Taking into account the various factors that contribute to the success of a franchise program, we have identified eight keys to Franchisability, against which you can measure your business. The first attribute is Size and longevity.
Has your business been in operation long enough to project its future success?
It is vital that your business (or similar businesses you have run) has a history of success. Although the past cannot project the future (think horse buggy whips) it is a good indicator of the future. A track record of growing sales and profit is a great sign for a future investor.
Is it large enough to provide a level of earnings that would make it an attractive investment?
When evaluating what is a reasonable return in a franchise, begin by looking at the return on invested capital. Since starting any business is considered a relatively risky investment, you should be able to earn a very good return on your invested capital, let’s say in the neighbourhood of 15 percent. In other words, for every $100,000 of capital you invest, you should expect to make at least $15,000 per year in return on the investment. (In addition to a salary)
Will it avoid obsolesces?
Let’s use our horse buggy example cited above. The Year the Model T came off the production line the horse and buggy were in trouble. No horse and buggy, no need for whips. Although it’s impossible to predict the future, it’s easy to see the very near future. People will always need to eat- so restaurants are a safe bet, same for hotels- people are going to travel.
Can it survive an economic downturn?
As sited above, people will always have to eat. The $2 burger will do well at all times- good o bad. The $20 burger is an upscale restaurant that will do as well (people with money just don’t participate in recessions) The $7 burger will be affected by a downturn…..easily replaced by the $2 burger.
Can it survive the passing of the owner or founder?
Wendy’s has struggled since the passing of Dave Thomas- He was the trusting face of the business- When he was in commercials- the business responded. When commercials ran without him business struggled.
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