8 Tips for buying a franchise for profit…

Franchising is a great business system, one where you combine a great system for running a business and producing a profit, with great people who have an equity interest and thus will do a much better job.  That said, it doesn’t mean every company on the planet is able to be franchised, or franchised well.

So, here are the top eight things to consider if you’re thinking of building or buying a great franchise …
1.    How many other same type franchises are out there?

Chances are if there is a lot of competition, two things are present, the best ‘sites’ are taken and when you are looking to sell a franchise they will compare you with every similar company.

2.    How many people want to buy a business in the areas you are trading?

Let’s say you want to set up a franchise in Victoria, how many people week in, week out, are actually buying a business. In fact, you should find out how many franchises each and every competitor sold last year to give you an idea of what your sales will be.

3.    How many customers a day does the business need?

When you’re buying a franchise, you’ve got to do some basic math on how many customers the business will need per day, or even per hour to break even and then to make a reasonable profit. Most companies I look at need far more customers per day, every single day, than is reasonable given the market or site they are going into.

4.    Check the demographic growth?

When you know who your ideal customer is, check into whether that group is growing or diminishing in the area you want to put the business. If you want to build a business you need to know the customer base is growing with you.

5.    How many competitors for the franchisee?

The hard work begins when you have to get your franchisee profitable. And, if you’re the franchisee, you need to seriously examine the market size and the number of competitors you face. More competitors will often lead to reduced prices, margins and therefore lower success.

6.     What is the profit margin?

One of the keys to a successful franchise is the profit margin. Given the franchisee pays a royalty, there needs to be a serious profit margin built into the business model to pay for this. The buying power of the group usually covers far more than the royalty fees.

7.    Do you build long-term customers?

Almost every successful business is created whereby customers don’t just buy from you once, they are with you for a serious period of time. If you buy into a business that only has one product, and a customer buys from you once and then you never see them again, you are generally going to find profitability lacking.

8.    And finally, will I enjoy the day to day?

Buying a business is seriously about a change in lifestyle. If you enjoy something you will read about it, study it and become really good at it. If it’s something you think of as hard work, you’re doing it for the money, and you don’t enjoy it, you’ll never be as successful as you could be.

Success in franchising and every business enterprise is all about the team you are with. If you are looking to join a franchise, remember that it’s the team you are joining, the leadership and the other franchisees who will help you, guide you and show you about success.