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.
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.
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)
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.
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.
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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FMS is a team of expert franchise consulting professionals based in Canada that provides solutions for franchise development, franchise consultation, and expansion of businesses globally.