Top States for Franchising: How Business-Friendly Legislation Welcomes More Units

The International Franchising Association (IFA) and FRANData recently released their economic outlook report for 2026. Among the many positive trends franchisors are eagerly expecting, the report also shared how the Southeast and Southwest regions of the United States are experiencing the largest uptick in franchise growth. Join us as we explore how these states are leveraging business-friendly policies, a lower cost of living, and population growth to invite opportunity as well as discuss strategies for enticing new franchisees in these regions.

If you operate in the world of franchising, subscribe to FranSimple and get weekly news along with a breakdown of the concepts and systems that make franchising so powerful.

Transcript

Mark Vandegrift 
Welcome to the latest episode of FranSimple, the podcast designed to make the concepts of franchising simple. I'm your host, Mark Vandegrift, and with me is the guru of franchising, the president of FranSource, and my franchise bro, Steve Vandegrift. Steve, welcome.

Steve Vandegrift 
Thanks Mark. Always great to be here.

Mark Vandegrift 
Hey, so we're gonna talk a little bit about some maybe more in the weeds stuff today, but we got to remember to keep it simple. So you had some data from the IFA and FRANdata. It's a report that paints a very positive picture for franchising. So, to introduce our topic today to our listeners, why don't you start out by giving us a high-level overview of what the industry is expected to see here. We're already halfway through 2026. So maybe give us an out overview of what they should be seeing and maybe what we'll be seeing.

Steve Vandegrift 
Absolutely.

Mark Vandegrift
And you know, I know the report specifically highlights the southeast and the southwest regions. so maybe go ahead and speak to that as well.

Steve Vandegrift 
Sure. Well in general the report projects that the franchise industry will exceed 845,000 units nationwide and generate more than 921 billion in economic output in 2026. We're also expecting roughly 12,500 new franchise locations to open and more than 150 jobs to be created. So those are great numbers and reinforce certainly franchising's role as a major driver of economic growth really across the country. Now, in terms of the Southwest and the Southeast regions, I believe there's several factors that are basically working together. First, all of these regions have experienced significant population growth. Second, most of these states have business-friendly regulatory environments and certainly lower tax burdens. Third, operating costs are lower. So when you combine population growth with affordability and pro-business policies, it creates an ideal environment for franchise expansion.

Mark Vandegrift 
Very good. So let's get more specific than just regional, because our listeners are all over the country. They want to know if their state's winning or not. So let's talk about the states leading the way. Which states made the top ten list for franchise growth this year?

Steve Vandegrift 
Sure. Well the top states for projected franchise growth in 2026 are Texas, Florida, Georgia, Arizona, North Carolina, Colorado, Michigan, Utah, and of course our home state, Ohio. What's interesting is that while many people expect Texas, Florida to rank highly, states like Ohio, Michigan, and Utah are also becoming attractive franchise markets really due to affordability and strong local economies. That makes all the difference.

Mark Vandegrift
Okay. Well when we see say a state is business friendly, I mean, that can mean a lot of different things. I don't know necessarily. I always classify Ohio as business friendly, but at the same time there are incentives, et cetera, that that help out. What does that actually mean for franchisors and franchisees?

Steve Vandegrift 
Well, business friendly can mean several things. It may include lower or no state taxes, fewer regulatory hurdles, faster permitting processes, and policies that really encourage entrepreneurship. For franchisees, these advantages can reduce startup costs and improve profitability, of course. And for franchisors, it means a larger pool of prospective franchisees who feel confident investing in their local market.

Mark Vandegrift 
Okay. Well, you know, we talk about the population migration that's going on, and we in Ohio see a lot of people heading south because of our lovely weather, but Ohio and Michigan are, you know, in the top two. So how important is population migration really when it comes to franchise growth?

Steve Vandegrift 
Well, it's very important. Every time people move into a community, they create additional demand, of course, for goods and services. New residents, they need restaurants, fitness centers, healthcare providers, home services, child care, everything that is all about franchising. And franchise brands are often well positioned to meet those needs quickly and efficiently. I would say that's why states experiencing strong migration trends often become franchise development hotspots.

Mark Vandegrift 
Okay. Well, we always see Texas and Florida in the top list. And we know that Florida is the number one recipient of Ohio snowbirds every year. So we get that.

Steve Vandegrift
That's true.

Mark Vandegrift
My daughter's getting ready to move to Florida, so I see it happening. But there's gotta be other reasons that people are moving there besides just the good weather. What do Texas and Florida have that maybe other states don't have?

Steve Vandegrift 
Well, both states continue to attract businesses and residents from across the country. They offer favorable tax environments, strong job creation, and substantial population growth. In addition to that, ongoing commercial and residential development creates opportunities for franchise brands to secure prime territories before markets become saturated. It's a combination basically of demand, affordability, and long-term growth potential.

Mark Vandegrift 
So it's kind of like you would say, what's the old saying that says why do you rob banks? And it's because that's where the money is.

Steve Vandegrift 
That's it. That's exactly right.

Mark Vandegrift
So why do you go to Texas and Florida? It's because that's where the population's growing and the demands, the demand is there.

Steve Vandegrift 
That's right.

Mark Vandegrift
Good. Well, let's discuss a little bit more microeconomics or what they call unit economics in this case. You mentioned lower operating costs and we know things like you know lack of or phasing out property taxes is a big thing right now. There are states that are giving pretty major incentives for companies to relocate. Florida in particular is trying to just keep driving down their taxes on every in every regard. So why do, you know, that taxes are one thing, but they're pretty major expense for companies. Why do lower operating costs matter so much to franchise growth?

Steve Vandegrift 
Well, at the end of the day, prospective franchisees are certainly evaluating an investment return. So states with lower commercial rents, lower labor costs, and lower overall operating expenses, they allow franchisees to achieve profitability a little faster. So strong unit economics make franchise opportunities more appealing to both first-time business owners and of course experienced multi-unit operators looking to expand.

Mark Vandegrift 
Yeah, and you have a lot of that if you want to call it extra operating cash to invest in things that maybe would prohibit those in states where the taxes are higher or the business I guess environment isn't as friendly. You can't take those monies and just go do something with them because they're already locked up with the higher costs of doing business in those states.

Steve Vandegrift 
That's right.

Mark Vandegrift
So certainly reinvestment in your franchise concept has to always be at the top of a franchisor's mind. Yep.

Steve Vandegrift 
Most definitely.

Mark Vandegrift 
Yeah so many franchise franchisors they focus pretty heavily on recruitment, right? So we call it marketing the franchise marketing concept. 

Steve Vandegrift 
Right.

Mark Vandegrift 
I have a franchise concept, I need to recruit franchisees. So if they're in one of these high-growth markets and the competition is higher, right? So that's always a consideration. Where things are going well, there's always higher competition. How do they need to adjust their recruitment strategy accordingly?

Steve Vandegrift 
Well I believe the most effective approach is really localizing the opportunity. Instead of talking broadly about the franchise concept, they need to demonstrate why a particular market is attractive. You know, you can share population growth statistics, demographic trends, local economic indicators, and success stories from other franchisees that are nearby. So prospects ultimately want to understand not only why the brand's attractive, but why their specific market represents a great opportunity.

Mark Vandegrift 
Yeah, so you're almost creating pockets that you're recruiting to rather than just doing a nationwide or worldwide blast and saying, we'll take you wherever you're from.

Steve Vandegrift 
That's right.

Mark Vandegrift 
And instead, what you're saying is, Tampa, Florida is the hotspot for this right now. And it's pretty much virgin territory. So we're recruiting specifically someone to locate in Tampa and that gives intentionality to the recruitment. Is that kind of what you're saying?

Steve Vandegrift 
That's right. Most definitely. Yes. And obviously that data's there. And so they just need to present it and share it.

Mark Vandegrift 
Good. Well you mentioned success stories, because those are really important. how valuable are existing franchisees when it comes to the development efforts?

Steve Vandegrift 
Well, I certainly say it can't be understated. They're often truly the most powerful marketing asset that a franchisor has because prospective franchisees they want proof. That the business model works and not just proof that the corporate locations are working. So hearing directly from successful operators in markets like Texas, Florida, or Georgia, it creates credibility and trust. And real-world examples help candidates they can envision their own success and often shorten the decision-making process because they're confident in what they've heard from other franchisees.

Mark Vandegrift 
How do you vet that? you know, with our experience in franchising, we've run into our fair share of not the most positive individuals for franchisee testimonials. What do you find is a good approach for a franchisor to determine if a franchisee is truly going to be a good testimonial and or contact, realizing that, you know most of these franchisee prospects are gonna be able to reach out to any of the existing ones. But is there a good way to kind of wall off the ones that are just negative Nelly's and promote those that are better salespeople for the franchise concept?

Steve Vandegrift 
Yeah, that's a great question. Well, you know, truth be told, your franchisees are they're disclosed in your franchise disclosure document. So technically, and it has their contact information. Technically, once a prospective franchisee receives that FDD, they could just start blindly calling. Well, the reality is the best approach for franchisors, we assist our clients in developing a franchisee validation process. In other words, once again, everything needs to be systemized. And now that includes so you're providing franchisees with typical frequently asked questions, so they're not caught off guard. And the reality is, franchisees, they're not under the FTC franchise rule in terms of disclosure. And what I mean by that, a franchisee could say to me, Steve, I'm happy to share my last year profit and loss with you. So, in essence, it's educating all of your franchisees that number one, you might get a call out of the blue. And so there has to be a process. We will let you know when someone has reached the pro the correct stage in the franchise sales process where franchisee validations are going to be conducted. And then franchisors are smart to really provide that connection between the franchisee and the prospective franchisee. So ultimately they could send out an email to their network. They can say this individual has been reached the appropriate time in the process. They may be contacting you even better. The franchisor would ask them, what's a couple convenient times? What method do you want that prospective franchisee to contact you? Email, text, et cetera. And then certainly providing them what we expect to be the typical questions. The franchisee is going to have to address that question as best they feel fit to do. So we're not necessarily saying you need to say this, this, and this. What we're saying is expect these kind of questions. Now, they obviously were a prospective franchisee at one point. So again, giving them confidence that they can fully address any question that they're comfortable answering. They're not going to violate any rules or regulations in franchising. So it empowers them to really hopefully have a robust conversation and you do want them to be truthful. And hopefully, you're operating your franchise, thankfully, our clients do, in such a way that they by and large, their franchisees are wildly successful and happy. And so when they get on a call, that's going to shine through. And we want that genuine response. We don't want something that's made up. So having a process for those franchisee validations are critical.

Mark Vandegrift 
I laughed because as much as you prepare someone, it's impossible to overcome the negative Nelly's. And I don't I don't mean in a way that they aren't happy with the franchisee. We had a client once that well, still he's not there anymore, but he was a referral for many years and we were like, why are people commenting on him all the time whenever we hear back? 'Cause he was over the moon about us. He said, We save their business, we cause them to grow in a down period, we revolutionized the way they operate, et cetera, et cetera. And he would always get on, you know, he would be on our reference list and our prospects would call him and we'd every so often get these comments back like, I don't know if you wanna use this one guy for your testimony because he's saying this and this and this. And it was all stuff that wasn't necessarily about us. It was the way that he presented everything in a negative tone. So as much vetting as you do, and as much of a cheerleader as someone might be, their personality has a big part in whether they make for a good, you know, success story or not. But I know that's getting off top a little bit, but I just thought that was kind of funny because as much as you systematize things in franchising and as much as you prepare franchisees with things, they're scattered with the work they're doing. They have personalities that that aren't necessarily conducive to being, you know, the positive salesperson that you're looking for. But that being said, as you as you mentioned, anybody can be contacted. So you really preparation is a really key thing.

Steve Vandegrift 
It really is. And you know, when you're starting out and you have one, two, three franchisees, that prospect is probably gonna wanna talk to all of But as you grow, franchisors will typically they'll identify I hate to admit it, but they'll identify those top ten, twelve, they'll contact them first, they'll let them know, and then they'll provide that contact information to the franchisees. So they can, as you grow, you can somewhat weed out the person that's happy about the franchise, but they just come across as you put it, right? Negative Nelly.

Mark Vandegrift 
Yep. Good. Well, going back to the report, because that's what we're what our topic is today, it also mentioned multi unit growth. And I know you're over the last couple of years you've been addressing this with every single franchisee that's come through. Why is that becoming such a significant trend?

Steve Vandegrift
Well, multi-unit operators, it's been growing for the last twenty-five years. You know, you have many experienced franchise operators, area developers who they're looking to scale rather than own a single location. And so higher growth states, they offer the opportunity to develop multi-territories and build larger businesses. So franchisors that create structured multi-unit development programs, they can accelerate their market penetration while attracting sophisticated operators who bring obviously valuable experience and resources.

Mark Vandegrift 
That's good. You know we're seeing that even with a local client here who happens to be, we don't get those very often. We're a franchise concepts right here in our backyard, but has sold a couple already, but has a huge multi-unit prospect on the hook and really looking to do some big things. So it's one of those where multi-unit doesn't mean you get to 15 and then finally someone swoops in and says, Well, I want to buy the next 15. The multi-unit, it can come out of nowhere just like this one did and it would be his like his third through his eighteenth if they if they do decide to do like 15 or something. So it really can infuse a lot of energy and capital and it's something really to keep top of mind. Anything other on the anything else on the multi-unit that you would care to share?

Steve Vandegrift 
Well, you know, there's a great example. When we're working with a client, developing their franchise operation, et cetera, you know, we're also assisting them in developing their franchise disclosure document. And we certainly talk about the area development. All of our clients, we are permitted to dis disclose in a single FDD, both single unit and area development. We include an area development agreement in all of our clients' FDDs, but we also explain that look, most multi unit operations are looking for concepts that have already somewhat scaled. But we also warn them that their second or third prospect might say, look, I'd like to, I'd like to have a territory where I can develop three locations, so they need to be prepared for it. So you're right that you know, again, it it's it's I know with this client it was kind of surprising to them that they had someone looking to develop, I think it was 15 locations. But when people are really enthralled with the brand, they've experienced it, and this is a this is a local person. So they've experienced the brand firsthand and they really believe in it. And they do want to get in on the ground floor because they want to protect that area. They want to know that they have that development territory. And so we are seeing this trend a little bit in multi-unit as well, where multi-unit operators they're looking for the next home run. And it might be a a franchise system that only has two or three franchises in it. They're certainly going to do their due diligence, assuming item 19 with the financial performance representations are there, assuming that they really believe that the franchisor is fully gonna train and support them, they might be willing to make make that investment.

Mark Vandegrift 
Good. Okay, well let's finish this up. We've got a couple more questions here, I think on the report. What is your biggest surprise, or what do you think if people were looking in this, what might the biggest surprise be when people are looking at this year's rankings?

Steve Vandegrift 
Well, we kind of went through the list and I think many people were probably surprised to see states like Ohio, Michigan, and Utah included among the fastest growing franchise market. I mean, to me it shows that franchise growth isn't limited to the Sunbelt as an example. Affordable markets with strong economic fundamentals can be equally attractive, especially when franchisees are looking for that lower investment cost and less competitive real estate environments. I mean, certain markets in the country, if you're a brick and mortar finding a location is truly the biggest challenge.

Mark Vandegrift
Good. As you look ahead, so let's say you're looking for trends based on this report, or let's say you're the guy producing the report, what would you say franchisors should be paying attention to over the next couple of years?

Steve Vandegrift 
Well, they certainly should continue to monitor population shifts, local economic development, and state level business policies. As we discussed, that's very important. The brands that align their development strategies with these trends, they're gonna be best positioned for growth. And the opportunity isn't simply following where people are moving, it's understanding why they're moving there and how your franchise concept can serve those evolving communities. Capitalizing on the opportunities.

Mark Vandegrift 
Good. Well, I'm gonna give you one last like highlight today that you want our listeners to walk away with. What's the one thing in you would say, walk away with this today as something that you learned today?

Steve Vandegrift 
Well, ultimately it really does come down to recognizing opportunities in the marketplace. And so again, really benchmarking and understanding those characteristics that make a market potentially hot, that is so vitally important because you can't target everywhere at the same time if you're looking to penetrate specific markets. You really need to look at those markets where your concept fits best and certainly all those other characteristics are in place.

Mark Vandegrift 
Great insights. So let's wrap up today. I love the just the way the franchise industry continues to prove its resilience, I think. its adaptability. People are always coming out with amazing insights and innovation and technology. It's just clear that it's the way to go for so many business concepts and I like that the states are embracing the growth, the growth aspect of this, knowing that if they develop business-friendly policies, they're going to reap the benefits. And we're trying to do that here in Ohio, just in Canton in Stark County. We're part of the Stark Economic Development Board, and we spend significant time deciding what's going to attract businesses here. So we definitely will have to keep our eyes out on franchise concepts too.

Steve Vandegrift
That's right, pro business communities.

Mark Vandegrift 
That's right. Well, let's wrap up today's episode of FranSimple. Thanks for joining us. And as always, please like, share, and subscribe. Make sure you hit that subscribe button, it really helps us out. And thank you for joining FranSimple, the podcast designed to make the concepts of franchising simple. Until next episode, may your business expand through the power of franchising.