Finding profitable franchises is an essential part of the research process. Learn how to determine if a franchise is profitable and calculate your potential franchise ROI.
Ingredients for a Profitable Franchise
Owning any business comes with risks, but owning a franchise comes with some key advantages over starting your own business. You’ll want to investigate the brands you’re interested in buying so you can learn about what makes for profitable franchises. There are certain ingredients money-making franchises have in their recipe and you’ll want to make sure they’re included:
- Brand recognition is a distinct advantage of franchise ownership and a key component in a franchise’s success. Consumers are already aware of the brand and what they offer, comfortable with the brand’s reputation, and have established customer loyalty.
- A business blueprint has been established, tried, and tested. Franchisees benefit from the systems and tools offered by the brand.
- Another clear advantage of owning a franchise is the training and support that sets franchisees up for running a profitable business. Current franchisees are a bonus outlet of support if you become part of a franchise system.
- Location is a major part of a franchise’s success. Many franchisors offer help with site selection to ensure the right access, visibility, and demographics are present so a store or restaurant can earn high revenues.
Review the Brand’s Franchise Disclosure Document
A Franchise Disclosure Document (or FDD) is information a franchisor gives to all potential franchisees. The document describes the franchise system, the roles the franchisor and franchisee play, the business model, as well as the agreements a franchisee will sign should the parties decide to move forward.
An important indicator of whether a franchise is healthy is Item 19 in the FDD which outlines the brand’s financial performance. Here are a few items to pay attention to when researching a company’s financial strength:
- The balance sheet reflects how much a brand is worth and includes assets and liabilities. Look for increasing assets and more cash than debt.
- The income statement reports profit and loss. Income statements, sometimes called ‘the bottom line’, should optimally show increasing profits.
- Gross sales reflect the amount of revenue coming in prior to taxes and expenses. Franchisors use gross sales numbers to calculate royalties the franchisees pay to the franchisor.
- Profit is the difference between the amount earned and the amount spent. It’s what’s left over after expenses.
- Growth rate tells you if a business is expanding or contracting.
- Ticket average shows what customers spend on average at the business. The breakfast, lunch, and brunch franchise Toasted Yolk Café has an average ticket of $16, which is reflective of a middle and upper middle class customer base with money to spend on dining out.
Calculating Return on Investment
You’ve done your homework and are keen on a franchise to buy. You can calculate your return on investment (ROI), a measure of the profits you might make. Here’s how: Subtract your initial investment amount from its final value. Divide this number by the cost of the investment. Then multiply by 100. This formula should give you an idea of the potential you have to make money with a franchise.
Make sure you also meet the financial requirements of the franchisor. Talk with current franchisees about their experience as part of the franchise family. Research will guide you toward the best investment opportunity for your goals.
Toasted Yolk Café: An Investment Served Sunnyside Up
Toasted Yolk Cafe works in a variety of ways to help franchisees maximize profit potential. The brand is a proven success in the South Texas market, and with knowledge built since 2010, we’re ready to grow into new territories.
We have a commitment to quality food and operations, and support for franchisees. A one shift operation with hours between 7:00 a.m. and 3:00 p.m. create work/life balance and attract top talent to our franchise. Multiple revenue streams from catering, to-go, delivery, online ordering, and private events increase opportunities to earn revenues.
Learn more about the strength of the Toasted Yolk Café. Request Information today.