Owning a franchise has countless benefits. You can profit from the franchiser’s recognizable brand while essentially running your own operation. The most profitable franchises rarely fail, removing the risks typically associated with opening a brand new business. Several questions would come to the mind of any investor: which franchise will make the most money ? Is my investment 100% safe? … but the ultimate question remains which franchise is best??
No franchise is one-size-fits-all. Entrepreneurs who want to open a franchise must take into account their budgetary constraints and the franchiser’s support system during the evaluation phase. Here are a few criteria that you should consider.
Franchise Fees
Every franchisor requires an upfront fee. This can range from hundreds to hundreds of thousands of dollars. Preferably, the franchise fee would be paid out-of-pocket (though some franchisers offer financing options). Either way, we recommend having at least $10,000 to invest up-front.
Profitability
When you're evaluating a business investment, it's important to know if the opportunity is worth the money. Determining the profitability of a franchise isn't an exact science, but there are a few factors to consider:
- Unit growth: See how many units (franchise locations) have opened in recent years.
- New franchisee success rates: Look at the percentage of new franchises that are still operating after a year.
-Franchiser's financial statements: Analyze the franchise disclosure document and look at average sales per unit.
Support Systems for Franchisees
When selecting a franchiser, take a look at the support systems they’ve put in place to ensure their new location is a success.
Not all franchisers, especially small ones, will have extensive resources for support but make sure they offer at least basic training.
Time Commitment
Operating a franchise will be a decades-long commitment, ideally longer. You can’t operate a store and leave after a year.
The franchise term for McDonald’s, for example, is 20 years.
Be sure that you’re prepared to stick around for a while without pursuing other time-consuming commitments. If you feel that you’ll want to leave in less than ten years, be sure to choose a brand whose franchises are easier to sell.
Available Territories
Most franchisers are looking to grow in a particular geographical area.
It wouldn’t be profitable, for example, to open a new location just miles from another, or in an area where there’s no demand. Be sure to check whether your target franchiser wants to open a location in your area. If not, decide whether you’re willing to relocate.
Brand Recognition
How recognizable is the brand that you’ll be franchising? If it’s a smaller brand, has it seen significant growth in the past year?
These two characteristics will determine whether it will be profitable to operate a franchise for a prospective brand. Sometimes, going for a big, highly recognizable brand isn’t ideal, because up-front costs are significant. A smaller franchiser could be an easier entry point as long as the company has been growing in revenue.
In conclusion, before choosing any franchise, you need to set your personal goals and evaluate your financials. Because a successful franchise for you does not necessarily have to be the best one available today (meaning in size or brand name or….) rather than being a perfect fit for your aspirations and capabilities. So to answer our big question above, we recommend you to search for the franchise that is best FOR YOU.
Comments