Investing your hard earned or acquired assets into a new franchise venture is and arduous decision which come along with interwoven risk factors. It is but organic to contemplate about the return and profitability aspects in an investment but there is no accurate method to measure the magnitude of the profits. The profit margin relies on many factors and industry characteristics which greatly impact and may lead to short or longer durations for returns. If a business requires time to churn profit it isn’t necessarily a concern some factors associated factors like your vision toward your investment also plays a key role. Let’s explore some factors that could be potential reasons to affect the profitability duration in an investment.
1. Vacillating timescale
There are many franchise options in the industry and they all differ in their nature of investment nature. While the expectation of faster profits is natural but re subjective in nature. Some industries require more capital investment and tend to generate revenue with time, while others break even soon. Both the options are viable depending on the vision of the investor.
2. Operating out of a concrete setup
If the business you choose to invest, requires brick and mortar then it may require a considerable time to set up the business while also the returns would take time. This situation would be different if one does not need to operate out of a retail store, then the return would be faster, also catering to the cost effectiveness as opposed to expenses of establish the setup.
3. Membership / Non-Membership Models
There is an emerging trend of membership-based franchise models, which are gaining traction in the market. Industries like fitness, beauty, senior care etc are based on member to obtain profit and hence, the growth is slow paced but once set is sustainable in the long run. Non- membership models are like singularly run restaurants need to focus on quick break evens to balance the investment and profit margin, thus focussing on the opening and foot fall increasing phenomenon.
4. Debt Vs Equity
A very important aspect when it comes to profit in an investment depends on the nature of investment. If it is funded by a debt, it may lead to slow progress and slower returns as the monthly dues will be added by the interests. An option of considering Equity could be use full here. However, investments are major decisions and they must be taken after thorough evaluation of all underlying aspects.
5. Ownership of the place
Investing into a franchise could be a fulltime decision for somebody but may be one among the many areas of interest. Your franchise could be owned and managed by a manager that can take the load off your shoulders but will increase the cost and hence impact the profit margin. But as above mentioned it depends on the investor and his vision as having a manager in place would enable the owner to have space for family and personal growth but If profit is the agenda it would be vice versa.
6. Profit or Growth
There are a lot of variables which impact the profitability in a business but the one of the principle factors being the objective of the investor. In the long run if the investor aims are sustainability, it will reflect on the franchise choices and method of working. All business is initiated to deliver profit but the time period may vary. Short term goals might not be one of the best ways to plan an investment, however it’s based on individual preferences.
In a nutshell, investment consists of risks and one needs to understand the dynamics of it and find a way to curb it. Having a clear mindset and vision would help reduce the conflict and lead to pragmatic goals. The above mentioned are some of the most important factors that impact the profitability in any franchise investment and must be given profound thought before investing.