Will Owning A Franchise Make Me Rich?

08/04/2019 18:00 | Start a business

Can franchises make you money?

Originally uploaded on 31/12/2017. Updated on 08/04/2019.

There are so many questions people ask about franchising: What are the most successful franchise sectors? Do I need industry or managerial experience? How much control will I have over business decisions? But there is one question that is frequently pondered but does not have a black or white answer: Will owning a franchise make me rich?

An experienced franchise professional would tell you that it can as long as you are careful in your decision-making. Even the most lucrative franchises cant guarantee financial success to every franchisee. It is not the franchise model alone that makes a franchisee rich, but the way in which the franchise is handled across all areas of the business. In brief, there is no shortcut to fortune. Profitability comes with judiciousness, hard work and determination.

Here are some key pieces of advice to consider before you sign a franchise agreement; youll have a much higher chance of meeting financial expectations if you keep them in mind:

Low-Cost Franchises Can Make Money Too

There is no correlation between the amount of money that is spent on a franchise and the amount of money it can subsequently earn. High investment costs dont necessarily indicate a highly successful business. In fact, low investment costs are more common in certain sectors attached to franchises that can be run from home, eliminating expensive set-up fees. Therefore, it is not unusual for low-cost franchises to exceed expectations by generating a high return on investment, while more expensive franchises fail to cover the initial franchise fees and set-up costs.

Dont Rely on One Financial Figure

Now that weve established that financial success doesnt necessarily go hand-in-hand with high investment costs, its important to remember that focussing on one financial figure in general will not paint a complete picture of the franchise opportunity.

With this in mind, you should pay particular attention to the bottom line numbers. The gross revenue of a specific franchise may seem appealing, but you should also look at the profit margin, which is the money that remains after all outgoings have been paid. The bottom line of the business is much more important than the top line when youre trying to understand a franchise's profit potential.

Forget Trendy Franchises

When considering franchises, always ask yourself: Is this a business that caters to a fad? Although many people might like the idea of becoming part of a trendy, new business, if you are interested in achieving a high profit margin in the long-run, its worth avoiding trendy businesses altogether.

This is because the most profitable franchises are often established and have already been tried and tested in different economic climates. Some highly profitable and enduring franchises include Spar, Costa Coffee, Kumon Maths and Burger King. In comparison, trendy businesses usually have a new range of products or services that have not had the opportunity to prove their longevity.

Study the Information Material

The information provided by the franchisor will be a good indicator as to whether a franchise will be profitable. The information should disclose how many franchises have ceased trading in your territory over the years, as well as the franchises total sales. But remember, always calculate profitability by taking labour, rent and other expenses into account.

Talk to Existing Franchisees

Make sure you spend time talking to both existing and former franchisees, as theyll be the source of the most useful information you can get. Visit as many different people as possible to find out whether their franchise was, or is, profitable and make sure that the franchisor has not just provided you with examples of one or two of the best-performing franchisees. If a franchisor is reluctant to give you access to their network of franchisees, they are probably hiding something, so its best to walk away.

View the Franchisors Audited Accounts

Before you sign on the dotted line, ask to look at the franchisors audited accounts. Any ethical franchisor will allow you to view these, and youll be able to see if the business is currently making the type of profits that have been promised to you. You can assume that if the individual franchises are highly profitable, the franchisor will be fairly wealthy, as a result of the ongoing royalties paid by their franchisees.

Check Its Not A Scam

There are plenty of scams around; many originating from work from home franchises that dont exist but promise to make you rich. If you dont research the franchise thoroughly before you commit, you run the risk of spending vast amounts of money and seeing no returns. Take the time to search the internet for complaints by entrepreneurs who have had bad experiences with the business.

Meet with The Bank

The bank that helps to fund your franchise investment may have previous experience with the franchise. Although they cannot provide specific information, they should be able to tell you whether the financial projections outlined in your business plan are higher than those of existing franchisees.

Think of the Point of Exit Profits

In some situations, the most effective way of making money from a franchise is to sell it after resale value has built up. If you want to maximise the resale value, invest in a franchise that doesnt rely on you to run its operations daily. This way, a higher resale value can be generated.

Money Isnt Everything

When asking the question, Will owning a franchise make me rich?, its worth noting that rich is a subjective term. Your definition of the word may differ wildly from your neighbours. Although its important that the franchise makes money, personal fulfilment matters too. You could be meeting financial expectations and be happy with your profit margin, but someone could be making double the amount you are and still be dissatisfied.

If you invest in a franchise business that works within your values and allows you to have fun, you will boost your overall happiness, giving you the potential to continue striving towards business growth in the future.

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