How to Determine if a Franchise is Profitable

Many things can determine franchise business profitability, but there are specific key performance indicators (KPIs) that can help give a more accurate picture of how well your franchise is doing in terms of showing a profit.

• Are your living costs being met? In other words, do you have enough money coming in from your franchise to keep a roof over your and your family's head, provide for the children's education, cover minor emergencies, and buy groceries, just to name a few. At the very least, this is how much money should be coming in over and above operating expenses.
• If you borrowed money for the franchise fee, are the payoff terms in line with the length of the franchise agreement? Or are you going to be paying for a 5-year franchise agreement for the next 20 years? If you are, then your debt to asset ratio is too high.
• Are you using franchise profit for personal expenses, in order to receive a tax break, or for any other reason? When you do this, the bottom line is that your business profits are not as high as they can or should be.
• Are you paying yourself enough, or are you paying yourself too much? Both situations create false profit figures.
• Are your cost and other margins accurate, or are they too wide or narrow? As with salaries, too much or too little will not give an accurate picture of franchise profitability.
• How are your expenses? Do you need to get them under control? Too many expenses can make a huge dent in profits. Look for ways to control cost without sacrificing customer service or satisfaction. And, whatever you do, don't try to cut corners by failing to adhere to guidelines and regulations.
• Do you have to be told that more sales mean more profits? Probably not. Look for ways to increase your sales at the same time you are figuring out how to cut expenses.
• Ready for a review? It's a very short, simple one. Keep your expenses low, make sure your margins are as accurate as possible, and increase your sales. By doing this, you will be able to get a clearer, more accurate picture of what your franchise profitability truly is.

Only a few people besides yourself need to know your franchise profitability, because it's really no one else's business except those who are directly involved in the franchise. However, this seeming lack of accountability is what makes it easy for you to "play around" with your figures. Don't do it; instead, hold yourself to an honest reckoning.

By contacting one of FranFinders expert franchise consultants, you can be referred to a competent franchise accountant that can review any franchise business profitability numbers.