Purchasing a franchise is a certain way to establish a business without the hassles of a start-up. There isn’t nearly as much fumbling and failing as there is in the early days of a small business. As wonderful as that sounds, a franchise’s success is dependent on judgment. That is why a thorough examination of a franchise opportunity is required prior to making a decision. Although there is no magic formula for determining the profitability of a franchise company in all sectors, there are several approaches to make a more accurate judgment of a venture’s profitability. Let’s have a look at how we can do it.
To acquire definitive answers, look at the following areas of the franchisor:
1. Per-unit Sales
Before deciding on a franchise, check at the average sales figures of the top franchises. The typical turnover of the company is reflected in the sales figure per unit. If the company is profitable, a franchisee will most likely be able to support themselves by operating a unit for it. However, because corporations do not reveal such information to the public, learning the average sales figure for each unit may be challenging. A franchise magazine, once again, can throw some light on the subject.
Begin by looking at the unit’s growth graph. Is it performing well lately, or has it always performed well? Find out how many units the company has opened in the last several years to get a precise answer. Magazines that publish this type of information also provide other important elements that influence decision-making. So get a copy of a business franchise magazine and fill in as much information as you can. Focus on the growth rate over the last ten years, and the reports will tell you whether or not the prospect is worthwhile.
3. Ongoing Assistance
In franchise operations, the level of organizational assistance provided by a corporation is a critical aspect. Being a part of a company that requires its franchisees to train their own personnel and live on their own presents a far greater difficulty. Top companies provide extensive marketing, advertising, training, recruitment, acquisition, litigation, and other services to their franchisee divisions. So, before you join up as a franchisee, be sure you’re eligible for at least some of these.
4. New Franchise Success Rates
What’s the status of the new franchises? This is crucial in predicting how your company will function in the current environment. So, when you buy a franchise, make sure you have an idea of the success rates of new franchises that have launched in the last three years.
5. Franchisee feedback
While you’re at it, take a short look at the reviews that other franchisees have left about this particular franchisor. You want to hear directly from the horse’s mouth how satisfied or dissatisfied they are with the company.