Franchising business opportunities often attract people who have never been involved in running their own business before.
So with little experience how can you be sure your new franchising venture will be profitable enough for you to earn a good standard of living? There are certain checks you need to complete to evaluate the likely profitability, potential for growth and expansion of a franchise.
Firstly be clear on your own financial situation. Understand precisely how much you need to earn.
Consider how quickly you need to reach this income. Many franchises, like Card Connection, offer the opportunity to earn money from day one, but there will be an inevitable learning curve so you will need to consider a delay in cash-flow and start-up costs including training and equipment.
Secondly, buying an established franchise territory should give you a good indication of likely earnings. You will be able to look at the books with your accountant to establish how much profit the previous franchisee generated.
How much money did they actually make and does this match your own financial requirements? Remember this figure is not the same as a ‘projection’ created by the franchisor in order to help sell the business!
When considering potential for growth, spend time discussing the opportunity with the franchisor
When buying a virgin territory, it is always more challenging to assess the business opportunity.
Look at the accounts of other similar sized franchises but do take into consideration the relative affluence of the area and population density too, as a franchise in a rural area may not turn out to be as profitable as one in the affluent suburbs.
When considering potential for growth, spend time discussing the opportunity with the franchisor. Was the previous franchisee a top performer? If so, further growth may have already been exploited.
However, franchisees often sell their businesses to retire, for personal reasons or simply to pursue other interests. If so, their heart may have not been in running the operation for some time and this may mean the ideal opportunity for fresh energy to grow the franchise.
Think carefully about the product or offering you will provide. How is it perceived in the marketplace? Get a feeling for its popularity.
Then, think longer-term. Will there be a future market for this service in five or 10 years’ time?
Also consider any threats from competition, regulation or economic challenges which may hamper revenue generation or future growth?
When buying a franchise, it is easy to get carried away with the excitement of running your own business.
However, it is important to be realistic. Only a cold, hard look at the facts and figures will identify the real nature of the business opportunity.