The ROI of a franchise usually ranges between 25 to 50 percent. Here’s what to look for in a franchise opportunity that will produce a lucrative return on investment.
It’s reasonable to assume that a franchise investment should provide a return for both the money and the work invested in the business, so calculations are much more complicated than they would be with a passive investment like stocks or bonds. Fortunately, the expected return is likely to be much higher.
One of the best ways to determine a franchise’s potential profitability is by analyzing Item 19 of the FDD, which outlines the business’s Financial Performance Representation. Also known as “The Earnings Claim,” Item 19 is an optional disclosure under the Federal Trade Commission. Item 19 is one of the most complex and detailed portions of the FDD, and it exists so that prospective franchisees have transparency in evaluating the viability of the business model from a financial standpoint.
The FDD will also provide you with other useful information, including an approximation of your initial investment (Item 7), your initial and continuing fees to the franchisor (Items 5 and 6), and whether or not your franchisor is earning any revenue from merchandise or equipment you purchase for your business (Item 8).
In addition to the FDD, you have at least two additional sources of information to use in assessing your potential ROI. Item 20 contains a list of existing franchisees and those that have recently left the system. Current and previous franchisees can be an invaluable resource for information about what it cost them to get into the business, their financial performance, and any other positive or negative experiences with a particular brand. It’s also a good idea to analyze the performance of competitors; a simple web search can offer up a lot of information.
By crunching the numbers with a knowledgeable accountant or other trusted financial advisor, it is relatively simple to create a reasonable projection of how your franchise will perform and the return on investment you can expect to receive.
FINANCE YOUR DREAMS
When you buy a franchise, it is likely that you will finance the majority of your investment through a bank or other lending institution. The *Small Business Administration (SBA) has developed a Franchise Registry to make securing franchise financing a bit easier.
*One important note: MY SALON Suite does not qualify for SBA loans. However, there are many other franchise financing options to fund your MY SALON Suite business.
When considering any loan and franchise investment, it is important to find a business that will provide you enough cash flow to support your debt. Because of this, many franchisors place a limit on the amount of money a franchisee can borrow when financing their franchise. When crunching the numbers with an accountant or other qualified financial advisor, your return on investment should be based on the amount you have directly contributed and not on the entire investment in the business.
INVEST IN YOUR FUTURE WITH MY SALON SUITE
One major deciding factor in setting your sights on a franchise with strong ROI potential is selecting an industry that is recession-resistant with long-term growth potential. Evidence suggests that no matter the circumstances, the average person still places a priority on feeling and looking good. Up from a total value of $483 billion in 2020 to $511 billion in 2021, there is perpetual opportunity in the beauty sector, for which experts project a compound annual growth rate of 4.75 percent over the next four years.
Within the salon industry, salon suite franchises are becoming increasingly popular investment opportunities. MY SALON Suite was recently named a Top Franchise for 2021 by Franchise Business Review, and noted for its high earning potential and flexible semi-absentee ownership model.
MY SALON Suite franchise owners gain all the benefits of a steady revenue stream while allowing them to choose how directly they want to participate in the day-to-day business. Owners can operate one or multiple locations, pursue other careers simultaneously, or enjoy retirement while participating in an essential industry.
To learn more about franchising opportunities with MY SALON Suite, please visit us.