Written by the Franchise Matchmakers Team
A franchise refers to a type of license that you can acquire to gain access to the knowledge, processes, and trademarks of a business to sell their products or services. As a franchisee, you pay the franchise for start-up fees and yearly licensing, in exchange for the opportunity to effectively buy a business and take advantage of the benefits from a pre-existing business model already proven to be successful. Owning a franchise can be a profitable form of self-employment, but it requires a significant investment of money, time, dedication, and hard work to reap the benefits.
Learn more about franchise ownership by considering the information below, then contact Franchise Matchmakers to find the perfect franchise for you.
How Much Does a Franchise Cost?
Franchisors are legally prohibited from offering current or projected income amounts to protect them from guaranteeing franchisees similar profits. Instead, they are obligated to provide a Franchise Disclosure Document that shows the financial performance of the franchise, including audited statements for the previous three years. This allows you to understand the terms of the deal, familiarize yourself with the standards and practices of the franchise, learn the expectations of both parties, and establish a realistic idea of the franchise’s potential before making a commitment to buy a franchise.
Buying into a small franchise may only require a couple thousand dollars, but more popular and well-known franchises can involve multi-million-dollar investments. In those cases, franchisors often provide financing options, but you will still be expected to cover a sizable chunk of the upfront investment. One example is, if a franchise has an initial investment of $1.5 million, the franchisor may offer help with a loan for $1 million and require you to cover the remaining $500,000 from your own resources.
In the 2021 Franchise 500 Ranking published by Entrepreneur.com, the top ten franchises in the nation involve investments ranging from a minimum of $38,000 for RE/MAX, LLC real estate services to a maximum of $2.6 million for Taco Bell fast food restaurants. Even within a franchise, wide variation exists depending on the specific location and the price of commercial real estate in the area.
What Can You Expect to Make from a Franchise?
Calculating an exact estimate of what you can make from a franchise is incredibly difficult, but there are specific favors that impact your success. The quality of the brand you invest in and your skill as a business owner all affect the performance of your franchise and how much you can make by purchasing one.
Only 20% of top-performing franchise owners achieve the level of wealth and success that attract people to this industry, while 80% of them earn an average income. The Franchise Business Review reports that 37% of fast-food restaurant franchise owners earn under $50,000 per year, 16% of them earned over $200,000, and the average income for franchises after at least two years equals around $120,000. This value can be misleading, however, as it averages all franchises and can be dramatically impacted by a small percentage of high performers.
You can make the largest profit by owning a franchise for several years until you can sell it at a significant gain. For example, if you make an initial investment of $1 million and increase the profits and revenues of the business to twice the amount they were when you bought the franchise, you can sell it for $2 million and will have doubled your investment.
Conclusion: Is Owning a Franchise Profitable?
According to financial publishing website Investor Junkie, the most important factor in determining the profitability of buying a franchise is having the available capital to invest in the business upfront. “But even if you have enough to make the initial investment, it’s better if you have other financial resources. Just as you should diversify when it comes to investments, you should have other assets to go with your outsized franchise investment.”
Determine If Owning a Franchise Is a Profitable Investment for You If you are interested in learning more about how to buy a franchise, contact Franchise Matchmakers today. With over six decades of combined experience in the industry, our team of franchise professionals offers free services to help you find the best option for franchise ownership for you based on your interests, goals, and budget constraints.