Step 3: Determining whether your business is ready to franchise is to evaluate your business
determining whether your business is ready to franchise is to evaluate your business’ profitability and whether it meets the franchise industry’s criteria for minimum capital and return on investment benchmarks.
At the core of any franchise investment, a franchisee is looking for the best possible investment and financial opportunity. They want to know that their investment will offer the best possible returns and that you as the franchisor will look out for their financial well-being.
3. Your business must be profitable.
Without profitability the franchisor and franchisee cannot earn a dependable and reasonable salary. A franchisee should be able to generate a 20% return on their total cash investment at a minimum. If they are also the owner/operator, they should be able to earn a manager’s sales on top of the 20% return. For example, if your franchisee needs to invest $150,000 to open a franchise, but they only need $50,000 in cash to open, we would want to show a 20% return on the $50,000. In this case we would like to show a franchise could earn a return of $10,000 after the second year of operation, plus make a manager’s salary if they are the owner/operator.
Franchise Marketing Systems