It’s a scary thought. You open your doors and invest your hard-earned money, but the revenue stream barely trickles in. You were hoping you’d be profitable, but you’re not.
Before you live out this scenario, it’s important to explore the likelihood that your franchise will be profitable and when. Here are a few ways to know what you can expect in terms of profits and losses when starting a franchise.
Ask to See the Financials
Franchisors have financial reports on hand and available to potential franchisees. If you haven’t been offered the reports yet, ask to see them. Dig into the financials of the franchise to understand the typical franchise’s costs and revenues.
Talk to Other Franchisees
Perhaps no one knows best about what you can expect in terms of profits than other franchisees. These people are walking the walk. They have seen what works and what doesn’t in terms of sales. They know the seasonal shifts in consumer spending and can tell you what to expect.
Talk to other franchisees to get a better gauge on what your first year in business will look like. When will you be profitable? When will you break even? What costs can you expect to incur when you first open your doors? The more you can explore other owner’s financials, the better you can predict your own.
Talk to Other Business Owners in Your Immediate Area
Talking to other franchisees in the town where you’re considering starting a franchise will help you gauge what the climate is for your specific business in town. It’s equally important to know how the neighborhoods surrounding the area where you want to open your doors is performing too, especially if your franchise is location dependent.
Attending a Chamber of Commerce meeting, or other networking events can put you face-to-face with others who are actively growing a business in your area. Talk to them about their experience with local demand. Have consumers been spending more lately? Less?
Although they might be in a different industry, other business owners can still offer insight into general consumer behavior in your immediate area.
Consider the Economy
What does consumer behavior look like these days? Are consumers spending more on impulse items? Are consumers eating out more than dining at home?
Consider the economic situation for your buyers before starting your franchise. If you’re considering starting a franchise that sells high-end products, but consumers are tight fisted about where they’re spending money, it might not be the right time to open your doors.
Do Your Due Diligence
The bottom line is this: Doing your due diligence will help you determine whether a franchise will be profitable. If you’re seeing local businesses shuttering their doors and hearing of decreased consumer spending in your area, you might want to consider which type of franchise you’re starting. Ask to see the franchise’s financials and talk to other franchisees in your area to get a feel for what you can expect.
Susan Payton 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.