If you're interested in more information on how to choose between a franchise and a independent business, please download our Experience of Business Owners PDF.
8 February 2016
People go into franchising for different reasons – independence, flexibility and a career change are all common ones. But for many, the primary motivation is financial – they want to invest their savings into a profitable business model which will secure the future for themselves and their loved ones.
But how much money can you expect to make in a franchise? The profit from a franchise is dependent on many factors. One of the big factors is the type of franchise you buy, so before you choose a franchise to invest in, make sure you’ve considered the below vital financial questions to make sure it is the right business for you.
1) When do you expect to make a profit – does it need to be in the first three years, or are you prepared to wait longer for a larger reward? There’s no doubt franchising is a long term investment, but some franchises will provide a quicker return while others take time to build a more profitable business. Honestly assess what you need out of your business – if you’re hoping to sell in five years for a modest profit, you should consider investing in a different type of franchise model than if you’re aiming to set your family up for the long term and make substantial annual profits.
2) What capital outlay can you afford? Some franchises cost more than others to buy outright. Some are accredited by banks and other financial institutions so that it’s easier to get a loan for that particular business, while others offer vendor finance for the right candidate. Get clear on your financial position. Consult your accountant and financial planner and know how much you can afford to invest. Make sure you weigh up the cost against projected earnings to buy at the right level for you.
3) Will you be hands on to drive the business to a fast profit? Make sure you’re really realistic about how much time you’ll be able to put into the business. It stands to reason that the more time you can put into driving your franchise, the faster it will be a success. If you plan to be more hands off, it may take a little longer to turn a significant profit. Your level of day-to-day involvement also impacts the type of franchise you buy - talk to other franchisees in the networks you’re considering to get clear on how hands on you will need to be.
4) Is your franchise future-proofed to keep making money in years to come? When talking to your franchisor, make sure you don’t just ask them about the here and now, but the future too. Most businesses will need to make changes to stay relevant in an ever shifting world, so before you put your money in make sure that you are joining a business that will remain relevant in the years to come.
5) Have you done your sums? With all of these variables and more, it can be hard to make an accurate prediction of what return different franchises deliver. The Bedshed franchise calculator can help compare different franchise models to project profit over ten years. Any legitimate franchisor should be willing to provide all the numbers you need to compare up to three different franchise models with the calculator.