How To Plan A Franchise As An Investment

A franchise is a business relationship whereby, in return for a franchise payment or royalty fees, a business gets access to the proprietary knowledge, processes and trademarks of the franchisor, allowing them to market themselves and sell products or services under their name. In the US, franchises are big business, with almost 800,000 franchises across the country, employing over 8 million people and with an economic output of $790 billion annually.

There’s a lot of money to be made in franchises; generally, they are seen as a more secure investment than setting up a whole new business. For these reasons investing in a franchise is an attractive way to get steady passive income from an investment. However, like with any significant investment, things can still go wrong, so before investing in a franchise, you need to have a plan for how you will make it work.

Here we’ll look at how to invest in a franchise in a way that puts you on the right track for protecting your initial capital while delivering solid returns.

Planning for Investing in a Franchise

Identify your Target Metrics

Every investor has a unique approach to their investment strategy, depending on what works best for them. When it comes to investing in a franchise, you need to recognize precisely what you want from the business. It could be a steady return of 10% -20 %. On the other hand, it could be growth potential, the franchise location or a particular vertical that it’s in.

Knowing what you want for your portfolio will help you to narrow down your list of potential franchise investments to ones that fit your criteria. It should also help you with your final decision to get a bigger picture before investing, you might like one place personally more than another, but the hard-headed business decision will be doing what’s right for your portfolio.

Research Prospective Choices

Knowing what you want from a franchise is one part of your pre-investment research. Once you have a shortlist, another begins. There are a number of important financial and ‘soft’ elements about the business that you need to figure out before committing your cash. For the former, you will want to know as much as possible about the economic realities of the business, like what their revenue and expenses look like, how broad their customer base is, and what ongoing fees you have to pay. Investing in a franchise and making it a success is more than just money, though. You’ll also want to do your due diligence to figure out what the relationship with the franchisor might be like, whether there’s potential for growth and ensure the franchise system has a stable management and process structure.

Ensure You Have the Right People

As a hands-off investor, one of the key factors in making success of your franchise investment is getting the right team in place to run the day-to-day operation of the business. When buying into a franchise, it’s possible that there’ll already be a management team in place, so you can make a decision to roll with them for a while or bring in someone new from the start. For a new setup, these hiring decisions will be critical. Most important for the particular business model is strong communication. If something’s going wrong that needs to be dealt with through the franchisor, you need to hear about it, as well as the ongoing updates about how the operation is performing.

Create an Effective Business Plan

Of course, whoever you have running your franchise job will be made a lot easier if you have created a detailed business plan. This business plan should run through several revenue and cost scenarios and have 1-3 year plans for boosting sales and awareness among your target market. Investing in a franchise and delivering on your expectations for that investment depends on more than just running a good day-to-day enterprise, forethought and long-term planning is required to deliver consistent success.

Identify Other Personal Motivations

Investing in a franchise is also an opportunity for you to do more than diversify your portfolio. It could be a chance for you to get involved in supporting something you love or giving back to the community. This might involve you investing in a franchise such as housing for the retired, health and fitness, or sustainability. It’s your investment, so why not be proud of making a difference in people’s lives at the same time?

What Can you Bring to the Table?

Even as a more hands-off business owner, when looking at investing in a franchise, it’s always wise to consider what value you can add to the proposition. If you’ve been involved in business before then, there should obviously be the people management skills and experience of different situations, but that’s not all. You could own real estate where the franchise can operate out of, saving on rent. You may have good local connections to boost your word-of-mouth marketing or other skills that will help your business succeed. While it’s good to know your own value, also beware that if you’ve decided you will be devoting a maximum of a few hours per week to the business not to put too many eggs in your basket, such as saying you’ll handle all the marketing rather than hiring a specialist, which could end up holding the business back.

Get Expert Help

As much as you may have your own expertise when investing in a franchise seeking out knowledge experts in various fields can help you plan and execute your investment successfully. These can include franchise specialists who identify and explain how various franchises operate and management consultants to ensure you start with a solid management structure. Legal help to go over your franchise agreement and any other contractual obligations to ensure you have full knowledge of the terms of your relationship with the franchisor.

Have an Exit Strategy

Investing in a franchise successfully means having a great plan before and during the operation of the business. However, you should also always know what the ‘after’ looks like. It’s important to know what the terms of the franchise agreement say about buying out your term or leaving the franchise early. If you’re looking for an investment that you can flip after putting in a few solid years, then it’s also key to know what the franchisor’s terms are on that and how much of a say they get in who the next buyer will be.

Conclusion

Investing in a franchise is an excellent way to diversify your portfolio or work in something you’re passionate about with relatively less risk than starting a whole new business. The key to making this investment a success is, of course, having a great plan to begin with, which should involve plenty of research, a recognition of what you bring to the Table (or don’t) and an idea of what kind of staff or expert help you will need to make the operation run smoothly.

If you’re thinking about buying into a franchise system that has no national competitors and is part of a booming industry, then why not talk to our team at Screenmobile? With the right team in place, a Screenmobile franchise can deliver great, consistent returns over time. To find out more, you can read about becoming a Screenmobile franchisee here or talk to our team for more information.