7 Tips For Maximizing Your Franchise’s Profit Potential

by sean on February 6th, 2007

Jeff Elgin, CEO of franchise brokerage firm FranChoice, recently published the article Maximizing Your Franchise’s Profit Potential at Entrepreneur.Com

According to Elgin, there are a number of things you can do to increase your chances of making good money as a franchisee. He says that while picking the right opportunity is a good start, just because others are making money with it is no guarantee you will do the same. His seven key “secrets” to making as much money as possible are:

1. Starting with the right definition. He suggests both being realistic and thinking in terms of the Return on Investment (ROI) of your capital outlay.

2. Starting with the right opportunity. Elgin says it’s essential to select an opportunity that “matches up well with you, in which you are willing and capable of performing the primary role of the franchisee.” He cites a franchise that cleans public restrooms, contending that this can be an intensely profitable business with a great return on investment, but only if the franchisee can project the excitement and enthusiasm, and not embarrassment, at cleaning urinals for a living.

3. Keeping the investment size reasonable. Elgin suggests researching thoroughly to locate an opportunity where the per-unit investment is reasonable given your net worth and liquid capital available.

4. Reinvesting to achieve your absolute goal. In other words, think big: “If you find an opportunity that fits well for you and has a great return on investment, and you’ve got your first unit up and making a lot of money, you can reach your absolute number goal by acquiring additional units.”

5. Following the system. A common complaint of franchisors is franchisees who mare willing to pay them large franchise fees, then unwilling to follow the advice the franchisor provides. For best results, pick a good system and then follow it.

6. Capitalizing your business properly. According to Elgin, “there are many ways to capitalize your new business, including using all cash or using some portion of your cash combined with loans or leases to come up with the total investment. Most franchisees use a combination approach.” He cautions would-be franchise owners that the service costs of loans or leases will reduce the amount of money they’ll have for other purposes. Too much leverage, he contends, can be very dangerous.

7. Working with a good accountant. Elgin strongly suggests using a good accountant to help you structure your business entity and ongoing activities in a manner that reduces the tax burden. As you’ll learn, there’s can be a big difference between the money you bring in and the money you can take home. A good accountant can help minimize the difference.

Elgin’s concluding point is probably the most common advice you’ll hear from those of us who offer guidance to prospective franchisees: Ask a lot of questions of the franchisor and from numerous franchisees working in the system. Elgin points out that, approached correctly, franchisees will “be happy to help you, and you can return the favor to other new franchisees in the future.”

Read Jeff Elgin’s article Maximizing Your Franchise’s Profit Potential here.