Franchise Brokers Association BLOG

So, you want to start your own business?  You have heard about the benefits of working with a franchise and you’re interested in researching the opportunities out there for you.  Investing in a franchise over starting an independent business offers a wealth of benefits, including valuable support, tested and proven systems, discounts on products and services and more.

What is likely to be your first questions is “How much money can I make?”  Even though you have heard great things about franchising, you need to research each concept’s specific earning potential.

A percentage of franchisors provide a financial representation (also known as an Item 19) in their Franchise Disclosure Document (FDD), industry sources report between 20 – 35%.

Through their memberships, FBA members can offer their clients one complimentary hour of accounting consultation.  This can help you to uncover the financial stability of the franchise system you are investigating.  FBA members also provide a proforma which can help you identify your break-even point.  This provides you with an outline of your targeted sales before you even open your doors. 

Preparing yourself for a franchise purchase is the best way of ensuring your success, and researching your income potential and ROI is large part of being prepared.

If you are interested in speaking with our Accounting consultant, contact an FBA member here.

Bast via Flickr

When you research buying a franchise, one of the most important parts of your due diligence process is asking the Franchisees questions.  Franchisors provide you with names of past and present Franchisees of their system as well as their contact information.

Questioning the Franchisee is about so much more than asking if they are happy with the franchise and the business.  It’s talking to the people who are working in the business, the business that you are looking to invest in, and digging into the benefits and issues that they – and you will – face every day.  It’s analyzing the system beyond the obvious and finding out if the business will fit your lifestyle and goals.

In addition to questioning the Franchisees, you can access surveys from independent third parties that will provide insight into the franchise system.  They ask all Franchisees in a system the hard questions about support, financial opportunity and the relationship with the franchise.  These findings will provide great insight into the franchise system and whether or not it is a good system for you to become a part of.

Due diligence is the most important part of your purchase process.  You want to make sure you are making the right investment for you, your family and your future.  Talking with the Franchisees and learning about their experiences are a pivotal part of the process.

Contact us to get a list of questions to ask Franchisees and to obtain information on Franchisee surveys.

Build Wealth With Businesses

How many millionaires can you think of?  Of those, how many of them have owned and built their own business to become a millionaire?  The book The Millionaire Mind by Thomas J. Stanley reports that 2/3 of all millionaires are business owners.  Why is that?  The simple answer is that businesses have two equity streams.  You earn a living with a business just like you do with a job, but you also build equity.

If you have ever looked into purchasing an existing business that is for sale, you will find that it is much more expensive than starting a business from scratch.  In fact, one of the franchises that we work with costs around $50,000 to get up and running.  By the fifth year in business the average Franchisee is grossing over $600,000 and many of them have hit the million dollar mark.  When a Franchisee goes to sell that business, they can charge between half to two times the gross sales.  That works out to be $300,000 in the worst case scenario and $1.2 million in the best case, assuming you only make $600,000 per year.  That is up to 24 times your original investment, and remember while you were working on your business and building equity, you were also taking a salary.  Show me a stock that can give you that kind of return!

There is risk in business just as there is in any other investment.  When you consider franchising with the RIGHT franchise system, your risk is dramatically reduced.  You will start with the end in mind, and think about what kind of return on your investment you want.

Franchising isn’t a magic pill, but with the right research, hard work and dedication to your system, a positive ROI on your business is absolutely within your reach!