Maximising your Franchise’s Profit Potential

Seven tips for making the most money from your franchise.

Maximising your Franchise’s Profit Potential

So how can you make a lot of money as a franchisee? At the risk of sounding trite, the easiest way is to start by selecting a franchise opportunity that is capable of making a lot of money.

Actually, there are a number of things you can do to increase your chances of making good money as a franchisee.

Though picking the right opportunity where others are making a lot of money is a good start, it’s no guarantee you’ll do the same.

The tips for franchisees for making as much money as possible include:

1. Starting with the right definition

This goal begs the question, “What is a lot of money?” Many people think of this answer first in absolute terms such as making a fixed amount like R400 000 per year.

I think it’s wiser to define ‘a lot of money’ in terms of return on investment. If you can invest R20 000 and get a return of R100 000 per year, I’d contend you’re making a lot of money on that investment by any reasonable standard of measure.

2. Starting with the right opportunity

It’s essential to select an opportunity that matches up well with you, in which you are willing and capable of performing the primary role of the franchisee.

As just one example, I know of a franchise that cleans public restrooms. This can be an intensely profitable business with a great return on investment, but many people simply wouldn’t want to be involved in such a business.

Their reluctance would probably mean they wouldn’t make a lot of money, because they couldn’t project the excitement and enthusiasm necessary to sell a prospective customer on the value of a sparkling urinal.

3. Keeping the investment size reasonable

A host of franchises can produce a great return on investment. Make sure you focus on ones where the per-unit investment is reasonable, given your net worth and the liquid capital you have available to invest.

Remember what your mom told you about not putting all your eggs in one basket.

4. Reinvesting to achieve your absolute goal

If you find an opportunity that fits well for you and has a great return on investment, and you’ve got your first unit up and making a lot of money, you can reach your absolute number goal by acquiring additional units. This can either be done through further out-of-pocket investment or through the reinvestment of the profits you’re making into growing the business.

I have a good friend who owns more than 40 haircutting franchises. The return on investment in each unit is great, but the absolute rands in any one unit don’t meet his overall total income goal. He found that by adding additional units over time through the reinvestment of profits, he could realise a total income far in excess of what his absolute goals were when he started the business.

In the example mentioned in the first point, if you want to make R400 000 per year, make four of the R20 000 investments and you’re there.

5. Following the system

The biggest reason to get a franchise, rather than start an independent business, is to acquire the rights to use a proven system to achieve predictable results. A good franchise company has developed its systems through extensive trial and error and should be able to tell a new franchisee exactly what to do to make a lot of money.

All you should have to do is execute the system well to achieve the success you want. If you want to make a lot of money, don’t be an innovator – just pick a great system and execute it well, and you’ll get your wish.

6. Capitalising your business properly

This is a corollary point to the one about making sure the size of the investment for each unit is reasonable for you. There are many ways to capitalise your new business, including using all cash, or using some portion of your cash combined with loans or leases, to come up with the total investment.

Most franchisees use a combination approach. When you’re evaluating how to capitalise your business, keep in mind that the service costs of loans or leases will reduce the amount of money you’ll have for other purposes. Too much leverage can be very dangerous and get in the way of making a lot of money.

7. Working with a good accountant

One of the hard lessons of life is that there can be a big difference between the money you make and the money you have. The difference is taxes, and they take many forms. One of the most important steps to making money that stays in your pocket is to use a good accountant.

The help you structure your business entity and ongoing activities in a manner that reduces the tax bite whenever possible.

In terms of your business activities, some techniques can be as simple as the timing of investments and major purchases, or the type of capital structure you use. It’s typically well worth paying some accounting fees to ensure you’re minimising the tax bite if your goal is to make a lot of money in your franchise.

Finally, keep in mind that in any successful franchise system, many people have travelled the path before you. Whether they are other franchisees or the franchisor, take advantage of their experience by asking for advice whenever you have doubts or your results aren’t what you expected, especially when you’re first starting out. They’ll be happy to help you, and you can return the favour to other new franchisees in the future.

Jeff Elgin
About the Author
Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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