Franchise Investment vs Profit

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Which franchise to invest in

Today, we explore the different franchise investments and how profitable you can expect to be. Before examining 10 ways you can make the most out of your investment, you should decide on the perfect franchise for you.

Franchise Investment vs Profit

Even though investing in a huge global brand like McDonald’s would most likely be a profitable business venture, the incredibly high entry costs make it impossible for many candidates to make the cut.

But this doesn’t mean that investing in a smaller, less well-known franchise will mean you can’t run an incredibly lucrative business. In fact, the British Franchise Association (BFA) states that the average turnover for UK franchise businesses exceeds £250,000 annually and 97 percent of franchise owners report some level of profit.

Franchise Investment

Of course, there are many perks of buying an established franchise with a reputable brand name and existing customer base, but this will come at a cost. This cost will depend on factors like the size and type of the franchise and the particular location you will be operating in. However, according to the BFA, taking into account the working capital, franchise fees, equipment and stock, on average it will cost around £42,000 to establish a franchise business.

Let’s compare a few franchise opportunities in our franchise books to demonstrate how different the franchise investment can be.

In order to become a franchisee of the Japanese restaurant brand Marugame Udon and ice cream franchise Baskin Robbins, you will need to make a total investment of £500,000. Whereas, to invest in the fryer management franchise Filtafry and the property care and repair franchise Local Assist, you will need part with around £15,000.

Franchisee Income

Due to the size, scale and number of locations of different franchises, it’s hard to say what the average income of franchisees is. But to get some idea, the tutoring franchise Kumon suggests that its franchisees with 100-300 students can earn between £30,000 and £100,000 annually, after the cost of operations and royalties.

On the other hand, if you invest in one of the most profitable franchises, there is scope to achieve an income exceeding £50,000. Take the finance franchise Brokerplan, for example, which suggests that depending on the number of hours they put in, franchises can earn between £2,000 and £50,000. Some even exceed the £75,000 mark.

This highlights one of the main advantages of owning your own franchise - you get out what you put in. If you want to make big bucks, then you can choose to put in a large amount of hard work and dedicate many hours to the success of the franchise. Whereas, if it’s more of a passion project you run as well as another part-time job or family commitments, you have the choice to work fewer hours if you need to.

Getting the most out of your franchise investment demands hard work, dedication and strong business skills. However, it also requires that you understand the franchise system and how to operate within it. Here, we look at 10 ways you can work the system to your advantage and make the most of your investment.

Choose the right franchise to invest in

1. Select a franchise that matches your abilities

When it comes to choosing between franchises, it's essential that you make a decision based on how well you’ll perform in the role. While passion for your work is incredibly important, it won’t make a difference if you don’t have the necessary skills to supplement it. Understanding your strengths and weaknesses and selecting a franchise based on how well they complement the position is the best way to go. The best franchise business opportunity is the one in which your natural skills and abilities are vital to its success.

2. Do your research

Before you make any franchise investment, you need to carry out thorough research into the franchise, its competitors and the industry. Jumping into an investment having carried out little or no research is a recipe for disaster and certainly won’t help you maximise profit. In the course of carrying out this type of research, potential franchisees often discover things that they weren’t aware of and which may impact their chances of success. There could be a previously unknown competitor who’s already established a similar product or service in the market. Or an upcoming government legislation might impact the franchise’s ability to operate. There might also be a better investment opportunity just around the corner.

3. Be inventive with your marketing

When it comes to trying to get the most from your investment, you need to get creative with your marketing. This doesn’t mean creating surreal or crazy adverts in an attempt to garner attention. It means thinking outside of the box and working hard to make connections that could bring your business additional exposure. For instance, appearing on a radio talk show may allow you to demonstrate your expertise and raise awareness of the franchise. A carefully planned community outreach programme could do some good in your local community and bring in new customers. Don’t limit yourself to traditional forms of marketing, especially when there are plenty of cheap alternatives out there.

4. Carry out thorough due diligence

The due diligence process is the moment that you step back from all the excitement and emotion of a new business venture and carefully consider whether you’re making a rational investment. It’s a stage that many franchisees rush past and then usually regret not paying more attention to. However, it can be a complicated process and does require some expertise.

5. Build a team of trusted advisors

To make intelligent, informed decisions, you typically need input from many different perspectives. That's why it's necessary to organise a team of trusted advisors around you that are willing to offer their honest opinion and disagree with you if that's what they believe. Two of the critical positions in this team will be your financial and legal advisors. On top of this, you'll have your franchise management team and those friends, family and colleagues that can offer advice and guidance. You don't always have to listen to them, but it's healthy to have different voices around you, particularly when problem-solving.

6. Get your finances sorted

When you’re first starting out, structuring your finances in the right way can be extremely challenging. You’ll need to decide on how much you’re going to take out of the franchise as a salary and how much is going to go back into the business to fund growth and expansion. Finding the right balance between the two is essential if you’re going to make the most of your investment.

7. Prepare for expansion

One of the best ways you can make the most of your investment is by preparing for franchise expansion. By adding new units to your existing franchise portfolio, you can multiply your profits without worrying about learning the ropes each time. If you’ve done it once, all you need to do is replicate the secret recipe. Taking on new franchise units also allows you to make use of economies of scale, pushing down franchise costs and increasing your profit margin.

8. Don’t go all or nothing

When faced with a situation in which you feel you have to commit everything to make the business work, think very carefully about your next steps. Going all or nothing doesn't usually result in a good outcome and, if you hold a little back, you can always make another go of it.

9. Work within the system

The franchise model is not particularly flexible. It demands that franchisees work within a strict set of conditions, all of which are typically dictated by the franchisor. However, this is the way the system operates and if you're always fighting against it, you won't maximise the return on your investment. Instead, you'll devote precious resources to locking horns with the franchisor – a fight you'll almost definitely lose.

10. Know what your end goal is

Finally, to make the most of your investment, you have to know what you want from it. Are you hoping to slowly build a franchise empire over a couple of decades? Would you prefer to grow your business and quickly sell it on at a profit? Do you want to gain experience in the franchise system so that you can one day start your own franchise? By understanding what it is you want from your experience, you'll know what reward to chase and how to pursue it.

Conclusion

While there's no guaranteed path to franchise success, there are ways you can maximise the returns on your investment. The 10 tips listed above are just a few of the ways you can ensure you get what you want from your franchise experience.

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