Making the Most of Your Franchise Investment

Follow these tips to accelerate your ROI

 

If you are investigating a franchise purchase, chances are one of your goals is to make a lot of money. For many people, the reason they chose franchising over a job in corporate America is that the potential for earnings is so much greater – particularly for those who have languished in middle management where they face longer and longer hours without advancement.

While the exact definition of a lot of money will vary from person to person, if you define it as a return on your investment, you’ll want a good return. Since your investment includes your time as well as your money, you will expect your return to be greater than you would for a passive (money only) investment.

Here are some suggestions for making the most of your franchise investment:

Choose the right opportunity

If your first reason for becoming a franchisee is that you want to make a good income, the second reason is that you want to be happy going to work every day. So, choosing the right franchise opportunity for you is an important first step.

Keep in mind that the perfect business for you may not be exactly what you expected. For example, people who’ve never played sports may still succeed by owing a franchise that sells sports equipment because they enjoy the one-on-one interaction with customers.

On the other hand, just because you love ice cream doesn’t mean an ice cream franchise is your ideal business. You need to consider such variables as the number and type of employees to be managed, the hours you will need to work, the overall cost of the investment and so on. What constitutes your perfect business will not necessarily be because you love the product or service but because your skill set and life style goals match the franchise profile.

And that’s an added benefit: franchising allows you to reinvent yourself. If you’ve hated your career as an IT professional, you can choose a franchise in a totally different field, like children’s tutoring or smoothies. Whatever franchise you choose, be sure you it is a business you can embrace and enjoy. If your new business makes you want to jump out of bed every morning, you will have the enthusiasm necessary to make it successful.

Follow the franchisor’s system

The next tip may seem pretty obvious but it has to be mentioned. Why? Because there are two kinds of people: believers and non-believers. If you buy a franchise, you’d better fall into the former group because people who try to make changes to the franchisor’s system spend more time working on “improving” the business than they do working in it and they do not succeed!

Of the many advantages to franchising, one of the most important is that the franchisor has done so much of the work for you and provided you with a blueprint for success. Franchising is a shortcut – you can eliminate much of the trial and error period of the new endeavor and go right into building the business

If you want to make money as a franchisee, don’t mess with the system, particularly as you are getting started.

Keep the investment size low

There’s a popular myth in franchising that the more money you invest, the more you’ll earn. But it’s not what you spend; it’s the percentage you get back. If this will be your first foray into business ownership, be careful to keep your investment to a very manageable level. There’s always a period of time between when the business opens and when you make a profit. By keeping your investment to a level you can afford given your net worth, you eliminate the risk of being overextended. Statistics tell us that being under financed is the number one reason new businesses fail.

Another important consideration is how you capitalize your franchise. Most people use a combination of cash and loans. However you finance your franchise purchase, be sure you have additional funds available to cover unexpected expenses.

Reinvest your profits

Let’s say you have an income goal of $130,000. You buy a franchise and it provides you with $50,000. One way you can reach your ultimate goal is to buy additional units over time. By reinvesting your profits you can increase your number of units to three and then will easily be able to reach your income goal.

Keep in mind that in many cases, a franchise will allow you to put a manager in place so that you are not stretched between three businesses and 30 employees. You manage the managers who run the businesses for you.

Get expert help

Once you become a business owner, you will need a good accountant to help you structure the business to reduce the tax bite. The proper timing of large purchases for the business can reduce your taxes while having the right business entity can help you avoid paying double taxes. Keeping the money you’ve made becomes as important as earning it in the first place.

Other experts include the staff of your franchisor which can help you with a plethora of details, so make sure you use them. Because the franchisor makes money from royalties on your earnings, they are invested in making your business the best it can be.

Don’t forget that the other franchisees in the system can also be a wealth of information. This is one of the other advantages of franchising – a peer group who face the same challenges and help each other. Take advantage of their knowledge and then, when you are the expert, return that favor by helping the next group of new franchisees.

Before being awarded a franchise you will have to pass the franchisor’s acid test. A good franchisor will only accept franchisees that have great potential. If you combine your potential with these common-sense tips, you’ll be on your way to achieving financial success as a franchisee.

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