Franchising

With any investment it is always wise to have a good estimate on the expected return on that investment (ROI) before making any actual monetary commitment. Franchising ventures are no exception to this general rule. In fact, when considering whether or not to buy a franchise, this projection because even more valuable to the potential investor.

Unlike investments into real estate or stocks, the decision to buy a franchise entails not only a substantial financial commitment, but also demands a great deal of time and energy on the part of the buyer. Any speculated return on investment should account not only for the amount of money invested into the business, but also compensate for the time spent establishing and running the business. As such, for a franchise to be viewed as potentially successful the expected earnings from the business should be significantly higher than the returns from a similar financial commitment to a passive investment.

It is important to understand that, when purchasing a franchise, higher initial investment does not necessarily translate into higher returns. A great deal comes down to the ability of the owner to effectively manage the franchise and the marketability of the franchise in the purposed area of business. For example, if the community consistently prefers hamburgers, then no amount of money invested is going to move fried chicken. Conversely, if the hamburger market of the same fictional locality is already fairly saturated, it's going to be very difficult to attempt to edge into the market.

When deciding to explore the earning potential of a particular franchise, there is some very basic and very important preliminary research to be performed. An excellent first step is to request a copy of the company's Franchise Disclosure Document. As a general rule, these documents relate information regarding the earnings of various franchises across the geographical boundaries of the franchise organization and can help in projecting an estimate of ROI for the area proposed for the purchased franchise.

The Franchise Disclosure Document will also give information regarding current and previous franchise owners. Conversing with owners within the region that the buyer proposes to do business, as well as owners in similar regions, can offer great insight as to what sort of return on investment can be expected. These same franchise owners can also form a backbone of a vital and invaluable support network for the new owner.

As mentioned above, another major factor in a franchise's earning potential lies in the owners own capabilities to effectively run the franchise. It is always wise to seek out a franchise that utilizes previous experience and existing skills. A person with an extensive background in restaurant management is obviously going to fare better as a restaurant owner than as a gas station owner.

Above all, it is important to keep realistic financial goals in determining what franchise is most suitable. Taking into account the market in the proposed area, the earnings of franchises operating in similar locations, the time required to operate the proposed franchise and the owner's ability to run the franchise in an effect manner can provide a good estimate of what one might expect to see in the way of return on the investment made into the franchise and the overall viability of the business.