Running your own franchise business can be tough work, though it’s tough work that pays off when you can anticipate what will most impact the success of your business. Consider these five areas that greatly affect the annual profit entering the pockets of franchisees each year.
General & Administrative Costs (more management, more expense)
Franchise business models that favor and allow for fewer managers (in some cases featuring only the franchisee as primary manager) accrue less overhead costs. This area also involves costs of handling operational aspects of the business, from accounting to legal expenses to HR. The goal is to eliminate anything absolutely unnecessary from this category as much as possible. Sustainable businesses often undergo a routine attempt to cut costs. The degree to which these costs are fixed will vary by franchise and should be explored in close detail.
Maintaining & Repairing Expenses
Whether handled as they come up or putting off for another day, taking care of things that break or things that wear down over time requires an investment. Many franchise businesses operate at an optimal level when repairs are handled on the spot as they occur rather than delaying the task which can lead to higher costs down the line. Figuring where this factor comes into play in any given potential franchise concept is the key because different franchises involve different types of ongoing maintenance. What are the costliest potential repairs in question and the most regularly required and costliest forms of maintenance?
Sales & Cost of Services or Goods
Not every year’s performance in terms of sales is indicative of the prospective earning potential of a franchise. Many franchisors offer some clue (be it direct or through your own research) as to what reasonable sales expectations look like. Businesses have good years and slower years, which is to some extent normal. The questions to ask are, what is the prospective earning potential and how can you increase the likelihood of acquiring those figures as regularly as possible? Likewise, how is this figure offset by necessary costs incurred for offering services or acquiring goods?
Paying Rent
Ah, yes the good old cost of real estate. Practically unavoidable unless the property used is paid off, without a fixed location such as would be the case for an online franchise opportunity, or based out of your own home. Nonetheless, each of these scenarios may still involve some fees related to the running of a business in any given location. Leasehold agreements and owned property rentals are two of the likeliest sources of ongoing rental expense.
Royalties
Last but certainly not least on the list are royalties, which apply to numerous franchise opportunities across the world. Some franchises choose not to collect royalty fees, though many do. Franchisor-owned locations often collect them and in some instances they are reduced for a limited amount of time to allow franchisees an opportunity to get their feet wet in the business while they build their experience and establish themselves for gradually increased profits.