How Can Franchisees Make Money: Avoid Investing In Overheated Areas

After careful study, you are ready to buy a license. Management Right, you weigh the pros and cons and choose a business that produces interesting products. You even know what to wear to work and how many hours you work every day. But no matter how much preparation you make, you should first get to know the question: will your business make money? No matter how brilliant a franchise company is, it will not guarantee your success. But if you consider the following points before signing a contract, you will be more likely to succeed.

　 Know yourself

Choose a business you can do - it should match your skills and interests as much as possible. Know your strengths and weaknesses, visit the distributors and distributors you want to join, see if they are similar to you, are more diligent or lazy than you, volunteered to work in franchised stores for a few days, and then you will know if there is enough passion to join them. Houston, a lawyer who specializes in franchise cases, said: "if you just like soup, buy a bowl of soup" Richard, Solomon. You don't need to buy a franchise just because you like soup. "

　 Avoid overheating

Is the area you choose to be hot or overheated? In a bubble full of collapses at any time. industry You can't make money in it. At the same time, we should avoid investing too much unique products or services, which will lead to many plagiarism. Timothy Howes, head of Spyglass Strategies, a Dartmouth franchise consultancy, said: "past hot businesses, including auctions. website Can we find traces of the ink store and ink store? "

　　 Watch sales

Franchises that have many shops for sale may have problems. Go to the websites that list the franchised stores that are for sale (for example, Sunbelt, etc.) to see if the existing dealers are selling their gym, clothing store or sandwich shop at the price of Chinese cabbage.

　 Use fraud filter

In the Google Search Toolbar, enter the name of the franchise that you are interested in, and add "scam" behind it, so that you can track down the complaint website. You may see that the former and current dealers of the store complain about the franchise company. If only one or two general complaints do not worry too much, there will be some dissatisfaction within every franchising system. But if you find many of the same complaints, you'd better give up the franchise and continue to search for the next home.

　　 Watch out for start-up franchises

The risk of joining a brand new franchise is great. In the current economic environment, many new companies have failed before they grow. Research by FRAN-data, a franchise research and consulting firm in Arlington, Virginia, shows that 604 franchises have been established since 2006. Sue Bennett, director of FranFinders, a franchise consulting firm in Georgia, advises her clients to only join franchise companies with more than 5 years of operating records and more than 25 franchises. Of course, there are exceptions. The president of Darrell Johnson and FRAN-data said that if the new company was founded by entrepreneurs who were experienced in the field of franchising and had successfully opened up other brands, it is also worth considering.

Happiness is very important.

The New Hampshire franchise business review and the Nebraska franchise Research Institute have investigated the satisfaction of franchisee franchisees. You can find the list of the most happy franchised stores on the two companies' websites. Generally speaking, they are satisfied when making money, but money is not everything. "There are many middle areas," says Eric Stites, the chief executive of franchise business review. "Satisfaction depends on your expectations. Some people are satisfied with making 70 thousand and 5 a year. Some people earn twice as much as they are unhappy."

　 Investigation and research

Even if the above points are passed, you need further investigation. If the franchise industry is changing, such as a disc rental store, it may be in trouble. You can learn about the industry you want to join by reading business publications and trade news. In the near future, will there be a national chain fast-food restaurant, which provides cheaper food than the franchised store you are franchising? Will the medical services you intend to provide will not be covered by the social security fund in the future? Detailed due diligence is very important for your decision.

　　 Study of franchising information disclosure documents

Previously, franchised salesmen would mail hundreds of pages of franchise information disclosure documents to potential dealer addresses. Now they only need to give a link, so you can download the files to the computer. Here are some tips on how to read a document.

Lawsuit. Most franchised stores have one or two outstanding lawsuits. But if you find one case after another, such as "breach of contract" or "unfair injury", you should be lucky that you have not signed the contract with the company.

Franchise distribution shop. Calculate how many shops have been closed in the past three years. Although all franchised stores are affected by the recession, it is a warning if more than 5% shops are closed in a year. If you disclose very little information and print this part, you will need it in the future.

Financial situation, and print it out. Under normal circumstances, industry standards encourage franchised stores to disclose the profits of existing dealers, but only about 35% of franchised stores disclose this information. On the one hand, new franchise stores have no historical data; on the other hand, some shops with history shops are reluctant to disclose the data. Franchising consultants speculate that profits are not as impressive as their publicity materials.

For newly established franchised stores, most of the disclosure documents disclosed only a certain period of time (such as 1 or 3 years) in total sales, rather than net profit. Even if sales seem to be considerable, profits may be low after you cut labor costs, rents and procurement costs. In addition, you must know that royalties and advertising fees are calculated based on sales volume, regardless of whether dealers are profitable or not.

Pay attention to the median or average of the disclosure of each item. "Especially for a smaller franchise company, a few high performance shops will increase the average." Stites said.

A good disclosure document will fully disclose the average annual sales volume of dealers, and then deduct the average cost, such as selling costs, labor costs, rents, other facilities and equipment costs and general management expenses, and get profits from EBITDA (before interest, taxes, depreciation and amortization). The rest is the dealer gross profit. In addition, the financial status of each dealer can be calculated according to the performance of the distributor.

If gross profit looks good, does that mean that if you open the same store in your community, you will earn as much money as possible? But you or your accountant must look at other figures.

Financial statements give a rough estimate of sales. By dividing the total royalty of franchise stores by total sales and dividing the number of distributors in the whole year, you can probably know the sales volume of each distributor. Or you can directly ask the current dealer's sales situation.

　　 Know more about people

It would be wise to visit or call distributors who have joined. Of course, you can't ask other people's income at first, but if you have studied the disclosure documents, you can say: "a franchised store with a history of three years should have such sales volume. Is your experience the same? Is your cost higher or lower than the estimate in the document? "

Jeff Johnson, chief executive officer of Franchise Research Institute, suggests that each time you talk to each other, you should show the person at the very beginning that the information you will provide for them is confidential. "If dealers worry that you will pass them on to franchising companies, they will never tell you the problem." He said.

Jim and Vera Duchak opened a Right at Home franchise in Pennsylvania. Before they opened the shop, they called 14 dealers. "We first studied two different franchised stores for elderly care," Jim Duchak said. "Finally, Right at Home was chosen because it is a more mature company. We asked accountants and lawyers to examine the disclosure documents. They agreed that the documents were very detailed.

Duchaks couples grouped dealers according to their operating history. "We talked to them," Jim said. "Every time before the end of the call, I would ask them if they were satisfied with their financial situation and whether they thought it was a good decision to join. When we understand that all dealers over three years of history think they are fair in price and good in service quality, we finally decide to join. " The couple opened their stores in September 2010 and is now operating as well as other distributors.

In short, no one knows if your franchisee can make money. But if you choose a suitable one, avoid those with obvious warning characteristics, and conduct comprehensive research, which will help you increase your chances of success.