Investing in a franchise is basically the same as buying any business. The financial aspects are covered in the SCORE Brief # 12.00 Buying a Business. In addition, however, an important aspect of buying a franchise is evaluating the investment consequences from the franchisee's viewpoint; the discussion below outlines a method for such an evaluation.

1. Determine the cost of the franchise privilege:

What is the total franchise package price? $___________

Estimate the value of all tangible items furnished in the package:

Merchandise or inventory: $___________

Equipment and related supplies:  $___________

Paid expenses to attend training, travel, motel, etc.: $___________

Prepaid or stated share of local advertising cost to be paid by franchisor: $___________

Literature, sales aids, stationary: $___________

Other identifiable assets: $___________

Deduct total value of asset items: ( - ) $_______

Net Cost (price minus assets): (=) $________

Whether net cost is stated in the contract or must be computed as above, it represents what you are paying for the operating expertise, public awareness of the name, training and general guidance.

2. Calculating the total investment risk vs. time to recover

Total franchise package price: $___________

Plus estimated additional expenses not covered in the package: attending training, preparation of the store or operation site, acquisition and preparation of a van or vehicle: ( + ) $___________

Total Venture Development Cost: ( = ) $_________ (A)

Make a realistic estimate of the average monthly operating profit for this venture without charging a salary for your time.: $_________ (B)

Compute the interest earning power of sum (A) (Total Venture Development Cost) as if it were to be invested in the money market at a current percent annualized return. Divide this amount by 12 to get the monthly return C:  $___________ divided by 12 $_______(C)

Subtract (C) from (B) to reflect the loss of earning power of your Total Development Cost. This equals your Adjusted Operating Profit: ( - ) $________ (D)

Divide (A) by (D) to determine the number of months to recover your investment: ( = ) $_________ (E)

3. Risk versus Time

Does this investment reflect the best return for your money and time? At least you now have a measure of the value of your investment money. The final answer will have to be weighed against what other gainful employment might be available and how determined you are to "own your own business."

There are no refunds on these investments. Seek help before signing. Review your findings and plans with professional advisors, and a legal opinion on contracts is always advisable. Note: For general information on selecting and operating a franchise, refer to the SCORE Brief #11.00 entitled "Franchising."

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Disclaimer

The information contained in these briefs is for general information only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information, products, services, or related graphics contained in the briefs Through these briefs you may be able to link to other websites which are not under the control of SCORE therefore the inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them. Any reference from SCORE to a specific commercial product, process or service does not constitute or imply an endorsement by SCORE, SBA, SCORE Chapter 34, SCORE Chapter 107, or the United States Government of the product, process, or service or its producer or provider.

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