Are the franchises profitable?
Due to the “boom” that are having the franchise, you must ask, are the franchises profitable?. ” The reality is that the franchises have managed to see an opportunity in the lack of bank financing through low cost franchises Franchises increasingly require less initial investment, which increases the possibilities of undertaking and limited risks to take.
The myth of the franchises: gives benefits from the first day
Think about that from the first day that we open the doors of our franchise will give us benefits is a mistake. Success takes to reach, not as much as when we opened a new, starting from zero business, but it takes about a year on average. In a normal business started from scratch, the benefits began to observe them last an average of three years.
The owners of the franchise, not the owners of the franchised company, are responsible for the company’s profits. I.e., are those who, acting under the guidelines of the franchisor, should drive to grow the business and starts to become a successful business.
We renounce the independence
As we mentioned before, you are going to cost less time to succeed with a franchise than with our own individual business. But, to have that support from the franquicador, security, training and the power of the brand of the franchise’s marketing, we are renouncing our independence, our freedom of decision-making in managerial and entrepreneurial levels, i.e., before taking We must consult decisions with the franchisor.
Indicators to take into account
To assess the profitability of a franchise should study and draw the necessary conclusions from these indicators:
Historical information about other similar businesses or franchise units,
analysis of the market and competition,
consumption habits in the area in which you want to open the franchise (a square, a street, a shopping center, etc.).
size of the target market,
participation that you want to achieve.
These indicators will be estimates of what might be our business. If the results derived in that business is feasible and we decided to open the franchise we continue with the same track to see if they really meet or exceed economic expectations of the business. If the indicators evolve upward and our business does not grow, it is because we are not doing well or because it does not conform to the information obtained.
If the indicators evolve with low and our business on the rise, we have positioned better than them and in the medium term our success would be assured.
ROI (return on investment)
It is one of the most important financial indicators. Allows to estimate, considering the value of the investment at the time of their disbursement, the time that takes to retrieve it, is usually expressed in months.
The formula is simple and its calculation can be done in several ways. One of the best known is considered positive flows of operation (difference between income and expenses). It is calculated until the accumulated value is equal to the initial investment, the result is in time. At that time obtained from the operation, it is necessary to recover the investment. From there flows positive difference will be the basis for calculating the real utility of the investment.
The drawback of this indicator is has no account the increases in the value of money over time.
Flow of business
It does not reflect the profitability of the investment, but it must be in mind when starting the business and more even if we invested all our savings in purchasing the franchise and we think live it in a certain period.
We must bear in mind that part of our profits go destined to the franchisor, we will pay you monthly fee for the license to exploit your business.
Seasonal nature of business
Types of business, which by the nature of the products or services offered, have seasonal character. I.e., revenues are produced at a certain time of the year. If our business, we will have to adjust estimates to the FactFinder period.
VAN (net present value) and TIR (internal rate of return)
The VAN serves to determine the value of the future cash flows arising from the investment, applying a discount rate, which is the minimum we should expect by our investment.
The IRR also tends to be an important indicator for assessing the investment to determine the expected performance and decide whether or not the investment.