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It’s the question on every franchise owners mind — when can my franchise become profitable? And it makes sense that you want to know. After all, you invested a lot in your franchise and you’re ready to reap the rewards.
When it comes to profitability, there are many factors at play that determine how quickly you can see that money pouring in and staying in your bank account.
What Industry Are You In?
There are many different industries that you can buy a franchise in, and within each of those, there are many subsets. Some types of franchises, such as home-based franchises that don’t require a lot of overhead, will be profitable much faster than retail businesses that require more. Retail locations with a brick-and-mortar store that require you to have inventory on hand will mean you’ll be investing more up front to get up and running. With more that you’ll have to repay, the time it’ll take for you to be profitable will understandably be longer.
How Will You Finance Your Franchise?
There are many franchise financing options for people interested in buying a franchise. One of the big things to consider as you decide whether or not to franchise your new venture is the time it will take for you to turn a profit.
When you finance, you’re bringing in new costs to the mix. Principal and interest rates will make it so that it takes longer for you to break even, and thus start profiting.
Who Will Run Your Franchise?
There’s a stark difference between owner-run franchises and manager-run franchises. Both have their pros and cons, but one is costlier than the other. While you’re calculating when you will become profitable, consider the costs of working for yourself and the financial burden of hiring a manager.
Understanding Your Bottom Line
Many franchise owners who are new to the world of franchise ownership think that the profits made at the franchise are instantly turned into personal income. That concept couldn’t be further from the truth. There are taxes on profits, loan payments, and capital expenditures that must be paid before an owner can pay herself. It’s only after that is paid that the franchise owner gets personal income generated by the business.
Know Your Goals
Turning a quick profit isn’t always the right goal to chase after. Equity grows over time in the franchise. If your goal is to eventually sell your franchise, looking at your profits might not be as profitable as you might think. Looking at how much your franchise is worth in your market could be a better indicator of how much and how soon you’ll profit.
With so many variables, it’s impossible to say when you’ll turn a profit after buying a franchise. Still, keeping these things in mind can help you have a better idea of when you’ll move out of the red.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.