Franchising · 18 October 2016

Franchising A-Z: Investment Why franchising is the sound choice

investing
Whether you’re a franchisor or a franchisee, you want to see a return on your investment
His latest blog post sees resident franchising expert David Burton cut through the waffle and tell it like it is franchising is an investment, and franchisees want to see a return on their capital.

Whether you’re the franchisor or the franchisee, you want to see a return for the money invested in making your business work.

How quickly that return is realised is down to the investor and they’re exploitation of the franchise system.

Each and every one of our franchisees is considered an investor and the franchise proposition is an investment piece. ServiceMaster’s managing director, Alan Lewin explained: Franchising is a proven way to start your own business, presenting an opportunity to become your own boss, employ your own staff and ultimately own a profitable business.

it sounds obvious because nobody buys a franchise to screw it up but very often, over time the perspective can change and so a big part of the work with franchisees is keeping the investment piece in focus.

they put cash in at the beginning, be that from a startup or buying an established business, they operate or manage their business and when they wish to exit the system, they sell and move on with a larger amount than they started with, and so the cycle continues with a new franchisee.

helping franchisees when to realise their investment and move on is a large part of our role as a franchisor. We work with a number of franchise resale partners who support us in helping to prepare a business for sale to ensure it’s as attractive to a new investor as possible.

it’s all about sustainable levels of profitable growth within a system that is recognised as being successful.

The savviest franchisees will be building in their own obsolescence from the business as they build and operate a lean, profitable organisation that provides them with a suitable income and an appreciating asset that is steadily growing in value and appeal ready for the next potential owner.

‘some of ServiceMaster’s franchise opportunities operate at more than 70 per cent gross profit. There are few more attractive propositions to a potential future investor than seeing high profit levels generated by growing revenues in a business that is not overly reliant on the current owner as an individual.

Many successful and longstanding franchise opportunities are not in what many would consider ‘sexy? businesses; for example, restoring water or fire damaged properties or cleaning people’s homes and offices are not high on the list of careers for many aspiring business people.

However, essential services that can be operated profitably at scale is perhaps the angle investors should be looking at it from. What profit does the business make? How much is the initial investment and when can I expect a return? What support do I get now, through the life cycle of ownership as well at the end of my journey?

for the franchisor, investment into your business is an absolute must. Operating your business is one thing but supporting a growing network of franchisees is completely different.


 
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ABOUT THE EXPERT

Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business Law & Compliance