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Posted:07-October-2015

Do you know how much money you can make from a franchise?

In this exclusive article, Kasia Baldwin from Driver Hire shares her expertise on franchising and, specifically, how much you should expect to make from one. Before we even look at answering this question there are a few questions you need to ask yourself.

- How much money do you want to make? Be realistic here...

- Why do you even want to run your own business?

- Why are you considering a franchise as opposed to setting up a business on your own?

- What is your end goal or main objective?

- What role do you want to play in your business?

- How much time can you dedicate to the business?

There’s a lot to think about, but by putting yourself on the examination table you’re better placed to carry out effective research and make the right choices for your future. According to the latest bfa / NatWest franchise industry survey there are around 930 different franchise brands to choose from in the UK.

These will generally fall into one of the following business-format franchise types:

- Job franchise – where you deliver the service/product yourself.

- Executive franchise – where you carry out a professional service, usually as a consultant.

- Management franchise – usually a B2B business where you manage trained staff to carry out the service.

- Investment franchise – these businesses require a large initial investment and can include businesses such gyms, restaurants and even hotels.

Taking a look at the different franchises available listed on whichfranchise.com will give you snapshot of what is out there. The investment level for each will vary dependent on the business model type. Initial outlay quotes may include (besides your preliminary franchise fee) premises and other set up or investment costs.

With any investment (and this includes buying a franchise) you should be looking for ‘value for money’. You can’t presume that a high level investment will return high profits and vice versa. How much money you make is likely to depend on how efficiently YOU run YOUR business. A franchise is not a short-cut to earning lots of money – you will still need to work hard in order to succeed and usually ‘the more YOU put in the more YOU get out’.

I’ve emphasised the ‘you’ above because in many ways it’s up to you how much you want to make from your franchise. It’s important that you carry out enough research and choose a franchise that has already proven with other franchisees that it can return your desired level of earnings potential.

No franchisor can truly guarantee you a minimum turnover or profit return, only a guideline of what is achievable by looking at their current and historic data. You are the unknown aspect, along with a number of external factors that you won’t be able to control or necessarily plan for; political, economic, social, technological, legal and environmental.

Pip Wilkins, head of operations for the bfa, said:

It’s so important when you’re looking at the potential profitability of a franchise to check what the forecasts are based on. Every good franchisor can show you proof of how they have arrived at their figures for prospective franchisees – they are based on what has been achieved either by a company-owned outlet or existing franchisees.

“A resale franchise has a history of accounts which you should examine as part of your due diligence into the business, so you can see exactly how it has been performing.

“Franchising is about proven models, and the earnings potential is a big part of that. Make sure you ask what the forecasts are based on, and be satisfied with the answer.”

So why a franchise?

Buying a franchise is easier than setting up your own business from scratch but if you’re buying a start-up franchise opportunity you will still need to work incredibly hard to build your client base. Your franchisor will however have provided you with the solid foundations by providing a proven business model, operational systems and training, as a minimum. Plus the ongoing support of your franchisor, should it ever feel like things aren’t going to plan, can be invaluable.

When you buy a resale opportunity – an already up and running franchise – you should be buying a business that is already generating revenue, so the amount of money you can expect to make from this particular franchise should be transparent from the start. Your research, discussions with the franchisor and current franchisees, and assessment of the territory, should indicate the franchise’s future potential and how you can further grow the business.

There’s a greater level of support when buying a franchise versus setting up your own business from scratch and therefore less risk.
“92% of franchised businesses are at least ‘marginally profitable’, with 49% saying they are either quite profitable or very profitable.” (bfa / NatWest Franchise Survey)

Many high street banks also have a dedicated franchise unit set up to look at helping you when it comes to buying your franchise. Start-up (or greenfield) – A start-up or greenfield location is one in which the franchisor has no existing involvement in that space (i.e. does not already have an outlet in place). It requires the business to be started from scratch, which can involve more start-up expenses and take time to get going, but offers great growth potential and strategic opportunities.

Resale – Once a franchisee has the business up and running, they can choose to sell it on – this is known as a resale. Whereas buying a licence for a franchise involves setting everything up and becoming established, an individual that purchases a resale has had much of the work done for them, so the upfront purchase price tends to be higher. Bear in mind that this kind of transaction is generally between the current and incoming franchisee, not the franchisor.

Research, plan, implement, tweak and repeat...

To work out how much money you can make from your franchise you will need to write up a business plan and financial plan. You will carry out your own research for this and your franchisor should be able to provide some support, guidance and figures, to get you started.

Your business plan is not just a tool to show a potential funder how you plan to pay them back, but the blueprint of your franchised business. It should therefore be referred to regularly once you’re up and running to ensure you’re on track. Your business plan can also work as a timetable for business growth, taking into account the cycle of sales peaks and troughs your chosen industry may naturally follow, in order to maximise the peaks.

Show me the money

Asking how much money you make from a franchise is similar to asking how long is a piece of string. According to the latest bfa / NatWest franchise survey the average turnover for a franchised business unit in the UK is £356,000 per annum.
An example of what you can achieve with a Driver Hire franchise:

In 2014/15 the average turnover for a Driver Hire franchised office that had operated for a full 12 months was £1,001,442 and two had a turnover over £3 million. That’s almost three times the industry average. Provided that your fixed costs (staff, premises, and finance and general office overheads) are controlled effectively, then a net profit of between 11% and 14% of your turnover is achievable with a Driver Hire franchise.

So whilst turnover at a Driver Hire franchise is well above the average there will be a number of franchises that operate at lower levels. You have to decide what level of turnover, profit and lifestyle will suit you.

How do I believe all the franchisor marketing on how much I can make?

If a franchisor is advertising huge potential profit or turnover levels you need to check how these can be achieved. This is all part of your due diligence process. Most people nowadays when looking to buy a consumable item will trawl the internet for comparisons, reviews and testimonials. It’s the same when buying a franchise. Search the internet, read franchise magazines, visit franchise exhibitions and most importantly speak to existing franchisees. A good franchisor will provide you with a full list of their current franchisees so that you can decide who to speak to.

By carrying out your own research you may find out the only way to achieve the advertised figures is by eventually buying multiple franchise units, whether that’s fixed or mobile retail outlets or, by building a huge team to deliver the service or pull in the sales. Either way you’re finding out when and how growth is achievable. It may be that the franchisor also offers additional revenue streams separate to the core business.

Over time, it is likely that in order to grow your franchise you will need to employ a team with key members of staff you can trust and delegate to. This will enable you to move away from the day-to-day running of the business, and spend time strategically managing and planning for the future. If you want to remain the only person delivering the service then you have to be prepared to accept you will be creating a ceiling to the amount you can earn. There are only 24 hours in a day.

The choice is yours. With a franchise you are running your own business but you’re not on own. In order to maximise your chances of success you need to listen to your franchisor, follow the system, provide feedback and make the most of the training and support they offer.

For more information on the exciting franchise business opportunity with Driver Hire: click here.

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