How to Determine the Profitability of a Franchise Opportunity
Buying a franchise is certainly a shortcut to starting a business without the headaches of a new business. There are far fewer blunders and failures that often mark the early days of a freelance business. As glorious as it sounds, the success of a franchise business is based on good judgment. This is exactly why a thorough investigation of a franchise opportunity is necessary at the time of selection. Although there is no magic formula for the best evaluation of a franchise business in all sectors, there are some ways in which a more accurate determination of the profitability of a business can be made. Let’s find out how.
Explore the following 5 key franchisor areas for definitive answers:
Unit Growth
Start by looking at the unit growth chart. Has it been doing well lately or has the overall growth always been good? To find an accurate answer to that, find out how many units the business has opened in the past few years. Journals that publish such information also include other significant details that leverage decision making. So grab a copy of a business franchise magazine and gather as much detail as possible. Focus on the growth rate over the last 10 years and the reports will tell you if the opportunity is worth considering.
Unit Sales
You want to see the average sales figures for the top franchises in Australia before choosing one. The unit sales figure reflects the company’s average turnover. If the business is making ample profits, a franchisee is likely to make theirs by running a unit for it. However, you may find it hard to know the average sales figure for each unit because companies don’t disclose those kinds of details to the public. Once again, a franchise magazine can shed some light on this.
New Franchise Success Rates
How are the new franchises going? That is critical to estimating how your business will perform in the current scenario. So before you buy a franchise, make sure you have the ballpark figures for the success rates of new franchises that have opened in the last 3 years.
Continuous support
The level of organizational support a business provides is a key factor in franchise operations. It is much more of a challenge to be part of a business that has its franchisees train their own employees and survive on their own. Major companies offer extensive support to their franchise units in areas related to marketing, advertising, training, recruiting, acquisition, litigation and more. So make sure you are entitled to at least some of these when you sign up as a franchisee.
Franchisee Reviews
While you’re at it, stop by to quickly review reviews posted by other franchisees about this particular franchisor. You want to hear from the horse’s mouth how happy or unhappy it is with the business.