Without a doubt, this is one of the questions most asked by individuals looking at buying a business – franchise or otherwise. The other, of course, is "How much will it cost? – What must I invest?" From an income potential, whether it be a cash flow return or an accounting statement, these are logical, practical questions.
The cost of a business is fairly predictable. It will be based on costs to open (leaseholds, equipment, signage) plus soft costs such as franchise fee, incorporation, professional advice, travel, etc.
The bottom line you can earn (gross profits) is less predictable. It depends on many things. Some of the most obvious are:
- What is a practical expectation?
- Will your sales be limited by:
- the size of your location?
- the territory/market?
- uniqueness or competitiveness of your services/products?
- What is the mark-up you can expect on your sales?
- Is it constant on all products?
- If not, what is the range?
- What might be the sales by category?
- What are your fixed expenses? e.g. rent, utilities, taxes, royalties?
- What are your variable costs? e.g. labour, advertising, support, insurance, accounting?
- What is its growth potential?
- Is it on an "up-curve", flat or on a downward slope?
- What strengths do your competitors have?
However, time after time, the one most important ingredient is you!
There are many advantages to a franchise business. Some of these are:
- public recognition
- established system
- training and support
- purchase power
- resale ability
- The System
- The Location
A franchisor will have developed their system through many years of effort and evolution. It hasn't all been perfect. They've made mistakes and learned from them. Those scars are the ones you'll avoid by buying a franchise.
Given that you're buying a system when you buy a franchise, you'll acquire a lot of experience and counsel. The biggest question for you and the franchisor is. "How well will you follow/use their system?" In many senses, you are the variable in the formula. The three key components are:
The system is already refined, the location can be analyzed but, you, -"How well will you commit to your new business?"
If you're going to take the plunge, be prepared to throw yourself into it completely from the beginning.
Your profit potential may depend on the size and scope of your new business. In some cases, the bigger the risk or investment – the bigger your reward. For example, if you choose a full restaurant concept such as Crabby Joe's, you'll expect a good return on your investment.
If your personality likes a pure marketing operation with a medium investment, look closely at a home based concept such as Outdoor Lighting Perspectives.
Your business background should complement your new franchise. Often you won't need experience in the new business. However, your skills and personality must complement your new role. If you're shy or introverted by nature, don't choose a business where you must be continually in the public eye promoting and expanding your business.
Analyze your risk comfort! If you're committing the majority of your resources, it's more risky than if it's a smaller portion. Keep back some savings and also "play money". It's better to have a reserve then to be extended to the limit.
Don't choose a franchise to buy yourself a job, Instead, choose for growth and the future.
Above all else – study, absorb and execute all aspects of your new franchise business. Live it, preach it and practice it! Always ask for advice on how you can improve. Be open to suggestions.
Your efforts – plus the opportunity and potential of the franchise business you choose – will let you write your own cheque in the years ahead.
It has been said, "Rome wasn't built in a day." Your new business will take time to mature. Be satisfied with your growth but search for ways to improve your operation in the future.