The main criterion for many people who are looking into buying a franchise is to find a franchise that can make them tonnes of money. These people are looking for high return on investment franchises without considering that many other factors are involved when you decide on buying a franchise. In this article we want to give you some ideas about high income franchises as well as what other factors are important when you really want to materialize the level of income you want to achieve with a specific franchise.
What factors affect choosing the right franchise?
There are many factors involved in choosing and buying the right franchise. High income potential might be one of them but buying a high income potential franchise doesn’t necessarily means that you will achieve a high profit at the end of the year. The business model and the nature of costs that business has is a very important factor in your final profit margin. Although many franchisors claim a high gross income potential, but costs that directly affects operation of the business may decrease your gross profit into a much lower amount of net profit at the end of the year.
Your personality trait is another important factor when buying a franchise. Not all people are made to do the same job! For example, you may decide to buy a franchise that requires its franchisee to spend much of their time out in the field, personally initiating contact with potential customers and strategic referral partners. But if you don’t feel comfortable reaching out by phone and visiting your customers outside or at their place of business, you may probably have set yourself for failure and you cannot expect much of return on your investment with that franchise.
Another important factor is your background and past experiences. If you don’t have a previous experience in managing people, it might be hard (but achievable) for you to start the business such as a restaurant with high number of employees. In that case hiring a manger might help you to get the business up and running faster while you start to gain experience and knowledge about operating and managing a business like that. Nevertheless, not all franchisors allow you to hire manager instead of you being directly in charge of managing the business.
In a nut shell, many franchisors require their franchisees to have certain qualifications. Normally the franchisors communicate their requirements with Franchise Consultants and these people can help you match your personality and qualification with the franchise that creates more potential for success for you.
Economic condition, location of the business (if it is a retail business), franchisor’s experience and system and many other factors play important roles in final success and profit margin of your franchise business.
How do I know the income potential of a franchise?
According the Federal Trade Commission regulations, all franchisors are required to disclose certain information to their prospect franchisees in a document which is called “Franchise Disclosure Document” (or in short “FDD”). FDD contains 23 items each of which discloses various information for your consideration. Among those items is an item called “item 19” (or the so called “income claim”). If there is any disclosure about the franchise income potential, you will be able to find it under item 19 of FDD. This item is supposed to have income information such as average revenue of current franchisees in the past years But remember! Franchisors are not obligated by law to disclose any information about the revenue potential of the franchised business. So not all franchisors have income claim disclosed in their item 19. The good news is that still you can find some franchisors in your field of interest who provide such information about past revenues of their current franchisees. But be careful when reading or being told about income claim of a certain franchise. Keep in mind that providing those figures in FDD is not a guaranty for you to achieve the same amount of income if you buy a unit from the same franchisor. Also understand the difference between gross profit and net profit of the business. If the figures are presented as gross ask what other costs and expenses are associated with operating the business that affects your ultimate profit margin of the business.
If you haven’t made up your mind on a specific franchise or an industry with a generally known profit margin, ask your franchise consultant to find franchises for you that have item 19. Rest assured, in that case you will have a sense of how much potential exists in a franchise to create level of income you might be looking for per year.
High Income Potential Franchises?
There are many business models in franchise industry with different income margins. Many franchises require the owner to be 100% involved in day-to-day operation of the business while some others allow semi-absentee or passive ownership as well. When you operate your franchise business you can consider yourself an employee of the business and treat yourself as you treat other employees when it comes to paying salary. And as you are considered the owner of the business you also can collect any profit the business might have at the end of the year. But how you can figure out what franchise business has high income potential?!
In the author’s experience, most of the franchises that demands sales and marketing skills have more potential to achieve high degree of income per year. These types of franchises require you to spend much of your time out in the field and personally initiating contact with potential customers and strategic referral partners. Spending time out in the community creating awareness for your business as well as attending several networking events on a monthly basis such as the chamber of commerce, trade shows, industry organization events where potential customers and strategic referral partners network is an important part of owning such franchise businesses. Among franchises that require intensive sales and marketing skills and have high income potential are senior care franchises and some B2B franchises.
Where to start?
Ask your franchise consultant to review your profile and requirements and suggest some franchises for your consideration. If you like any of those franchises, then you will be able to get in direct contact with the franchisor and get their FDD. Review their FDD and specially their income claim. An important part of buying a franchise is franchise validation where you can talk with current and past franchisees to investigate different aspects of the franchise including materialization of the claimed income for other franchisees. All of this system has been designed to help you make an informed decision of buying or not buying a franchise without crating any obligation for you.
Please call us at (949) 228-6639 or simply fill in the application form on this page to get your free franchise consultation.
