Comparing franchising versus other investmentsThe first thing to look at when deciding whether a franchise is right for you is to compare the returns that you might get from a franchise versus the returns that you might get from other investments, and indeed versus starting your own business.
Typically, most people look at two things when appraising an investment:
This is the return that you receive on a regular basis from your investment. This could be dividends from a shareholding, or rent received on a property. In a business, this is the annual profits that the business makes.
Capital (Asset) Growth
In addition to investment yield, you would typically expect the value of your investment to increase in line with other similar assets. This might be an increase of the share price for a listed company, or an increase in property values for a rental property. For a business, this will be your resale value.
So, when deciding whether to invest in a franchise, you need to look at both the projected “investment yield” – the profit that the business will make; together with the “capital growth” – the eventual asset that you will have to sell when you decide to exit the franchise.
Once you have an idea of the potential returns, both from a yield and asset perspective, you can then use these statistics to compare your potential venture against other types of investment, including starting a similar business outside of a franchise model.
The above is an extract from The Franchising Handbook, which is due for release later this year. Follow this link to pre-order and be one of the first to read it!