Franchisee Profitability: 8 Days, 8 Months or 8 Years

Posted on January 25, 2010 by franchise lawyer Charles Internicola

This afternoon in consulting with a client who had recently signed a franchise agreement involving a substantial commitment of capital, I was reminded about the importance of maintaining "realistic" expectations when buying a franchise. When discussing his expectations about his franchise purchase and the business that he will be developing, he was extremely "realistic" as to his expectations and the work ahead of him.  That is: 

(a) He diligently evaluated the "franchise opportunity" that he was investing in and thoroughly understood that, as with many businesses, it would be a number of months and possibly years (hopefully not) before he achieved a level of profitability and acceptable return on his franchise investment; and

(b) He understood that the success of his franchise rested on the hard work, marketing and business development that he (and his family) would bring to this new business. Significantly, his approach is not one of "lets wait and see" what business comes through the door.

The most important lesson that I was reminded of by my client - a lesson that future franchisees and franchisors may also put to use - is that getting your expectations "right" is critical.  When considering a business opportunity and setting your "expectations", franchisors and franchisees should consider:

  • Profitability will Take Some Time -   Profitability is not guaranteed and, depending on your particular franchise opportunity, may take 8 days (unlikely), 8 months or 8 years (hopefully not).  That is, you must plan ahead and account for the extremely realistic fact that you in selling a franchise or purchasing a franchise you must properly communicate and/or understand that reserve capital will be critical.  Evaluate the opportunity thoroughly and ensure that you have developed the correct expectation about the future profitability of your business.
  • Franchisors Can't (and Shouldn't) do Everything - Buying a franchise does not mean you just pay money and then sit back and wait for business to "walk through the doors".  You must be actively engaged in the marketing and "development" of your business.  Look to your franchisor as your "partner" and not your "caretaker".  Franchisors, be selective about the franchisees that you approve - look for franchisees that will contribute to the development of your franchise system. 

Get your expectations right.

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