $100-500 for each employee. Renewable.
  • Sign Permit – $20-50+. Allows a permanent sign. Locally issued.
  • Music License – $250-500 to play music.

Here’s a link to the U.S. FDA list of regulations and codes for food service establishments by state. It clarifies the differences in regulations between states.

For county and city information, perform a quick internet search or inquire at your local health department.

Can I Get A Baking License For At-Home Bakery?

Home baking business requirements

Sometimes. It depends on your local laws. A home bakery business may also be called a home baking business or cottage food business. There may be special requirements for how to start a bakery from home including:

  • Refrigeration 
  • Ingredient 
  • Packaging
  • Maximum Revenue
  • Distribution

Cast Iron is a home-based food business management software platform that has a list of laws that make a good starting point for those wondering how to start a cake business from home. It’s a good place to start for others starting a baking business too.

How Long Does It Take to Start a Bakery?

Starting a bakery can take from a few weeks to a few months, depending on the scale of the operation.

A bakery at home can be fairly quick when your customers are people you know. A retail or wholesale bakery may take a few months or even a year to start, depending on your location, funding, and other circumstances.

Step 4. Consider Locations

A retail bakery does best in a high-traffic area. Ideally, your space will be easily accessible to lots of people, have enough space for seating, and a reasonable rent for the square footage.

For example, the world-famous Ferrara Bakery is located in New York City in the heart of Little Italy on the corner of Grand and Mulberry Street. 

It may not be the most spacious cafe, but the foot traffic more than makes up for the lack of seating. Try to find this balance with your location!

In any business, location is key. If someone is planning to open up a new location, pay a lot of attention to the foot traffic where you are opening it. Location can be something that can make or break your business. It’s very important.

Consider these factors when choosing your business location:

Home bakery business location factors
  • Accessibility: Is it easy for customers to get to your location? 
  • Competition: Are there other bakeries nearby?
  • Foot traffic: How many potential customers pass by on foot? Remember P.D.’s advice.
  • Parking: For customers arriving in their own vehicles, is there enough space to park?
  • Growth potential: Is there a possibility to expand in the future?
  • Demographics (target audience): Who lives or works in the area? Does this align with your ideal customer?
  • Cost: Research all the details of the price to buy or rent the space.
  • Bakery layout: There’s much more to consider than just how customers will move through the bakery. Keep reading below.

Bakery Layout

You should consider the new bakery floor plan before you open a bakery in a commercial space. You’ll want to consider the following features:

  • Counter space
  • Bakery equipment
  • Prep space
  • Dining space
  • Office space

All this goes into a bakery floor plan. You should probably consult an architect and a commercial real estate agent before choosing a small commercial space where you’ll open bakery operations.

Step 5. Get Menu Ideas

Tasteofhome.com website baking recipes

Before determining the cost of opening your new business, you must have a rough idea of your menu. Mastering recipes takes time and practice. The good news is that you can enjoy tasting the test recipes!

Business success hinges on offering the highest quality products that people want. It’s important to create an eye-catching menu.

Offer special items that make you stand out from the crowd. Give customers a reason to do business with you!

If you need some inspiration, here are some recipe sites to review:

Look at the bakery offerings that offer the highest profit potential.

Step 6. Understand the Finances

While spending time in the kitchen is loads of fun, you also need to crunch the numbers to open a successful bakery. You’ll want to consider the following:

  • Cost of opening a bakery
  • Monthly operating costs
  • Cost of goods sold for the products.

How Much Does It Cost to Start a Bakery?

Bakery startup costs with baking tools and equipment

The startup capital for starting a bakery varies based on the type of bakery you choose to start. Those who want to know how to start a baking business should expect the following startup costs depending on what type of business entity they start.

  • Home-based: $100+
  • Food Trucks: $100+. Learn more about getting the startup capital for food trucks.
  • Franchises: You’ll need to demonstrate up to $7.5 million net worth for starting a Panera franchise.

While the low end is just for a small bakery to buy the materials, those who are really interested in owning a bakery should expect $2-5K just for the business licensing. Depending on the scale, you can get by with the minimum, or go all out.

Learn How to Price Your Baked Goods

To run a profitable business, you must figure out how much it costs to make each one of your baked goods. This allows you to price items for the highest profit margin.

It’s easy to lose money on a product if you don’t know exactly how much it costs to make it. This includes ingredients, labor, packaging, and even cooking time to account for the electricity (or gas) running the oven. Most restaurant managers aim for the cost of serving to be approximately 1/3rd of revenue.

Before you open, call local vendors to price their supplies, and then determine the cost of production. Consider this pricing guide based on information from the Houston Chronicle.

PRICING GUIDE FOR BAKED GOODS

Click through the 10 steps below to calculate your costs.

 

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Calculate the number of batches you can get from a bulk ingredient.

For instance, if the recipe calls for 8 ounces of milk and you buy your milk in gallons, here is the formula:
128 oz / 8 oz = 16 batches

Divide the cost of each ingredient by the number of batches.

If a gallon of milk costs $4, this is the formula:
$4 / 16 batches = $0.25 per batch for milk

Complete this step for each ingredient in a recipe.

Add together the cost of all ingredients per batch. 

This will calculate the total cost of ingredients for an entire recipe.

Divide the cost per batch by servings per recipe. 

So, if the total cost per recipe is $5 and makes 10 servings:
$5 batch / 10 servings = $0.50 per serving

Add in other items (cupcake liners, packaging, etc.). 

For example, cupcake liners cost $5 per 100, so each cupcake liner costs $0.05.
$0.50 per serving + $0.05 liner = $0.55 per serving

Add in the cost of equipment usage. 

Here, divide the cost of equipment by the number of days of its expected usage and then divide that number by the average number of servings you will produce per day.

For instance, for an oven that costs $10,000 and lasts for ten years (1825 days) and bakes 500 servings per day, this would be the formula:
$10,000 / 1825 days = $5.48
$5.48 / 500 servings = $0.01

Repeat for each piece of equipment.

Figure operating costs.

Do the same as above to include all operating costs. This includes utilities, storage space, rent, advertising, printer ink, labor, etc. 

For instance, if your monthly electricity bill is $500, then divide that by 30 days and the estimated 500 servings per day:
$500 / 30 days / 500 servings = $0.03

Again, do this with all of your operating costs and add all of that in.

Divide your per-serving cost by the number of expected items sold. 

Bakeries must be realistic about the fact that they will not sell out of everything in their shops, and perishable items must be counted into the cost of doing business.

If you think that you can sell 75% of your items, and your per-serving cost is $0.50, then your formula is this:
$0.60 / 0.75 = $0.80

You must increase your per-item cost to $0.80 to account for unsold baked goods.

Add in your profit margin. 

Here, add 100 to your desired profit margin and then divide that number by 100. For instance, if you need a 200% profit margin:
200% + 100 = 300 / 100 = 3.0

Then multiply the cost by your profit margin to determine the per-serving price like this:
$0.80 cost x 3.0 profit margin = $2.40 per serving price

Compare prices.

If this per-serving cost is similar to what other local bakeries are charging, then you’re on the right track. If it’s under, then you should up your price. If your cost is higher, reconsider if this is a product you can sell at a profit.

Track Your Finances

Along with determining costs, you need to decide on a way to keep track of your business finances. One option is to hire a trusted bookkeeper or accountant to free up your time to run the business.

There are also several options available for small business accounting software including Quickbooks, Freshbooks, Wave, Xero, and more.

Step 7. Create a Bakery Business Plan

A detailed business plan is helpful when starting a bakery.

Consider these components when writing your bakery’s business plan:

  • Executive Summary: contains the most important points from each of the following categories
  • Company Overview: a description of your business
  • Market Analysis: includes pertinent information from your market research
  • Business Offering: a list of the products you will sell to your customers
  • Management: includes business partnerships, number of employees, who will run the various areas
  • Marketing Plan: information on how you plan to reach customers, advertise, etc.
  • Financial Projections: predictions for the financial success of your business

The Small Business Administration offers this business plan writing guide. We’re also partial to our business plans created by Mike Andes or Brandon Boushy to help you create a bakery business plan.

Is a Bakery a Profitable Business?

Baking can be very profitable if you work hard and provide the best products for customers. Depending on various factors,  bakery owner salaries range from around $17K to $71K per year.

These statistics include tiny home bakeries, so there’s potential for earning much more!

Step 8. Create a Business Entity

Irs.gov website business structures

With a business plan in place, it’s time to create a legal company. Register your business at the federal and state levels and establish a legal structure. It’s possible to register online.

Choosing a business structure (Limited Liability Corporation, Sole Proprietorship, Corporation, S Corporation, or Partnership) can be complicated if you’re not familiar with the process.

The IRS has extensive resources on business structures, but it’s best to work with an accountant and/or business attorney to maximize your legal and tax benefits.

Typically, a bakery will be set up as a Limited Liability Corporation (LLC) to avoid exposing the owner’s personal assets to legal action (like a slip and fall in the bakery).

Step 9. Secure Funding

If you have personal savings available to start your business, that’s fantastic! But you may need to borrow a portion of your startup costs until it becomes a viable business.

If you only have around $50,000, but want a larger cushion at $100,000, you may get a business loan. However, you must provide viable financial projections that show your ability to pay back the loan.

As P.D. said,

If you make a good business plan and the lenders buy into that, you can get funding.

Consider these different options to secure funding for your business, as suggested by the Small Business Association:

Venture Capital Funding

Marc Andreessen quote

If you can find an angel investor who believes in you and your plan, this type of funding can be effective.

However, it means shared ownership, which many entrepreneurs are not super excited about. But it also lowers risk and prevents borrowing money.

Consider this video we’ve created about Venture Funding.

Crowdfunding

Another way to avoid a loan is to raise the money from many people who invest a small amount of money.

Typically, investors get something in return, such as advertising credit, or gifts and other perks. Several online platforms host crowdfunding campaigns.

Business Loan

Cash loan handed to a borrower

The amount and interest rate on business loans varies significantly. You can try for a loan through a local bank, as well as through the government-assisted loan programs with the SBA.

Securing this type of funding requires a business plan, financial projections (usually for 5 years), and expense sheets.

Friends and Family

If your friends or family are interested in your project, you may find you can borrow the funds from someone you know.

How to Start a Bakery Business With No Money

Baker looking at a no money symbol

If you want to start your bakery on a shoestring budget, that’s great! As mentioned above, you can save a ton of money by starting in your own home and by selling to friends and family.

Another option, if you have good credit, is to leverage a zero-interest rate period on a credit card. It’s risky but possible to use the zero-interest period to start your business and then pay the card off before the interest kicks in.

Note: Have a solid business plan in place if you’re thinking about this option.

Step 10. Develop a Marketing Plan

When you invest in starting a bakery, make sure customers can find you!

P.D.’s strategy for getting new customers is based on Social Media Marketing, like these recommendations from Neil Patel. He outsources a marketing company to run his Instagram, Facebook, and other profiles.

They focus on letting customers know about new product releases and any interesting news.

These days everyone is on their phone!

You can get your name out there and draw in customers in a variety of ways, including these options:

Traditional Advertising

This includes print ads, billboards, radio, flyers, and going door-to-door.

Social Media

Advertising on social media platforms

Initially free to use, you can also purchase additional social media ad options. It’s possible to outsource your social media marketing by hiring a professional marketer. Find a professional to help with this through Fiverr or Upwork.

Press Releases

Besides social media, don’t forget about print and online newspapers. Depending on your location, your local paper may print your bakery opening as business news when you present it to them as a press release.

Coupons

Coupon designs using canva website

Consider placing coupon ads in a local paper. To offer bounce-back coupons (used on a return visit), use an online tool like Canva to design them, then have them printed locally. Many bakeries or coffee shops have loyalty cards designed and printed this way.

Is It Hard to Open a Bakery?

Opening a bakery is hard work, but it is worth it! According to P.D.:

There’s nothing you can’t learn if you have the right mindset and the right attitude. You need to be open-minded. Keep the right mindset. Stay the course, do what you have to do, keep at it. Eventually, things smooth out and you come out on top.

Step 11. Purchase Equipment

You’ve found your space and secured funding. Now you must prepare your kitchen and dining area to bake and serve the best products.

What Equipment Do I Need to Start a Bakery?

Professional chefs tools and equipment

Reliable equipment is essential for any commercial kitchen. Purchase your equipment online or locally. Your bakery equipment list for your commercial kitchen should include:

  • Ovens – Commercial-grade ovens can be extremely pricey but are a vital piece of equipment for your business. P.D. says his ovens cost around $100K each brand new. Many bakeries choose to lease larger equipment to save on startup costs.
  • Mixers – Large capacity stand mixers, with special dough hooks for kneading bread.
  • Refrigeration – For storing your perishable ingredients such as milk and cream.
  • Tables/Workspace – Depending on the type of baking, tables may be necessary for decorating cakes or for packaging products.
  • Storage – A place to store your ingredients prior to use, and for storage of packaging, or other items. Carts with shelves may be useful for cooling baked goods fresh out of the oven.
  • Dining Area – Tables, chairs, and a counter for the retail area are all important aspects of your bakery.
  • POS System – One critical point for any business is how to let your customers pay. A Point-of-Sale system is vital to your business. When you can choose one that links well with your accounting software (mentioned above), it’s even better!

Step 12. Hire Staff

For a retail or wholesale bakery business, qualified employees working in the kitchen are the backbone of the business. Bakeries open very early, and it is essential to have reliable employees willing to bake bread at four in the morning.

If you’re running a cafe-bakery, counter help and possibly servers are a necessity. They act as the front line for providing great customer service that ensures return business.

Here are some sites where you can post jobs and find qualified candidates:

Finding top talent in food service is no simple task, so go beyond traditional job hiring sites like Indeed. Instead, reach out to local culinary schools and food programs (community colleges) to secure reliable talent with interest in the industry.

According to P.D., in taking care of your staff, you don’t want to skimp:

I tell them to make sure that your people are taken care of, and the rest will be fine. You only have so many hours in a day. You’ll burn out if you’re not careful. It’s not worth stressing yourself out.

Step 13. Build Your Business

Professional baker carrying bread products

Once you’ve started baking, pursue continuous growth for your business. That means setting goals and making plans to find and keep customers.

P.D. says you should ask yourself a simple question:

I want to grow 10% every year. What do I have to do?

Here are some other questions to ponder on growth:

  • What should I do differently or better to gain new customers and keep existing ones?
  • Is there room to add new products?
  • Would a customer loyalty program help our bottom line?
  • What does our marketing data show?

Brainstorm and research ways to please your customers and then execute the best ideas.

According to P.D., wholesale products are one of the best ways to grow a bakery business. They provide large profit margins without a large investment.

It may mean running the ovens a bit longer or arranging for more deliveries, but it’s a steady way to increase revenue without a lot more work.

P.D. says that with samples in hand, cold call restaurants with whom you want to do business and let them try your products. If your product is of outstanding quality, it should sell itself. But you must get people to try it.

I would throw a bunch of samples in my car and just go to a bunch of different restaurants and drop off samples and ask them. Look at their menu, whether they’re serving hamburgers or if they’re a sub shop. Give them hamburger buns or baguettes for their sandwiches. And when they like the product, they call and they’re ready to order.

What Are the Biggest Mistakes When Opening a Bakery?

P.D. stated that one of the biggest mistakes in opening a bakery is not finding and keeping the best employees. With 36 full and part-time staff, P.D. offers this insight:

Employees are what you need for your business. You can’t be everywhere, so you have to put trust in your people and take care of them, then they’ll take care of your business.

Conclusion

If you can already smell the heavenly croissants baking in your oven, then it might be time to get started with these steps on how to start a bakery! Follow our guide to overcome many of the hurdles beginning entrepreneurs and bakers face. 

With planning and perseverance, you’ll be serving customers and raking in dough (get it?) like P.D.

If you were thinking about starting a bakery, would you start a home bakery, wholesale, or food truck bakery? Let us know in the comments below!

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• Royalty Fees: 6%
• Advertising: 2%

This cleaning franchise opportunity is relatively rare. Finding a franchise where you can work completely remotely is amazing. Given most states don’t already have a franchise, it’s even better.

Hear Neel’s story below.

[su_youtube url="https://www.youtube.com/watch?v=kVyLriqFVdc"]

We’ve partnered with Neel to provide you a unique opportunity to start a remote cleaning company. He’ll even give you $6,000 off the marketing when you sign up through our link. Request information from MaidThis.

Neel explained the most important thing he does to grow his business answering the phone:

[su_quote]Our close rate when we answer the phone is over 60%, but if we don’t it drops down to 16.7%. That’s why we use an AI text messaging system to make sure we close as many clients as possible.[/su_quote]

Next, we introduce another completely unique option: the Upflip Cleaning Business Blueprint.

The UpFlip Cleaning Business Blueprint

The UpFlip Cleaning Business BluePrint is a comprehensive program developed in collaboration with Cristobal Mondragon.

With a history of founding Queen Bee Cleaning Services and achieving an impressive annual revenue exceeding $1 million, Chris shares his proven strategies for entrepreneurial triumph. This exceptional package encompasses:

  1. A 10-module comprehensive course
  2. Your personalized website and SEO
  3. Pre-designed marketing and sales scripts
  4. Templates for Google Local Service Ads
  5. An Airbnb client booking handbook
  6. Specialized review software
  7. Ongoing mentorship throughout your cleaning business launch and operations

In essence, we provide you with the full spectrum of resources synonymous with a cleaning business franchise, all without the burden of royalties. This translates to substantial cost savings, enabling you to embrace entrepreneurship and become the master of your own enterprise.

We’ve broken the rest of this blog into sections based on the three major cleaning segments. We’ll start with residential cleaners.

Residential Cleaning Franchises

Two commercial cleaners with supplies

Want to know how to start a cleaning franchise? Start by considering a residential cleaning company like these:

  1. The Maids
  2. Two Maids (and a Mop)
  3. You’ve Got Maids
  4. Molly Maid
  5. Merry Maids
  6. Maid Right

#2. The Maids: Top-Ranked Cleaning Company by Entrepreneur

The Maids, an official partner of Mr. Clean, offers residential and small business cleaning services. Franchise operators who want to join this proven business model need to pay:

• Initial License Fee: $12.5K
• Additional Fees at Signing: $32K to $80K
• Other Startup Costs: $10K to $33K
• 3 Months Operating Expenses: $22K to $39K
• Total Expenses: $76K to $165K
• Royalty Fees: 3.9% to 6.9%
• Advertising: 2%

Learn more about cleaning franchise opportunities on The Maids website.

#3. Two Maids: Best Employee Pay Model

Two Maids webpage on laptop with soap and a sponge beside it

Another residential cleaning company franchise is Two Maids, which compares to other cleaning franchise opportunities by offering:

  1. Pay for Performance: Employees get paid based on performance instead of hourly pay, incentivizing the best performers.
  2. Guidance with Systems: The company is highly focused on creating the right systems for you to succeed.

Starting a cleaning business franchise with Two Maids will require a business owner to have the following financial considerations:

• Initial Franchise Fee: $19,950
• Initial Investment: $83,140 to $123,890
• Net Worth Requirement: $200,000
• Cash Requirement: $51,140
• Royalty Fees: 4-7%
• Ad Royalty: 2%

Check out the Two Maids Franchise website to learn more about being your own boss.

#4. You’ve Got Maids: Best for High-Value Residential Clients

You’ve Got Maids franchise cleaning company might be right for you if you want to clean people’s homes. They offer weekly and biweekly cleaning, move-in/move-out cleaning, spring cleaning, and full-time residential cleaner placements. You’ve Got Maids Cleaning franchises require:

• Initial Franchise Fee: $7,000
• Initial Investment: $36K to $108K
• Net Worth Requirement: $200,000
• Cash Requirement: $40K to $100K
• Royalty Fees: 2.99% to 5.99%
• Ad Royalty: $75/week

Note that there’s been a 29% decline in You’ve Got Maids franchises over the last three years and don’t be afraid to ask questions about what that means for you if you want to become one of these franchise owners.

#5. Molly Maid: Most Cleaning Franchise Options

Another residential cleaning franchise opportunity is Molly Maid. You’ll need to meet the following qualifications to start your own business under Molly Maid cleaning franchises:

• Initial Franchise Fee: $14,900
• Initial Investment: $127K to $185K
• Net Worth Requirement: $250,000
• Cash Requirement: $65,000
• Royalty Fees: 3% to 6.5%
• Ad Royalty: $104/week

Molly Maid’s weekly ad royalty might distract new franchisees from focusing on getting cleaning clients. Personally I’d prefer paying franchise fees less routinely.

Neighborly is the parent company of Molly Maids and offers other cleaning franchise opportunities including window washing, junk removal, lawn care, and carpet cleaning for franchise owners.

#6. Merry Maids

Merry Maids estimated total initial investment screenshot

Merry Maids is one of the most well-known cleaning franchise brands in the cleaning industry. Twenty-five percent of Merry Maids franchises make over $3 million annually.

• Initial Franchise Fee: $37,500 to $51,500
• Initial Investment: $50K to $100K
• Net Worth Requirement: $250,000
• Cash Requirement: $65,000
• Royalty Fees: 5% to 7%
• Ad Royalty: 1.3%

Data is according to Entrepreneur.

#7. Maid Right

For those wondering how to start a franchise cleaning business with Maid Right, you’ll need:

• Initial Franchise Fee: $65,000
• Initial Investment: $103K to $148K
• Net Worth Requirement: $200,000
• Cash Requirement: $50K
• Royalty Fee: 6%
• Ad Royalty: 2%

Go to the Maid Right website to learn more about their franchise fees, cleaning standards, and processes.

Now that you know about home cleaning services, want to learn about commercial cleaning franchises?

Commercial Cleaning Services Franchises

MadeThis CEO, who advises-many franchises remotely, in foreground with cleaning crew vacuuming and cleaning in background

These commercial cleaning franchises perform office cleaning and other janitorial work :

• Jan-Pro
• Jani-King
• Coverall
• Stratus Building Solutions
• Vanguard Cleaning Systems
• Anago Cleaning Systems

#8. Jan-Pro: Best Commercial Cleaning Franchise Under $50K

One of the top commercial cleaning industry franchises is JanPro, which ranks at the top of multiple Entrepreneur categories.

Work with commercial clients as a Jan-Pro franchise for as little as $3,150, which includes the down payment, $1,000 for emergency expenses, and the Franchise Development Starter Kit.

Jan-Pro cleaning systems helps book commercial facilities that need commercial cleaners, and you choose your hours or client count each month. Expect the following startup costs when cleaning commercial businesses:

• Initial Franchise Fee: $2K to $4.5K
• Initial Investment: $4.8K to $58K
• Royalty: 10%
• Ad Royalty: 1%

#9. Jani-King: Largest Global Franchise Cleaning Company

Jani King master-franchise opportunity webpage on a tablet

With over 7,000 global franchises, Jani-King is the largest cleaning franchise for sale. This janitorial franchise opportunity is losing franchises, but Franchise Times shows that they have rising revenue.

Be careful when considering buying this cleaning franchise for sale. Audit the prior business owners’ books carefully before buying.

• Initial Franchise Fee: Not Disclosed
• Initial Investment: $20K to $52K
• Net Worth Requirement: Not Disclosed
• Cash Requirement: Not Disclosed
• Royalty Fees: Not Disclosed
• Ad Royalty: Not Disclosed

#10. Coverall: Most Focused on A Positive Work Environment

If you’re wondering how to start your own cleaning business, consider Coverall. Coverall cleaning franchises are marketed as janitorial cleaners focused on helping friends and families build wealth.

You should expect the following costs for these cleaning business franchises:

• Initial Franchise Fee: $16K to $41K
• Initial Investment: $18K to $52K
• Royalty Fee: 5%
• Net Worth Requirement: Not Disclosed
• Cash Requirement: Not Disclosed
• Ad Royalty: Not Disclosed

Next, find out how to start a cleaning business with Stratus.

#11. Stratus Building Solutions: Lowest Cost Cleaning Franchise

Stratus Clean website screenshot with cleaner in foreground

Would you rather focus on booking janitorial services or cleaning and managing a crew?

Stratus offers two ways of franchising:

  1. Unit Franchises
  2. Master Franchises

Their janitorial franchises are some of the lowest-cost franchises in the cleaning industry. They start at just $1,000 for an owner-operator without employees. This commercial cleaning franchise opportunity requires that you focus on the manual labor.

Meanwhile, the Stratus master franchise opportunity is a 9-to-5 admin, invoicing, and business consulting service for the janitorial services franchises. Master franchising requires:

• Initial Franchise Fee: $3,600 to $69,000
• Initial Investment: $4,600 to $79,000
• Net Worth Requirement: $5K to $40K
• Cash Requirement: $2K to $20K
• Royalty Fees: 5%
• Ad Royalty: 1%

This franchise opportunity lets you focus on the parts of a janitorial services business that most interest you.

#12. Vanguard Cleaning Systems

Commercial cleaning business Vanguard Cleaning Systems operates a lot like Stratus Building Solutions. You can either perform daily janitorial services or perform admin tasks for the other cleaning franchises.

• Initial Franchise Fee: $5K
• Initial Investment: $6K to $37K
• Net Worth Requirement: $50K and $250K
• Cash Requirement: $7K and $45K
• Royalty Fees: 11.5%
• Ad Royalty: N/A

Check out Vanguard Cleaning Systems’ franchise opportunities.

#13. Anago Cleaning Systems: Easiest-to-Get-Approved Cleaning Franchise

Anago Cleaning Systems franchises have low net worth and cash requirements for commercial cleaning services franchises. Anago Cleaning Systems uses the same franchise business model as the other commercial cleaning franchise opportunities on the list, where you have master franchise and unit franchise options.

The master franchise gets an exclusive territory where they book clients and sell unit franchises.

• Initial Franchise Fee: $5K to $31K for Units; $98K for Master franchises
• Initial Investment: $11K to 61K for Units; $219K to $339K for Master
• Net Worth Requirement: $31K
• Cash Requirement: $1K
• Royalty Fees: 10%
• Ad Royalty: 2%

Learn more about Anago Cleaning Systems franchising.

Specialty Cleaning Franchises

Chris Mondragon holding cleaning products

Haven’t found a cleaning service you like yet?

Specialized services like window washing, green cleaning, and junk hauling are all options to consider when deciding how to start a cleaning company.

Check out some unique cleaning franchises like:

  • Aire-Master of America
  • Oxi Fresh
  • College HUNKS Hauling Junk
  • ServiceMaster Clean
  • PuroClean
  • TruBlue Total House Care

#14. Aire-Master of America: Most Unique Cleaning Services Franchise

If you want to offer air cleaning services, this company franchise is a good one to consider. Aire-Master of America provides fragrances, equipment, and servicing to commercial buildings, enhancing their workspaces and creating environments that help employees and customers feel better.

According to Entrepreneur, you should expect:

• Initial Franchise Fee: $30K to $100K
• Initial Investment: $45K to $170K
• Net Worth Requirement: $20K
• Cash Requirement: $50K
• Royalty Fees: 5%
• Ad Royalty: N/A

Find out more about Aire-Master of America franchises.

#15. Oxi Fresh Carpet Cleaning: Best Carpet Cleaning Franchise

Oxi Fresh webpage on laptop

If you want to start a carpet cleaning franchise, consider Oxi Fresh.

• Initial Franchise Fee: $42,000
• Initial Investment: $48K to $78K
• Net Worth Requirement: $20K
• Cash Requirement: $50K
• Royalty Fees: $395 monthly
• Ad Royalty: 3%

Oxi Fresh has franchises across the U.S. and Canada and offers the opportunity to become a master franchise in other countries.

#16. College HUNKS Hauling Junk: Best Name

College HUNKS Hauling Junk performs junk removal and moving services for homeowners and businesses. These junk removal businesses also donate junk and meals and emphasize their recycling efforts. It gets better though. They average $1.63 million revenue and you’ll need:

• Initial Franchise Fee: $45K to $75K
• Initial Investment: Not Disclosed
• Net Worth Requirement: $200K
• Cash Requirement: $75K
• Royalty Fees: 7%
• Ad Royalty: 2%

I just wish the uniforms were superhero costumes!

#17. ServiceMaster Clean

Want to operate a floor cleaning business? Consider ServiceMaster Clean, which is a residential and commercial cleaning business offering cleaning franchises for:

• Initial Franchise Fee: $32,500
• Initial Investment: $90K
• Net Worth Requirement: $100K
• Cash Requirement: $50K
• Royalty Fees: 7%
• Ad Royalty: 2%

Their top franchises average over $3.2 million in revenue annually, while 25% of single-zone franchises average $1.85 million in revenue.

Find out more about ServiceMaster Clean franchises.

#18. PuroClean: Most Transparent Cleaning Franchises

PuroClean webpage on desktop

Offer building remediation with these cleaning franchise opportunities. You’ll clean after property damage from water, fire, mold, and other hazardous materials.

PuroClean lists what you need to start a cleaning franchise business directly on their site and offers financing for up to 50% of the total franchise cost.

#19. TruBlue Total House Care: Most Diverse Offerings

TruBlue is a combination cleaning, handyman, and landscaping franchise, and they also offer accessibility remodeling services. This might be the franchise cleaning business for you if you want to build an empire because of all the additional services you can offer.

You’ll need:

• Total Investment: $65,050 to $91,400
• Franchise Fee: $44,900
• Minimum Liquid Capital: $50,000

Find out more about TruBlue Total House Care cleaning franchises.

Contact the Franchise That Works for You

Young woman holding cell phone calling franchise about estimated total initial investment

Once you’ve determined your ideal cleaning franchise based on your location, skill set, and budget, the next step involves initiating contact with them to kickstart your franchise journey.

I’m considering Neel’s MaidThis franchise opportunity because it is available in Las Vegas and I know lots of people who work in the cleaning industry. The estimated total initial investment is comparable to many companies, they offer comprehensive training, and you’ll be one of the earliest cleaning franchise owners in your area.

That means you’ll get more personalized support than those who join later and you’ll have the ability to be on the forefront of cleaning strategies.

Don’t hesitate to explore one or more of the providers that boast more than a decade of industry experience, too.

Which pathway aligns with your preference for embarking on the journey of starting a cleaning business?

  • Start my own cleaning business from scratch.
  • Start my cleaning business with a course.
  • Contact a franchise. Tell us in the comments which one!
Business ideas

15 Most Profitable Franchises To Buy

For many budding business owners, buying a franchise is a no-brainer. That’s because the best franchises to buy have high profit margins and low failure rates.

Entering a franchise agreement helps your business get to financial stability quicker. For instance, Hilton Hotel franchises benefit from a loyal customer base, a recognizable brand, and a proven business model that helps you skip the shaky time when most new businesses fail. Multiple hotels under the Hilton name have less than a 1% failure rate.

Sure, you’ll have high initial investments and have to pay ongoing fees. But that is a small price to pay given that the most successful franchises are 63.3% more likely to succeed than the average small business during a three-year period.

[su_note note_color="#dbeafc"]We’ll discuss the most profitable franchise opportunities to help you choose one. Click on any of the links to jump straight to one of the best franchises to own, or read on.

Are franchises profitable?

Yes, franchises can be profitable. According to Sculpture Hospitality, franchisees can expect to have 4% to 12% profit margins within a few years of opening a new franchise.

Profitability will depend on the franchise, investment costs, location, and managerial experience of the franchisee.

Yes, franchises can be more successful than other small businesses

Earlier, we told you the most successful franchises are 66.3% more likely to succeed than the average small business. Here’s how we figured that:

  • Franchise failure rate over 3 years (top 100): Under 2%
  • Small business failure rate over 3 years: 40%

That means 98% of the top 100 franchises survive a three-year period, compared to 60% of businesses overall. Do a little more math (98% divided by 60%), and you’ll find that a top-100 franchise has a 63.3% higher probability of surviving three years.

What is the most profitable franchise to own?

Wise Coatings owner posing with equipment in front of a wrapped work van

The most profitable franchise to own is Express Employment Professionals, a staffing agency. We’ll dive further into Express Employment Professionals, how we arrived at this conclusion, and the rest of the most profitable franchises below.

What are the most profitable franchises to own?

The most profitable franchises as measured by the time it takes to make the initial investment back are:

  1. Express Employment Professionals
  2. RE/MAX
  3. Wendy's
  4. Chick-Fil-A
  5. Ace Hardware
  6. UPS Store
  7. Matco Tools
  8. McDonald's
  9. PIRTEK
  10. Snap-on

Author’s Note: Our Methodology

We spent a lot of time debating the best way to establish the most profitable franchises.

The absolute best way to establish the most profitable franchise businesses is to review Franchise Disclosure Documents and establish the profit margins for over 2,000 franchises. Unfortunately, that requires a ton of labor (or an amazing web crawler), so we went with the next best viable option.

We found an Insider Monkey report that ranked the top 10 most profitable franchises. It provides annual sales numbers and maximum initial costs. We took that information and went a couple of steps further.

We divided the average annual sales by the number of franchises to find the annual revenue per franchise. This allowed us to determine the average monthly revenue per franchise. Then we divided the high end of the estimated franchise cost by the average monthly revenue to find the “time to return,” or time to recoup the initial franchise cost.

It’s not as precise a method as we would like for the most profitable franchises, but it gives you a good idea of the franchises that will pay for themselves quickly.

#1. Express Employment Professionals

• Number of Franchises: 860
• Average Monthly Revenue: $4,837,209
• Maximum Initial Cost: $400,000
• Time to Return: Less than 1 month

Though Express Employment Professionals is one of the lesser-known names on the list, this staffing agency has been in business for over 40 years.

Once fully operational, the average franchise could cover its initial costs within the first month. That’s hard—nay, impossible—to beat.

#2. RE/MAX

RE/MAX realty concept showing a cityscape and a red, white, and blue RE/MAX hot air balloon "growing" out of a smartphone held in a woman’s hand

• Number of Franchises: 9,175
• Average Monthly Revenue: $1,758,038
• Maximum Initial Cost: $239,500
• Time to Return: Less than 2 months

RE/MAX is the only real estate franchise on this list. This is one of the best franchises in the real estate market, with each RE/MAX real estate agent averaging 13.3 transactions per year.

#3. Wendy's

• Number of Franchises: 6,949
• Average Monthly Revenue: $1,798,820
• Maximum Initial Cost: $698,500
• Time to Return: Less than 5 months

Wendy’s franchises have the shortest time to return of any fast food industry franchise on the list. The brand recognition will help drive net profits, and many franchisees own multiple stores.

#4. Chick-Fil-A

• Number of Franchises: 2,928
• Average Monthly Revenue: $5,836,749
• Maximum Initial Cost: $2,803,435
• Time to Return: Less than 6 months

Chick-Fil-As are some of the best franchises to own because they bring in massive revenue. With less than six months from opening to reach profitability, most franchises will be highly successful. 

They are closed on Sundays and require Christian values, which may exclude some people looking to buy a franchise.

#5. Ace Hardware

Ace hardware employee in a red ball cap and polo shirt standing in front of an Ace Hardware store

• Number of Franchises: 5,555
• Average Monthly Revenue: $4,028,803
• Maximum Initial Cost: $1,913,000
• Time to Return: Less than 6 months

Ace Hardware is another one of the best franchises to own. With 5,555 stores and average sales of $4 million per year, it can take six months for this franchise to recoup its initial investment.

#6. UPS Store

• Number of Franchises: 5,465
• Average Monthly Revenue: $631,290
• Maximum Initial Cost: $476,993
• Time to Return: Less than 10 months

The UPS Store is one of the best franchises to open. It consistently ranks in the Entrepreneur Top 10 franchises list, and the average revenue indicates that the franchise requires about 10 months to earn back the initial investment.

#7. Matco Tools

• Number of Franchises: 1,937
• Average Monthly Revenue: $400,103
• Maximum Initial Cost: $313,646
• Time to Return: Less than 10 months

Matco Tools is a mobile automotive tool franchise. It is the best franchise to open that doesn’t require a building. Matco Tools franchisees and deliver tools straight to mechanics. It’s easy work, low cost, and doesn’t ask for royalties, which makes it one of the most popular franchises to start.

#8. McDonald's

McDonald’s restaurant in the background and a table with a tablet, a large Coke, and a McDonald’s burger and fries in the foreground

• Number of Franchises: 40,000
• Average Monthly Revenue: $2,812,500
• Maximum Initial Cost: $2,503,000
• Time to Return: Less than 11 months

People commonly think McDonald’s is the best franchise to buy. It does have high profit margins and an established brand, but there is a hefty initial investment and a lot of competition.

#9. PIRTEK

• Number of Franchises: 590
• Average Monthly Revenue: $1,008,475
• Maximum Initial Cost: $899,300
• Time to Return: Less than 11 months

PIRTEK focuses on hoses for hydraulic machines. If you’re looking for entrepreneurial endeavors that focus on industrial applications and offer financial stability, PIRTEK might be for you.

#10. Snap-on

• Number of Franchises: 4,775
• Average Monthly Revenue: $429,319
• Maximum Initial Cost: $465,436
• Time to Return: Less than 14 months

Snap-on is another of the most profitable franchises that sells tools, but the retailer focuses on more than just automotive tools. Both the revenue and the minimum initial costs are higher than Matco, but the time to return might be slightly longer because of the higher initial costs.

UpFlip Top Franchise Opportunities

The following franchise ideas are some of the franchises we have interviewed. These make our best franchise opportunity list because they have low start-up costs, good business processes, and great owners who believe in helping franchisees succeed.

#11. MaidThis

MaidThis CEO using a spray bottle of Windex to clean a MacBook Pro showing the Airbnb logo

This home and Airbnb cleaning franchise lands on the list of most profitable franchises instead because its extensive business support and remote business model provide many financial benefits.

You focus on business processes and pay others to clean the properties.

Franchise units require a $35K franchise fee and between $48K to $67K total startup costs.

The average location makes $10K per month in revenue. Assuming you make 30% profit, you’ll make back your money in less than two years.

Competing with other franchisees will not limit your financial success because most locations do not have a franchise. When you want to expand your business model, you can expand to other cities quickly.

Learn more about how to start a remote cleaning business from Neel below.

https://www.youtube.com/watch?v=kVyLriqFVdc

Like Neel's strategy?

Find out how to start a MaidThis franchise.

#12. Brown’s Pressure Washing

Brown's Pressure Washing just launched a franchise opportunity developed by founder Joshua Brown and UpFlip that enables you to launch a fully equipped pressure washing business seamlessly. The licensing fee gives franchisees access to video courses, a website, a boot camp, contracts, a territory, systems manuals, brand licenses, and a 24/7 online support community. Franchisees also agree to pay a 10% royalty fee to cover weekly coaching and administrative support.

• Licensing Fee: $20,000
• Total Investment: $50,000-$100,000
• Royalty Fee: 10%
• Space Needed: 100-2,000 square feet
• Employees: Hire employees or subcontractors to do the cleaning
• Territories: You can buy more than one territory if they are available in your area
• Franchising Funding Assistance: Yes, through third-party financing services

Find out how Joshua Brown started Brown's Pressure Washing below.

https://www.youtube.com/watch?v=hDVizUeYuIU

Want to use Josh's recipe? Become a Brown's franchise.

#13. Wise Coatings

A Wise Coatings franchise coats garage floors and other surfaces with a material similar to epoxy.

You’ll need an initial franchise fee of $50K and a total initial investment of $114K-$134K to become a Wise Coatings franchise owner.

The franchises make between $400K and $500K in revenue and 15%-20% profit margins. The average Wise Coatings franchise recoups its initial costs in two to three years.

• Franchise Fee: $50K
• Total Investment: $117K-$160K (including 3 months working capital)
• Space Needed: 100-2,000 square feet
• Number of Employees: 2-4 (suggested)
• Territories: Discounts for buying more than one
• Franchising Funding Assistance: Provided through Benetrends. Learn how to qualify.

Check out our interview with Brandon Vaughn, who runs a successful epoxy flooring business, below.

https://www.youtube.com/watch?v=q6mghjqijuU

#14. Spray-Net

Spray-Net holds patents in a unique painting process that was innovated by Carmelo Marsala after he found a way to modernize the house painting industry. The company has 40 franchisees (and counting) and owns patents that mean only those who buy in and learn the process can offer it to their customers.

• Franchise Fee: $45,000
• Total Investment: $170,825-$241,825
• Royalty Fee: 8%
• Space Needed: 100-2,000 square feet
• Employees: Hire employees or subcontractors to do the cleaning
• Territories: You can buy more than one territory if they are available in your area
• Franchising Funding Assistance: Yes, through third-party financing services

See how you can start a Spray-Net painting franchise in this video:

https://youtu.be/va7wL-C_kxg

#15. EverLine

John Evans started EverLine with $500 and a unique vision for parking lot maintenance. Twelve years later, the multimillion-dollar company has franchises all over North America that help keep other businesses’ parking lots safe and looking sharp.

• Franchise Fee: $49,500
• Total Investment: $164,744-$332,443
• Royalty Fee: 9% or $500 per territory+ 3%—whichever is greater
• Space Needed: 100-2,000 square feet
• Employees: Hire employees to provide the services
• Territories: You can buy more than one territory if they are available in your area
• Franchising Funding Assistance: Yes, through third-party financing services

Learn more about EverLine in our in-depth interview with its founder here:

https://youtu.be/8eCkpEh3B9I

Other Commonly Mentioned Franchises

There are plenty of other franchises that provide profitable opportunities. Some commonly mentioned options include:

  • Anytime Fitness
  • Dream Vacations

Anytime Fitness

Anytime Fitness instructor wearing an orange crop top and holding a small hand weight while standing on the gym floor near workout equipment

Anytime Fitness earns monthly membership fees from people who want a workout. The company has 2,349 franchises and claims a 16.9% profit margin.

Dream Vacations

Dream Vacations franchises require very little upfront costs. You can get a franchise for a few thousand dollars and then you make a commission on each travel arrangement you help someone book.

Factors that impact franchise owners’ success

Factors that impact a franchise’s profitability include:

  • Costs of goods or services: A franchise, like most small businesses, may spend up to 60% of revenue providing the primary products and services of the business.
  • Franchisee satisfaction: A franchisee who is happy with the franchise business is more likely to be successful than one who is disgruntled with the franchisor. Prospective franchisees should talk to other franchisees to see if they are satisfied with their franchise units.
  • Sales, general, and administrative (SG&A) costs: According to NYU Stern, SG&A costs are 14.4% of business spending, but the exact amount varies by sector. When SG&A is too high, the business is inefficient; when it is too low, the company may not make as much as the franchisee would like.
  • Industry trends: Technology is evolving, and how a company responds to industry trends can make or break it.
  • Rent: Owning a franchise will be much more profitable if the company can be a home business. You won’t have additional rent and utilities to pay. Read our resource on how to start a home-based business for more.
  • Revenue: A franchise opportunity that has higher average gross sales tends to do better than one with lower gross sales.
  • Royalties: Most franchisors collect royalties, which may be either a percentage of sales or a fixed rate each month. These royalties will eat into your profits. Be wary if they are substantially higher than your industry’s SG&A costs.

How to measure franchise profitability

Wise Coatings owner in front of a wrapped panel van

There are a variety of ways to measure a franchise’s profitability. We’ll discuss how to measure a franchise’s profitability using:

  • Net operating income (NOI)
  • Franchise fee
  • Initial investment
  • Return on investment (ROI)
  • Cash-flow
  • Break-even analysis

Let’s look at how each of these helps prospective franchise owners judge the most profitable franchise opportunities.

Net Operating Income

The best metric to measure a franchise’s profits is the NOI. This measure of profitability excludes taxes, financing costs, earnings from investment activities, and depreciation to show how much money the business is making.

Franchise Fee

Franchise concept showing wooden blocks with storefronts stamped on them connected by strings and two stacks of hundred dollar bills

Every franchisor charges a franchise fee for the right to use their business name, business model, and intellectual property. Depending on the opportunity, expect to pay initial franchise fees between $1,000 and a million dollars.

Your franchise won’t be truly profitable until you have taken home at least this much from the franchise opportunity.

Initial Investment

In addition to an initial franchise fee, you’ll want to know the total initial investment to start owning a franchise. Franchise opportunities may require up to $5 million initial investment, but most are between $10K and $100K.

Until you make the initial investment back, you haven’t really made a profit.

Return on Investment

Another way to measure the most profitable franchises is by comparing the ROI. To measure this, you’ll use the net operating income divided by the total investment.

You can measure your ROI on both an annual basis and a lifetime basis.

Cash Flow

Wise Coatings owner holding a handful of cash

Cash flow is the amount of money going in and out of the business each month. A negative number means cash is flowing out of the business and you’ll need to reinvest or cut your losses, while a positive number means you are bringing more in than your expenses.

You can divide the initial investment by the cash flow to see how long it will take to get the investment back.

Break-Even Analysis

The break-even point considers the initial investment plus fixed and variable expenses and compares them to revenue. To break even, your investment and expenses equal your revenue—and thus, you’re not losing money. Check out our article on performing a break-even analysis.

Are you ready to become a franchise owner?

Buying any of the most profitable franchises is a great way to start your entrepreneurial journey. While buying a franchise location might cost more than starting your own business on the front end, they are more likely to succeed long term.

Which of these successful businesses are you considering purchasing?

Business ideas

S-Corp vs C-Corp: Which is Better?
Are you considering starting a corporation? If you want to sell company stock, you’ll have to start a corporation. Most people think about C-Corporations when they think about stocks, but you can also sell stock as an S-Corporation. So, when should you choose an S-Corp vs a C-Corp? An S-Corp is actually the 2nd most common type of business behind a Limited Liability Company. There’s a good reason for it too! We’ll share why S-Corps are so popular as we discuss the similarities and differences between an S-Corp and C-Corp. By the time you are done reading this, you’ll know whether you want to start an S-Corp or a C-Corp. The decision comes down to three main considerations:
  1. Tax consequences
  2. Type of shareholder
  3. Your goals
Let’s start by looking at the defining characteristics of a corporation.

What is a corporation?

A corporation is a legal entity that protects the owners from personal liability. The owners are shareholders and are able to sell stock. Corporations have a legal obligation to increase the economic value for their shareholders and are required to file articles of incorporation. Let’s look at the different kinds of corporations, starting with the C-Corp.

C-Corporation Definition

The C-Corp is the corporation that most of us think about because they are the ones on the stock market. A C-Corp has these defining characteristics: [su_note note_color="#dbeafc"]
  • Created by filing articles of incorporation.
  • Double taxation (taxes charged on both corporate and personal income).
  • Limited liability.
  • Unlimited shareholders.
  • Personal liability protection.
  • Must abide by state and federal laws.
  • Files under Internal Revenue Code Subchapter C.
  • Best if you intend to have an Initial Public Offering (IPO).
[/su_note] Let’s look at an S-Corp next.

S-Corporation Definition

An S-Corporation is similar to a C-Corp but has some substantial differences. The following bullet points list the defining characteristics of an S-Corp:
  • Requires the business to be an LLC or a corporation.
  • Created by filing a Form 2553 with the IRS to opt to be treated as an S-Corp.
  • Limited liability.
  • Maximum of 100 shareholders.
  • Shareholders must be U.S residents or select business entities. 
  • Must abide by state and federal laws.
  • Must pay owners that are actively involved in the business a reasonable salary.
  • Profits are paid as dividends.
  • Losses are pass-through income.
  • Files under Internal Revenue Code Subchapter S.
  • Best if you have less than 100 owners and more than $100,000 net income.
An S-Corp effectively creates a mix between a C-Corp and an LLC when it comes to the tax benefits. It’s not as easy as an LLC’s pass-through income, but not as complicated as a C-Corp.

Other Types of Corporations

Non-profit organizations and Benefit Corporations are also considered corporations. You can learn more about them in our blog about types of business structures.

S-Corp vs C-Corp Similarities

S-corp vs c-corp similarities An S-Corp and C-Corp are similar in five primary ways.
  1. Both are considered separate legal entities.
  2. Both have the same incorporation documents (unless the S-Corp is filed as an LLC).
  3. Both an S-Corporation and C-Corporation follow the same state laws.
  4. Both have a board of directors, shareholders, and a management team.
  5. Both provide limited liability protection.
  6. Both pay payroll taxes.
Let’s discuss each of these in more detail.

C-Corporation vs S-Corporation: Legal Entity Status

S-Corporations and C-Corporations are considered legal business entities. This means that the business is a separate entity from the owner(s). This protects the owners if the C-Corp or S-Corp breaks the law, as long as the owner was not directly involved in the law-breaking. The separate entity status also protects the C-or-S-Corporation from liability if one of the business owners breaks the law when they are not involved in corporate activities. This is the basis for the next section, legal liability protection.

C vs S-Corporation: Limited Liability Protection

Either an S-Corp or C-Corp will separate the business and personal liability in the case of lawsuits or criminal activity. This works in two ways. [su_note note_color="#dbeafc"]
  1. If the business breaks the law and the individual was not involved, there is no personal liability, meaning an employee or customer can’t file a lawsuit against you for something the company did.
  2. If a business owner is in a lawsuit, the corporation cannot be held liable unless the business owner was actively using company assets to break the law.
[/su_note] This protects wealth for both the owners and the corporation. This is the primary reason why people encourage LLCs, S-Corporations, and C-Corporations over Sole Proprietorships. Check out our blog Sole Proprietorship vs LLC to learn more about why liability protection is so important. You can learn more about Sole Proprietor vs. LLC vs. S Corporation vs. C Corporation here: [su_youtube url="https://www.youtube.com/watch?v=33ItOdBeWTQ"]

C-Corp vs S-Corp: What Filing Documents Do I Need?

To become a C-Corporation, you will need to file with the Secretary of State where you wish to be incorporated. To find the appropriate secretary of State Office, go to USA.gov. You’ll need to have the following documents prepared:
  • Certificate of Incorporation or Articles of Incorporation
  • Organizational Minutes and bylaws
  • Shareholder Agreement
  • Share Certificate for each shareholder
  • IRS Form SS4 – Application for Employer Identification Number
Then you’ll pay a fee that can range from $35 to $300 depending on your state. Each state may have other fees associated with becoming a corporation such as registering a name, sales permits, and other business licenses. That's all you have to do to become a C-Corporation. If you want to be a C-Corp filing as an S-Corp, you’ll need to print out Form 2553. You can find the form and instructions on the IRS page about S-Corps. You’ll need to fill it out and have all shareholders and at least one officer sign and date the form. After every shareholder signs the form, use the table below to find where to send it. This list is also on the form itself. You can elect S-Corporation status for an LLC as well. To do so, you’ll need to fill out form 2553 after becoming an LLC. S-corp filling status illustration

S-Corporation vs C-Corporation: Both Follow State Laws

Because an S-Corporation is a tax classification, both C-Corporations and S-Corporations will be governed by the same state laws. The company is obligated to follow the laws in all states where it has a substantial presence. Cornell Law School provides links to the laws of each state regarding corporations. If the S-Corp is an LLC, it will need to observe the laws governing LLCs, which can vary from state to state. View laws on LLCs for each state.

Governing Structures are the Same for Both

Both an S-Corp and C-Corp need to have the same governing structures. Most operate with three tiers:
  1. Stockholders: The number of people who hold shares in the company. They get to vote on important changes like dividends increases, dividend decreases, board of directors, and new executives.
  2. Board of Directors: Typically shareholders or experts in their field that advise the executive team. The person in charge of leading the meetings is called the Chairman (or Chairperson) of the Board. The Chairman is often the CEO or independent from the management team.
  3. The Executive Team: Made up of the people in charge of actively running the company. The executive team will typically include the CEO, COO, CFO, CIO, and an attorney.
Some states, like California, have laws dictating how the Board of Directors is structured. California allows either fixed or flexible board sizes. California requires: [su_note note_color="#dbeafc"]
  • Fixed Board Sizes: May be specified or follow the defaults based on the number of shareholders:
    • 1 Shareholder: 1 Director minimum
    • 2 Shareholders: 2 Directors minimum
    • 3+ Shareholders: 3 Directors minimum
  • Flexible Board Sizes: Must follow the rule 2X – 1, where X = minimum based on fixed board sizes.
[/su_note] The information about California is a summary of a more in-depth blog by Tagre Law. You can see how the rule impacts the number of board members below. California board structure graph

Cautionary Tale: Don’t Make Employees the Chairperson of the Board

I know a person who was the CEO of a company. One of the people who reported to him as an employee was also the Chairperson of the Board, which created a lot of internal conflict in the upper levels of the company. Long story short, it effectively made it where the two had to agree or nothing got accomplished. Don’t put your company in a position where one opposing view can overrule the CEO's authority. It becomes a power grab.

C-Corps and S-Corps both pay payroll taxes 

Unlike other business structures, S-Corps and C-Corps will have to pay payroll taxes even if the business owners are the only employees. Any corporation will pay tax on 7.65% of employee wages.  S-Corps and C-Corps will also have to collect another 7.65% from the employees’ wages to send to the IRS. These taxes are for Social Security and Medicaid. The business is also responsible for withdrawing the personal income taxes from all employees’ wages and sending the money to the IRS.

What is the Difference Between C-Corp and S-Corp?

S-corp vs c-corp difference There are four main differences between an S-Corp and a C-Corp:
  1. Taxation
  2. Ownership limitations
  3. Number of shareholders
  4. The goals of the organization

What is the Taxation Difference Between S-Corp and C-Corp?

The most notable difference between an S-Corp and C-Corp is the tax treatment. Both must file corporate tax returns and pay payroll taxes, but C-Corps have to pay a corporate tax. There are both corporate income tax implications and personal income tax considerations that should be discussed. This is why running a C-Corporation is considered double taxation.

C-Corporations Have Corporate Income Tax

The federal government taxes C-Corporations for both their employees' personal income tax and corporate profits. That means business owners have to file both corporate tax returns and personal income tax returns. This is known as double taxation because the corporate income taxes are 21% of the profits of the company. Then if the profits are paid to the owners as dividends, they will be paying another 15-20% on the dividends.  Double taxation makes it where the federal income tax on the profits can be as high as 41% combined with the dividend payments. This is why publicly held companies either perform buybacks or amass huge piles of cash. A corporate tax return is filed with the Form 1120 for a C-Corporation or 1120S if they have S-Corporation status. In addition, C-Corporations and corporations electing S-Corp Status have to file quarterly Form 1120W estimates of taxable income for federal tax purposes. That seems undesirable. Want to know how to avoid that and not pay taxes twice?

S-Corp Status Uses Personal Income Tax Returns

Man holding 1120-W form Good news! LLCs with S-Corp status don’t have to file the 1120W like S-Corporations. Nor do S-Corporations pay 21% corporate taxes like C-Corporations.  S-Corporations still have to file an annual corporate tax return using Form 1120S to make sure owners aren’t cheating on taxes. The business owners receive up to three types of income, which they’ll need to claim on the personal tax returns: [su_note note_color="#dbeafc"]
  1. Employee Income: If business owners are actively involved in a company that receives S-Corp status, the business owners must receive a reasonable salary and pay taxes at the personal income tax rates. The salary should be comparable to the median wage for the position.
  2. Dividend Taxes: All profits will be paid as dividends to the business owners and taxed based on the dividend tax rates which are 0%, 15%, and 20%. The limits for the brackets are far above the tax brackets for the standard personal income tax rate. 
  3. Pass-Though Income: Losses are pass-through income. If after paying reasonable salaries, the business loses money you can use the Qualified Business Income Deduction to claim 20% of your expenses as losses from your personal income tax.
[/su_note]

So who wins between S-Corp vs C-Corp tax advantages?

S-Corps are far superior to C-Corps based on the pass-through taxation rules as long as the small business corporation does not have more than 100 members.

S-Corps Have Limitations on Shareholders

An S-Corp has a lot of restrictions on who can be a small business owner that C-Corps do not. The S-Corps shareholder restrictions include:
  • No foreign entities or people.
  • Only U.S residents, certain trusts, and estates can own shares.
  • No partnerships or corporations can own shares.
  • Cannot have multiple classes of shares, for instance, voting and non-voting shares.
  • Financial institutions, insurance companies, and domestic international sales corporations cannot be shareholders of S-Corps shares.
This small business entity is different from many others in this regard. If you choose this corporation tax status, you’ll have to change it if you want to offer more than one class of stock or allow a restricted shareholder.  Changing the filing status may not be an easy task as it will require all shareholders' approval. It could also open the subchapter S-Corporation up to the C-Corp tax rate of 21%. Many shareholders would likely want to avoid double taxation unless you are about to offer an IPO. C-Corps are the better business structures if you want to have fewer restrictions on shareholders. This brings us to our next point, the number of shareholders an S-Corp can have.

How many shareholders can an S-Corporation have?

An S-Corp can have no more than 100 shareholders. They must all meet the restrictions in the previous section and there can be no more than one class of stock. This could be a major downside if you are trying to build a billion-dollar company and sell stock through an IPO, but for most business owners, the S-Corp distribution tax rate is way better than paying both corporate-level taxes and personal taxes. I’d personally aim for the S-Corp tax rate because the maximum of 20% dividend taxes is far less than the maximum personal tax rate of 37%. It’s also less than the 21% corporate-level taxes that were created by the 2017 Tax Cuts and Jobs Act.

S-Corp vs C-Corp Pros/Cons: Why would you choose an S-Corporation?

If you don’t want to pay both a corporate tax rate and a personal tax rate on the business income, you’ll want to choose an S-Corp––assuming your company ownership structure meets the requirements. While you’ll still have to file both business and personal tax returns, you don’t have to pay the 21% corporate income tax.  Choosing s-corp vs c-corp Now, let’s look at some frequently asked questions.

Can a C-Corp Own an S-Corp?

A C-Corp is not allowed to own an S-Corp, but a C-Corp can elect to file as an S-Corp by filing Form 2553 as long as it has less than 100 members who are all U.S. residents or legal entities permitted by the subchapter S of the tax code.

How do you know if a corporation is S or C?

There are a few answers to the question, “How to tell if a company is an S-Corp or C-Corp?” Most of them will require having access to tax documents, though. You can establish what tax status a company has by: [su_note note_color="#dbeafc"]
  1. Checking to see if it filed a Form 2553. If it did not, it is a C-Corporation.
  2. Review the tax returns. A C-Corp files 1120 vs 1120s for an S-Corp.
  3. Call the IRS at 1-800-829-4933.
  4. Ask the business owner.
  5. Check to see if it is a publicly held company. Only C-Corporations can be publicly held.
  6. Search Dun & Bradstreet’s business lookup. 
  7. Verify the company is not a Sole Proprietorship or Partnership. These small businesses can’t be corporations.
[/su_note]

Can an S-Corp own a C-Corp?

An S-Corporation can be a shareholder in a C-Corporation, but it can only hold up to 80% of shares. 

Choose an S-Corporation unless you have to be a C-Corporation

I really can’t see any reason why small businesses would choose to be C-Corps, unless they cannot be S-Corps. There are plenty of other pass-through entities to choose from if you don’t want to deal with:
  1. Two separate tax returns
  2. State requirements
  3. Internal Revenue Service requirements
Read our other blogs about business structures if you aren’t convinced a corporation is right for your small business. What do you consider the most important aspect when choosing a business structure?
Business ideas

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