Business Magazine

Buying a Franchise? Ask the Real Questions

Posted on the 04 March 2011 by Alanhargreaves @RechargeToday

The real questions revolve around one issue: how much money can you make?

Yes, it is nice to be your own boss; and yes, it is good to work with an established brand; and yes, there are a bunch of other things that are good about franchising.

What is not good about franchises is when they don’t make any money. Or not enough.

So, when you’ve made the decision that you really want to do this, start drilling down on the serious matter of generating profits.

Creating value is a simple function of profit margin X volume. Look at each individually.

Your profit margin is determined by your price minus your costs. Will you be in control of those costs? You will be sourcing your product from the franchisor. What is the pricing policy? Do you get a discount if you sell more? Are your restricted on how you market it?

What about the price you can charge? Is that fixed? What if it is set for low -disposable income markets and you are in an up-market mall? Are you allowed to raise your prices, and therefore your profit margin?

And what about things like rent? If you are in a retail franchise, it is the franchisor that often negotiates the lease. Their primary goal might be getting more shops open rather than securing the best deal for your outlet. Once that is set, you won’t have much control over rental reviews, tenant rights and ongoing options.

The central challenge is this

Your rent, your input prices and your franchise overheads are pretty much set. If the price at which you can sell at is also set, then so is your profit margin. If it is inflexible and tight, one side of the wealth creation equation is already out of your hands.

Your only other option to create wealth is to boost your volume.

How well can you do that? What sort of marketing support does the franchisor offer? Are you in the right location or the right market? How much do you have to spend to get another customer? Have you got it to spare?

More customers will mean more staff. Luckily wages are something you usually have some control over. But that’s also why franchises are largely staffed by teenagers. It is not easy to get great staff when your only economic source of employees is young people on low wages. A lot of them are absolute gems, but there is a lot of management time spent between hiring and generating productivity.

Do real homework to avoid disappointment

Don’t stop when you’ve answered those woolly questions about commitment and being your own boss. Get out there and kick tyres.

Don’t fall in love with one brand and ignore everything else. Instead, fall in love with finding the best franchising opportunity. Acknowledge the essential conflict there is between franchisor and franchisee. A professional operator will have a policy to manage this. Find out how it works – and if it does.

Ask business brokers what brands have a lot of franchisees who want to sell. Talk to people who own them. Even better, talk to people who have sold them. Ask them why they did. Talk to other people in similar businesses or in the same mall and market space. What do they think? Beware of hidden agendas. Offset that by talking to a wide range of sources. 

The final question you should answer is this: how easy is it to sell one of these things?

One day you will want to.



You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • Ask CCG Readers: Must I Wear Pantyhose to Work?

    Readers: Must Wear Pantyhose Work?

    OK, I think it is time that you helped me adequately address this heated question. I found some arguments on this debate from a few of my favorite blogs but I... Read more

    By  Classycareergirl
    BUSINESS, CAREER
  • 5 Questions You Need To Ask During an Interview

    Questions Need During Interview

    One of the most important things to remember when headed to an interview is to bring a list of questions with you! It is a good idea to prepare this list ahead... Read more

    By  Classycareergirl
    BUSINESS, CAREER
  • Empty-Nesters Buying Retirement Retreats Early

    Empty-Nesters Buying Retirement Retreats Early

    Today's buyer's market and low interest rates provide a great opportunity for empty nesters to buy their next nest... or multiple nests... even before they are... Read more

    By  Homesmsp
    BUSINESS, HOME, REAL ESTATE
  • Gift Buying Service

    Gift Buying Service

    Description: Often you happen to be invited to a birthday party and do not know what to buy as a gift or you may be invited at the last minute and do not get... Read more

    By  Bgdn_adrian
    BUSINESS
  • Buying Great Wedding Gowns on a Tight Budget

    It is finally your big day, and you have dreams of wearing the most beautiful wedding dress money can buy. Fantasies of having a gown like Princess Diana might... Read more

    By  Weddingblog2011
    LIFESTYLE, WEDDING
  • Beginner's Guide to Buying Art

    Beginner's Guide Buying

    Happy February everyone! With 2011 off to a good start, maybe it's time to act on (or keep up!) your annual resolutions. Perhaps this year one of your goals is... Read more

    By  Artscotland
    ART & DESIGN, CULTURE
  • Gray Day, Sunny Disposition: Buying a House Outfit

    Gray Day, Sunny Disposition: Buying House Outfit

    It's a rainy day in the river city. I'm not a big rain fan. Yesterday I biked home in the rain. It was OK, not my favorite activity. Read more

    By  Forevermelody
    CULTURE, ENTERTAINMENT, MUSIC