The Financials, namely Profitability
There are a number of factors to ask regarding profitability.
- How profitable is the franchise?
- How quickly will you as a "New Start-Up" be in profit?
- How quickly will you cover your initial investment and all your set up costs? In general terms the more sizable the investment the longer it will take you.
- What is the actual "Return On Your Investment", referred to as ROI.
Many franchisors don't provide accurate information on profitability for new franchisees. It's one thing giving details about someone that has been running a franchise for a few years, but how do the above questions relate to your first 1 to 3 years in business, which are your most critical years in business. My experience as an ex Finance Director of a franchisee and having communicated with literally hundreds of other franchisees is rarely do the forecast profits provided by the franchisor relate to actual results when you get started.
Make sure you get these questions fully answered.
How Much Working Capital Do You Require? Cash Flow Is King.
It is a fact that most businesses go out of business because they run out of cash. I.e. you could be making a profit on paper but you do not have enough cash to meet your financial commitments. It is essential that you have enough financial resources in terms of cash or funding options, not only to purchase your desired franchise and cover the set up costs etc but to cover All your ongoing expenses until you making a regular profit.
Do you have the money for your working capital available or will you need to finance this? If you need to finance your purchase will this loan be secured against your home?
A Massive Investment Is Frequently Required As Start-Up Capital.
A franchise can set you back anything from £5,000 / $10,000 to literally millions. For the most part thought you probably won't be looking for a MacDonald's or BMW Franchise, but it will still set you back a reasonable investment. In addition to the actual franchise fee itself you will need to budget for many other aspects of setting up your newly acquired franchise. This could be fixtures, fittings, furniture, signage, equipment and stock etc. Your franchise may even charge you separately for training and even legal fees.
On top of the initial investment and set up fees you will invariably have ongoing franchise fees. Virtually all franchisors will require you to making continuing monthly and or annual fees. This is often masked under different terms, such as royalty payments on sales, admin fees, advertising just to name a few.
Make sure you fully understand all your financial obligations.
As it may take several years to recoup your significant investment you should know exactly what you are in for. Make sure you do a detailed financial budget and allow for a contingency too in case you aren't in profit as quickly as you thought you would be.
Risky Business, Know Your Risk?
What risks are associated with the franchise? Is this a proven business model, will it last the test of time etc. What has been the experience of other new investors? Your massive investment may equally mean you can have a massive risk accompanied to it.
- What is your maximum financial exposure?
- Are there external factors that could affect the franchise, i.e. is it seasonal or dependant on the economy?
- Are there risks associated with holding stock or staff contracts?
- Is your home at risk as security?
Work Times?
Most traditional franchises will require long hours (maybe 12 hour days) and possibly manage several staff. What hours are you prepared to put in, are you prepared to work this like a JOB. What experience do you have of managing, supervising and training staff? These are all factors that are frequently overlooked but most vitally need consideration.
I personally love dealing with people but many people have ineffective interpersonal skills and staffing problem caused by poor communication can cause undue stress and bad health.
Summary
While buying a traditional franchise may be good for many, it often proves to be a mill stone around their neck for other. Many purchasers find they have just purchased a very expensive JOB, are heavily constrained, have zero freedom, make less money than when they were employed and work far longer hours.
On top of that they have staff to deal with and may be legally committed to the franchise for a long period without sufficient get out clauses.
Many individuals just don't realise that there are much more effective Online Franchise Business Models available which literally Coach And Mentor You To Success. The investment in such online franchises is minimal by comparison to a traditional franchise yet will provide significantly greater earning opportunities than a traditional franchise.
Such Online Franchises have numerous advantageous over traditional franchises as follows.
- Minimal Investment
- Minimal risk
- Easier to set up
- Greater success record for the average person
- Quicker Profit Generation. You can be in profit within your first month or even your first week
- Provide for a far higher Return On Your Investment - ROI
- Do not require premises, stock or staff
- Is more time efficient
- Can be run from anywhere in the world
Graeme_M_Hoppitt
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