What are the most profitable franchises? This is a great question, and important, but the answer isn’t necessarily found in reading a publicly traded franchise company’s annual report, reviewing Financial Performance Representations for one or more franchisors, or even asking the local sub shop franchise owner you know how profitable that one store is.
Are you measuring profit in dollars or as a percentage of sales? Are you including the franchise owner’s salary as an expense in the calculation? Are you looking at pre-tax earnings or earnings after taxes, depreciation, and amortization? It’s important to understand how to ask the question, otherwise you risk basing your evaluation on inaccurate information.
When looking for the most profitable franchises, it’s important to start with business within your investment range. What we really want to know is which of these franchises deliver the best return on a single unit basis. Popular coffee franchise shops may deliver an attractive profit, but can you afford to open one? Conversely, home service franchises may show a lower profit, but maybe you can afford to open multiple territories and achieve your income goals that way.
Most franchises today include a Financial Performance Representation disclosure in their Franchise Disclosure Document. So, once you’ve identified some franchises to explore more closely, the financial picture can become clearer. These disclosures usually provide sales information, and some also disclose expense details. In either case, you have some real numbers to work with in creating some profit-and-loss scenarios.
Obviously “the numbers” are a critical piece of the franchise business puzzle, however be sure to consider other factors when searching for the best franchises to own and the one that’s right franchise for you.
Categorised in: Researching Franchises