Financial Franchise Expectations
If you’ve selected the right franchise, done your due diligence and really researched the intended business, then you probably have a clear idea of what your return on investment (ROI) will be and how long it will take you to get there. Most successful franchise owners agree that it’s the first three years that make or break the financial success of your franchise.
But even with the best plans and the right support from corporate, there are certain things you, as the owner, can do to ensure your financial success. Most importantly, following corporate recommendations on how and when to run promotions, as well as how to compensate employees (and yourself) will undoubtedly lead to greater financial gain.
Cash Flow – What it is and what it isn’t
Remember that cash flow doesn’t always equal profit. Use any and all money that’s coming into the franchise to pay the running and ongoing expenses of owning a business. This includes all of your employee salaries, any supply related bills, and both a principle and interest payment on the loan you took to open the business in the first place. Ideally, you should be paying yourself last because it’s only after you’ve taken care of all your financial responsibilities that you can really see how much you have left over.
Think really carefully about how much to pay yourself, especially in the first few years. It might be tempting to write a big check each month you see profits. After all, you’ve worked really hard for the financial success you’re currently enjoying. However, it’s probably a better idea to be cautious and pay yourself just what you need. It’s always easier to rely on liquid capital than it is to have to borrow from a lender. Even more importantly, if you’re stalwart with your financial recompense toward yourself, you can always reward yourself at the end of a quarter, bi-annually, or annually. In this way, you’re not only mimicking the experiences you might get if you weren’t in business for yourself, but the financial compensation is always a great morale boost.
A reasonable ROI is going to vary based on the franchise industry, the length of time the franchisor has been in business, and your own unique approach to owning a franchise. It’s difficult to determine a blanket ROI for each franchise since they’re all different. A franchise isn’t considered a passive investment, since it’s your work and time that go into making it make money. Undoubtedly, one of the most significant benefits of owning a franchise is the initial loss-revenue isn’t as stark is it would be if you opened a business from scratch.
The curve of initial growth is usually really difficult to manage in the beginning, but thankfully for you, you have a corporate franchisor who has already experienced those growing pains. A successful franchisor is able to show a potential franchisee these sorts of numbers and should be able to discuss in depth the ROI for each market you’re considering. So, before you’re ready to sign the agreement and get your keys, make sure you know how much work it’s going to take to get paid, and more importantly, what that salary will be to start.