10 questions to ask before joining a franchise
You may have a million questions when faced with the...
Nobody invests to lose their money. When you invest, it's to succeed and make more money, which can be measured in different ways. One way to measure the success of an investment is by looking at the return on investment (ROI), a relative measure of how much profit was made expressed as a percentage of how much money was needed to get started.
When you are trying to decide whether a Canadian franchise with a small investment is worth your time, consider that these types of investments have a strong chance of a high ROI because it's easier to see more profit when the initial expense is low. Franchises at investment levels of under $50,000 often don't involve physical locations and the cash demands and build-out expenses that those locations need. Instead, these are home-based businesses that see the franchisee providing a remote service or going directly to a site to provide the service. These include offerings like repair services, online services, tutoring and property management. The initial investment is lower because there is less overhead--no commercial space leasing and little to no inventory and/or equipment.
With a franchise with a small initial investment, the initial ROI can be a lot higher when compared to an opportunity with a bigger upfront investment. While the profit number may be smaller, the ROI ratio itself as a measure of success is usually higher. Since you likely want to earn your money back as soon as you can, it's entirely possible a franchise with a smaller investment may be the way to go for you.
The ROI explained
For franchise investments, you can calculate the ROI by estimating your net income and dividing that by your initial investment. For example, if a mobile franchise has a net income projection of $50,000 its first year and the investment was $10,000, you divide the $50,000 by the $10,000 and multiply the result by 100 to get the return percentage, which is 500%.
You can use ROI to measure the value of other investments, too. A marketing campaign, for example, can be measured by looking at the cost of the campaign versus the new sales it generated.
Of course, calculating ROI is easier once you've been in business for awhile, as it does present some challenges when you're considering it for a smaller franchise purchase. You'll want to speak to people currently in the franchise you are considering so you have a more realistic idea about sales and how long it will take to build the business.
All businesses want a higher ROI, and the chance of getting one with a franchise that has a smaller initial investment shouldn't be overlooked. Don't forget to include franchises with lower investments up front in your overall franchise search.
