Are you interested in starting up a profitable franchise but aren’t sure how you will fund your new business before it gets started?
There are a few ways to determine if a franchise is worth your time.
Any time that you look into a new opportunity to open up a franchise, you should look into more than just the annual revenue you may receive.
5 Important Factors to Think About When Considering a Franchise Opportunity
There are several factors that can help you determine if you should take a chance with a franchise or not. Some of these important factors include the average sales per unit, the company’s success rate, and reviews of the most profitable franchises, as well as how good the support is from the franchisor.
Here are a few of the factors that you should look into when you consider opening up a new franchise for profits:
1. Unit Growth of the Franchise
One good way to find out how well a franchise is doing before you invest your time and money into it is to take a look at its overall growth.
Find out how many locations have been added in the recent years and how well they are doing. You should also find out how many units have been lost in recent years and why. The best way to find out these details is to visit Entreprenuer.com. There you can search for a certain franchise or choose one from a list.
Entreprenuer.com usually has a user-friendly chart that shows a franchise’s growth over the past decade. It shows the number of units that were opened each year and how many units are operating in the United States. It also shows how many units are outside of the US and how many are company-owned. This will help you find out the overall unit growth for the franchise you would like to invest in.
2. The Average Sales Per Unit
The average sales per unit is another factor that you should consider when investing in a franchise.
How much money the franchise can make is one of the main things you need to know when you are thinking about opening one of the most profitable franchises out there. That is because as a buyer, you will want to make sure that the franchise is indeed profitable, but working out these numbers all on your own can be a challenge.
Franchisors are not required to share their average sales per unit, and there are many who choose not to do this. That is because it could be considered grounds for litigation and because this type of business information is also closely guarded. But you can often find out information like this in Item 19 of your FDD or Franchise Disclosure Document. In that section of the FDD you will find a table or a chart that gives you some sales figures that you can work with.
If you are not yet at the point where you have access to an FDD, you can still find out some of the facts about the Average Sales Per unit by checking out a few online sources. FranchiseChatter.com is a blog that features profit potential from various franchises. You can get a lot of information regarding FDD details, but you will need to subscribe to the blog in order to view most of their articles.
3. The Success Rate for New Franchises
The success rate of the franchise that you have in mind is another factor that you need to know about before you make an investment.
That is also information that franchisors are not required to share. But, the percentage of new franchisees that are successful will help you to figure out if you should invest in that particular franchise or not. This information can be found in Item 20 of the FDD. There will find useful tables and charts that tell you about every unit that has failed in the franchise, as well as those that have been terminated or transferred in recent years.
These tables will combine the percentage of SBA loans which a have defaulted for each major franchise within a 10-year period. If the failure rate is at 50%, that means the franchisors who took out the loan were not able to pay it back and therefore that unit was a financial failure.
4. Reviews for the Franchisees
The reviews that existing franchisees have about a franchisor is another thing that you should think about when you are considering investing in a profitable franchise.
You can find thorough reviews as well as complaints on either the BBB and Unhappy Franchises. If possible, you can also talk to some current franchise owners to get plenty of firsthand information from them.
5. Ongoing Support
The amount of support that you receive from a franchisor is another good thing to consider when you want to invest in a franchise.
That is because it will define how much they are willing to help you achieve your goals. You need to also know how much they will be willing to help you out when times get tough. The franchisor can assist you with different areas of owning a business such as advertising, litigation, recruitment, client acquisition and ongoing marketing.
This type of information is often detailed in Item 11 of an FDD. This section will include a list of franchisor obligations such as training, marketing advertising, and more. You are only entitled to the support that is outlined in the agreement. Verbal promises are not included in the FDD. However, that doesn’t mean that the franchisor will not do any more for you than what is outlined.
Keep in mind that you need to pay attention to words and phrases such as “at our discretion” or “as required” This means that it will be left up to the franchisor when to provide you with support and their discretion may not always be beneficial to you.
If you feel like the franchisor will not provide you with the support that you will need when you are first getting started, it may be a good idea to move on to another franchise to invest in.
Low-Cost Options That Can Turn into Some of the Most Profitable Franchises
There are several low-cost franchise options that can help you make a profit, here are a few that you can buy for $25,000 or less.
Jan-Pro is a commercial cleaning service that works for businesses cleaning offices and other commercial buildings. There are two types of franchises in the company. The first is a home-based or unit franchises that represents the person responsible for doing the cleaning. The second type is a master franchise that oversees the cluster of units.
Jan-Pro is on the Entrepreneur Franchise 500 List at #37. The initial investment to start up your own franchise is between $3,985 to $51,605. The initial franchise fee is $2,520 to $44,000. The number of new units in 2016 is 375 units or 4.8 percent.
2. Stratus Building Solutions
Like Jan-Pro, Stratus Building Solutions is another commercial cleaning service that offers unit franchises and regional master offices alike.
Stratus Building Solutions is on the Entrepreneur Franchise 500 list rank at #71. The initial investment for this company is $3,450 to $64,550. The initial franchise fee is $2,700 to $53,800. The amount of new units for 2016 was 79 or 6.8 percent.
Coverall is another commercial cleaning service. They have been involved in franchising for more than 30 years and had 8,575 locations all throughout the world at the beginning of 2017. On the Entrepreneur Franchise 500 list, Coverall ranks at #73.
The initial investment is $16,498 to $51,361. The initial franchise fee is $13,500 to $40,320. Coverall did not have any new units in 2016.
4. Cruse Planners
The initial investment to start up a Cruise Planners franchise is $2,095 to $22,867. And the initial franchise fee is $495 to $10,495. New units for Cruise Planners that started up in 2016 added up to 361 or 17.4 percent.
Should You Open Up Your Own Franchise Business for Additional Profit?
There are plenty of things to think about when it comes to opening up a franchise all on your own.
You have to consider how successful the franchise is and how high the failure rate is. You also need to consider how much support you would get from the franchisor.
Consider all the factors before you decide to invest your time and money into a franchise that you are unsure about. Taking the time to learn as much as you can about the company will help you to avoid a financial disaster in the future.