Are Franchises a Good Investment?

So you want to start a business? If you don’t have a specific, unique concept of your own to launch, franchising may the best option for you.

What is a franchise?

Buying a franchise means you pay a fee for the right to operate your own branch of another person’s business. You’ll be able to use their branding, marketing materials, name and most importantly get their business manual; the blueprint for their success. You’ll then pay ongoing fees, often a small percentage of your turnover each month and you can sometimes choose to opt in to centralised marketing, or even customer service centres for additional fees. You’ll receive ongoing support, full business management and service delivery changes and be provided with all the knowledge and lessons learned of the Franchisor (the business selling you the franchise).

How to determine if a franchises would be a good investment?

A good investment depends on many factors. Research is key; you want to understand what’s involved in running that business, your target market and how you’ll make it successful. What’s also important in choosing a franchise is to establish whether you have the skill set to run a branch yourself, and if the business model will work within your region.

Here’s some questions to ask a potential Franchisor:

  1. Are your branches profitable? Get a feel for the finances of the Franchisor’s own branch/es to establish what sort of profit and personal income you’ll expect if you also make it a success.
  2. Will this business model work in my region? For example if their current branches are operating in cities and you plan to open in a rural area, will this work?
  3. What do you get included in the franchise fee? All reputable franchises will come with a full operations manual including all the materials and paperwork you’ll need to operate your branch. You’re looking for a ‘business-in-a-box’!
  4. What ongoing support will I receive? Will there be easy access to the business owner and/or their team to ask questions, receive business advice and discuss ideas.
  5. Do franchisees need to be hands on or can a business manager invest? This question will help you decide whether you need to be ‘doing the doing’ within the business, or if you can hire creatives to carry out the service delivery whilst you focus on marketing, financial management and business growth. The preferable option will definitely depend on your own passions and what you enjoy doing, after all you’re most likely to remain motivated and work hard at something you love.
  6. Ask about their technology and systems. This is the very reason you should pay for a franchise rather than starting out on your own from scratch. You want to buy into a strong business model with leading technology, tried and tested systems and processes to ensure the business is efficient and well managed.
  7. What are the set up costs? Discuss with the Franchisor how long it will take to set up your branch, and what additional investment (above the franchise fee) will be required to purchase furnishings, print marketing materials, uniform and any other requirements. If you need premises ask the square footage needed and type of lease to determine the costs of finding and signing up for your own venue. You can then factor this into your breakeven point so you get an understanding of how long it will take to pay back your investment and begin to profit.

If the Franchisor is able to confidently answer all of the above, and provide evidence this is a great start. Don’t expect all the inside knowledge up front, but they should provide you with an overview so you understand exactly what you’re buying into.

Will I make lots of money then?

What’s important to remember is a franchise is an opportunity to make a business as successful as your Franchisor has. You’ll be provided with all the tools and systems needed, including receiving training and ongoing support but the hard work will be down to you.

You will need to consider the ongoing costs of running the franchise against the projected turnover. How much will you spend each month on rent, rates, taxes, salaries, insurance etc? A good investment will mean you not only break even (within a sustainable period of time) but profit too, so you can enjoy the financial benefits of your hard work, and reinvest in the business as needed. You can use a break even calculator for this (Lynsey has created one for her Business Academy and you can find it at http://www.diabloandlekeux.com).

If you’d like to find out more about our Le Keux mobile and premises franchise packages email lynsey@lekeuxevents.co.uk.

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