How Much Can I Make?

By: James Walker - Staff Writer for Red Hot Franchises.com

 

How Much Money Can You Make as a Franchisee?

When investigating a franchise opportunity one of the most difficult pieces of information to get from the franchisor is how much money you might make. This may be frustrating because you are not going to invest in a business until you have a good idea of what you can earn. In most cases the franchisor is not being purposely difficult. The Federal Trade Commission (F.T.C.) and many states have stringent regulations as to how franchisors can provide this information to prospective Franchisees..    

There are two reasons for the exclusion: first, there is no possible way to predict how well any one franchise can do over another, regardless of other franchise successes. A franchisee will likely take these facts to heart, pursue the opportunity, then begin to retaliate should these figures not come to fruition. Secondly, earnings claims will include financial gains and losses and people new to the business world have a difficult time understanding anything to do with “loss.” 

Therefore, by keeping the earnings claim portion out, franchisors are less likely to lose a franchisee candidate during the early stages of the franchising process. But, that doesn’t mean they won’t show you some actual income statements from existing outlets. If you’re lucky to get some samplings, it will happen later in the process, at the point where the franchisor senses your willingness to move forward.

However, there are ways to get this essential information………..

The Back Door Approach to Getting the Numbers
If getting cold hard figures doesn’t seem possible, you will have to take another approach to determining if the franchise opportunity will make you money. Listed below are some good questions to ask.

1) How long have you been in business?
2) How long did it take you to get comfortable with your franchise?
3) Has your business been growing year by year?
4) How long before your business broke even each month?
5) Are you getting the support you were promised from the franchisor?
6) Do you see yourself in this business over the next 5 to 10 years? If no, why?
7) Is your annual salary after all these years where you’d expected it to be?

What’s a reasonable level of earnings for a franchise business?
Once you have earnings data, your next question will be whether the probable earnings represent a good return on your investment.

Remember that when you invest in a franchise, you are investing both your time/talent and your money. Therefore, you should reasonably expect a greater return than you would for a passive investment of money only.

If a good return for a passive investment is 15% to 20% per year, you will want to see a greater return in a franchise opportunity. After all, the time you put into your new business should yield you a return at least equal to the return on the money you invest, maybe not the first year but certainly down the road.

A second important point to consider is that a higher franchise investment does not necessarily mean a higher rate of return. While this seems contrary to common knowledge, there are plenty of low to mid-range investment franchises that provide great return on investments. Don’t limit yourself only to high-investment franchises when seeking that business with a high ROI.

How much money you will make as a franchisee depends on many factors - from the structure of the franchise (e.g. retail versus service), to how long your franchise has been operational, to how well you understand and embrace the system, to your enthusiasm for the business and how it will help you realize your dream. But, with a little research, you can get enough information to decide if this opportunity makes financial sense for you