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How Much Money Can I Make As A Franchise Owner?

Guest post by: John Henning

Article Overview: Is there a way to determine what you can make in a particular franchise opportunity? When investigating a franchise opportunity one of the most difficult pieces of information to get from the franchisor is how much money you might make. This may be frustrating because you are not going to invest in a business until you have a good idea of what you can earn. In most cases the franchisor is not being purposely difficult. The Federal Trade Commission (F.T.C.) and many states have stringent regulations as to how franchisors can provide this information to prospective franchisees. However, there are ways to get this essential information.

How Much Money Can I Make As A Franchise Owner?

Is there a way to determine what you can make in a particular franchise opportunity? When investigating a franchise opportunity one of the most difficult pieces of information to get from the franchisor is how much money you might make. This may be frustrating because you are not going to invest in a business until you have a good idea of what you can earn. In most cases the franchisor is not being purposely difficult. The Federal Trade Commission (F.T.C.) and many states have stringent regulations as to how franchisors can provide this information to prospective franchisees. However, there are ways to get this essential information.

Why is the government regulating franchisors?

Early in U.S. franchising history there were many instances of abuse, particularly where unjustified or misleading earnings claims were used to sell franchises. In 1979 Congress passed legislation authorizing the F.T.C. to regulate the franchise industry to try to stop any such bad practices. A number of states also passed similar legislation. The current F.T.C. and state rules do not forbid a franchise company from supplying information about the earnings that can be achieved in their business. They do, however, regulate how this information can be given to a prospective franchisee.

A franchise that wants to provide earnings claims must put it in writing in their FDD (Franchise Disclosure Document). Also, it is essential for the franchisor to make sure that the data provided is accurate and not misleading and they need to clearly label any assumptions or qualifications on the data provided.

Assuming they meet the legal requirements, a franchisor is free to provide whatever earnings information they want to a perspective franchisee in terms of sales, expenses, cash flow and income.

Why don't all franchisors provide this information?

It sounds relatively simple but there are still many franchisors that don't provide earnings claims. There are two likely reasons: First, producing an earnings claim does involve effort and expense for the franchisor. Second, the results may not be attractive enough to assist in the recruiting of new franchisees.

Where else can you find this information?

If a franchise does not provide an earnings claim in their FDD, the best source of information to find out how much money you might make is the existing franchisees of the system. Call them and ask. Item 20 of the FDD provides a list of current and former franchisees along with their contact information. You will be talking to many franchisees anyway as part of your due diligence so make sure you also cover the subject of the averages and ranges for earnings in the system. By gathering actual performance statistics, you will have a realistic starting point in determining how much you can expect to make in a similar business.

What's a reasonable level of earnings for a franchise business?

Once you have earnings data, your next question will be whether the probable earnings represent a good return on your investment.

Remember that when you invest in a franchise, you are investing both your time/talent and your money. Therefore, you should reasonably expect a greater return than you would for a passive investment of money only.

If a good return for a passive investment is 10% to 15% per year, you will want to see a greater return in a franchise opportunity. After all, the time you put into your new business should yield you a return at least equal to the return on the money you invest, maybe not the first year but certainly down the road.

A second important point to consider is that a higher franchise investment does not necessarily mean a higher rate of return. While this seems contrary to common knowledge, there are plenty of low to mid-range investment franchises that provide great return on investments. Don't limit yourself only to high-investment franchises when seeking that business with a high ROI.

How much money you will make as a franchisee depends on many factors - from the structure of the franchise (e.g. retail versus service), to how long your franchise has been operational, to how well you understand and embrace the system, to your enthusiasm for the business and how it will help you realize your dream. But, with a little research, you can get enough information to decide if a franchise opportunity makes financial sense for you.

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Article Tags: franchise profit, how much money can I make



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Job titles - [quote:3shpwvxj]In fact, I've had friends tell me that "Founder" is better than "Owner" since it's less possessive.[/quote:3shpwvxj] For myself, I don't care for the term "Founder" [i:3shpwvxj]because [/i:3shpwvxj]it's not possessive. You can be the founder of a company and have sold it - so it no longer belongs to you. However, if you call yourself "Owner" - people know the company is still in your hands. But I don't like Owner, either. I'd prefer President or Director, because one can be an absentee owner, whereas if one is a President or Director, people assume you're involved in the day to day activities. Manager, on the other hand, wouldn't work if its your business, because (to me, anyway) that implies that you "manage" for someone else - like at a restaurant.
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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