Buying a Franchise: How Much Can I Make? It seems only natural for someone starting a company to wander about how much they can make from that venture. When it comes to business, not much can be worse than the realization that all the hard work and sacrifice that goes into building a business is not producing the desired financial returns. "How much can I make?" This a very simple questions with a very complicated answer, at least when it comes to buying a franchise. For someone who is shopping for a franchise, the answer to the question above brings some good and bad news. The good news is that an ever growing number of franchises offer some sort of an earnings claim that should enable the buyer to get a general idea of a franchisors' average unit performance. Plus, the franchise candidate has complete access to all the current franchisees in the system and has the ability to directly interview them about their financials. The bad news is that, despite all the safety nets build into the idea of franchising, the candidate won't be able to completely remove significant element of risk from the transaction. Every concept that has been franchising for more than 10 years has had some failures in their system. The reality of the situation is that franchising is a multi-billion dollar industry and has made many owners very wealthy. According to some surveys, in 2000, the median gross annual income (before taxes) of a franchise owner was $75,000 to $124,000 - with 30% earning over 150k per year. The industry continues to grow in size and popularity. Franchising is not for everyone; but, in general, it will continue to produce steady results for people who invest serious time into their franchise selection process. How much can a prospective franchisee make will depend on many factors. Location, debt load, startup expenses, labor costs and the systems that a franchise uses to manage its business play a major role in each unit's profitability. In order to achieve particular income goals a candidate will need to consider options such as break even periods, cash reserves, marketing, just to name a few. Plus, they might come to a conclusion that they need to operate multiple units and/or have creative location options. There are thousands of franchise options out there. In order to find a good fit, I recommend looking at various franchise companies, 2-3 businesses at a time. Creation of a cash flow model, business plan, interviews of current and former franchisees and visits to the company headquarters are all necessary steps in the process. If a particular industry has been selected, I would advise to start seriously investigating other franchise options in the same industry. In addition to that, I would recommend being very conservative with the financial assumptions about the business. Creating a contingency fund is very important. Keep in mind that the majority of new businesses fail because they run out of cash.
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