Written by Guest Author: Peter Casey
Why do people buy franchises? Some do it to keep busy. Others do it to help a family member to be gainfully employed. The other 99.5% of franchise buyers do it for the money.
But how can you find out what kind of money you can make? How can you tell if your $250,000 investment is going to make you $10,000 a year or $100,000 a year? How do you know if you'll ever break even? The simple truth is, you don't. You can, however arm yourself with information and search for the small percentage of franchisors who will actually put in print some "clues" to what you'll actually earn.
About Earnings Claims
Only 20% of all franchisors will provide any type of guidance as to how much you can make if you join their franchise system. If you do find a franchise company that does make "earnings claims" in their disclosure documents, you should pay careful attention to what they have to offer. No franchise company is required to offer any type of earnings guidance, so those that do offer some hints as to how much you can make should be taken seriously.Talk to Existing Franchisee
Perhaps the best feedback you can receive regarding what a franchisor has to say on this topic is from the existing franchisees. If the franchisor is presenting information about what you can earn, than it should make sense to the existing franchisees. If it doesn't, then you should find out why there is a difference.Understanding the Formula
You should also fully understand what the formula used was to provide you with those numbers. For example, Franchise "A" might list their average gross sales for stores in certain regions of the country. If Franchise "A" sells ice cream or another potentially seasonal product and provides you with gross sales for it stores in the Southwest (and you live in the Northeast) you may want to do some more research. One approach would be to speak to existing franchisees from that system to see what their sales numbers look like.If Franchise "B" provides you with their average gross sales per store, but offers a product with low margins or has a very high cost of labor associated with making their product, then their gross sales numbers could be misleading. Now that you know this, you'll want to be sure to ask the existing franchisees about their gross sales and what percentages of those sales are going to cover their labor expenses or their cost of goods. Again, few (almost none) of the franchisors on the market today are going to give you every financial component that you'll need to gauge your earnings potential, so be sure to ask additional questions and go directly to the franchisees for help.
