Two of the most common questions asked to us by the prospective franchisee is, “Can I really make money owning a franchise?” and “How much money can I make by owning a franchise?” These are completely valid questions. You want the assurance that you will receive a return on your investment. If you’re going to invest all of your time, energy and money, it’s important that the return provides you with sufficient income to support your family and current lifestyle.
However, when asked the question “how much money can I make?” you often are not provided with an answer. Here at C-Lovers we do not make any earnings claims and in fact roughly 50% of all franchisors can not provide earning claims.
Why? Unfortunately, results vary due to numerous factors that are outside of the franchisor’s control. There are a lot of variables in operating a business. Competition, economy, labor market, traffic patterns and possibly the biggest influencing factor is the operator himself. Through his implementation of the business operating system and his commitment to the business one can dramatically influence the profitability of the business. There are numerous examples of where someone has taken over an existing location and with the same product and same location they have dramatically changed the profitability of the business.
Related Content: We currently have Canadian franchise opportunities in Calgary, Edmonton and other Alberta locations. We are also expanding in British Columbia. Find out if C-Lovers has a franchise opportunity close to you.
The majority of franchisors in North America are reluctant to provide any kind of an earnings claim. In the past, providing income projections has often resulted in lawsuits when new franchisees have failed to achieve the incomes that they were led to believe would be forthcoming. If earning claims are provided, Canadian franchise disclosure laws (in certain provinces) require that such earning statements be fully explained and substantiated. However the bottom line in Canada is buyer beware. If the projections are provided, how do you know that they are accurate and applicable to the market and location you are specifically looking at? How can you make a fully informed business decision and protect yourself?
In order to make a fully informed decision, it is important that you do your research. If the franchisor does provide numbers to you, do not rely fully on the statements and projections that are provided. Projections are simply estimates of what the business might make. They are often based on the franchisor’s experience. But inevitably they are accompanied with long statements such as, “The actual gross sales achieved by any given franchisee will differ from the gross sales scenarios shown on the Proforma Financial Statements. The Franchisor makes no representations that any given franchisee will or should expect to achieve any of the gross sales scenarios shown on the Proforma Financial Statements.” These projections are designed to entice interest but may not necessarily reflect what will actually happen. The projections provided may reflect averages or might instead reflect the best operating store. It may reflect a corporate store and not a franchise. When receiving projections always ask where the numbers come from and what substantiates these numbers. What do the numbers really represent? Seek clarity and get the clarity in writing.
So how does one protect oneself? The key is to validate the numbers. Talk to an accountant. Business consultants can also assist. The best source of validation is from the existing franchisees themselves. Call as many franchisees as you can. Ask them questions such as;
Contact the C-Lovers franchising team and let us know you are interested in discussing these questions
During the C-Lovers Application process we will provide you with the information of all our franchisees. You will then have the opportunity to contact whichever ones you so choose. As stated above we suggest that you contact as many as possible. However, if that is not feasible, contact a minimum of three to ensure that you are getting balanced information from a variety of sources. Use the information you compile to prepare three cash flow projections – a best case scenario, worst case scenario and most likely case. Plan for the best but be prepared for the worse case.
Some other financial resources are available to you. Performance Plus is an on-line performance benchmarking tool provided by the government of Canada. It provides detailed financial and employment data on more than 1000 business sectors across Canada. It can provide you with average incomes of similar businesses across Canada. You can access this information at http://strategis.ic.gc.ca/sc_mangb/sme/engdoc/homepage.html
Being in business for yourself is a lot of hard work. Start the hard work before you open your business by doing your due diligence to make sure that you are making a fully informed decision. Look at all the expenses carefully and validate each one where possible.
By going into a new venture fully informed, you will sleep better at night, rather than tossing and turning wondering if you have made the right decision. You will have the comfort of knowing that your efforts will directly affect your success and that your financial expectations are realistic and attainable.
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Written by Wayne Maillet, president of Franchise Specialists. Wayne is a leading Canadian franchise management consultant and published author of the book Franchising Demystified. You can order the book athttp://www.franchisingdemystified.com/ Wayne Maillet can be reached at 604-941-4361