Uncovering The Franchise Profit Potential

Can you know what you’ll earn before opening a franchise?


Uncovering The Franchise Profit Potential

Knowing the profit potential for your business is an essential part of planning. Here’s the low-down on how to calculate what kind of money you’ll make with your franchise concept.

While it is legal for a franchise company to disclose its earnings, it’s not mandatory. Some franchisors provide this information and others choose not to. If a franchisor is not forthcoming about their financial info, there are three key ways to find out how much money you, the potential franchisee, will make.

  1. The first and best source of information is the Disclosure Document, if you’re lucky enough to be dealing with any of the 20% to 25% of franchisors that disclose their earnings.
  2. The second source is the franchisees in the system themselves. Even if a company doesn’t provide performance information, it’ll provide a list of franchisees. Contact a healthy sample of those franchisees and ask them how their businesses are doing, what their experience has been, how strong the training was, what the performance is like. Franchisees, if approached properly, are generally comfortable sharing that information.
  3. The third reliable source is your own accountant, who’s probably in the best position to review the prospective performance of a business. He or she can give you a pretty good idea of when the break-even points will be met and what sort of gross and net revenue a franchisee might expect.

Attune yourself to recognise red flags to look for when you hear a franchisor’s earnings claims. If a franchisor delivers an oral earnings statement, as an informed prospective franchisee, you would expect to find that figure in the Disclosure Document, and you would review it and look at the limitations and the material assumptions that underlie it. If you receive an oral earnings claim and you don’t find the same figure in the Disclosure Document, that’s a huge red flag.

Franchise Zone
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Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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