Many people who want to own a small business choose to start a franchise. But like any other business type, not all franchises are successful. While some franchise brands have performed better than others over the years, following some core principles can increase the likelihood that the franchise you select will be profitable.
First, perform your due diligence upfront to ensure the franchise you’re interested in has the right business model and systems in place to generate revenue. If the franchise’s business model is not rock solid or you don’t agree with it, the franchise is probably not for you.
Next, the franchise should be scalable so operations and revenues can expand while keeping expenses controlled. A good way to get a quick look at the franchise’s actual scale is to evaluate its operating margin. A higher operating margin where revenue growth exceeds the growth rate of expenses is preferable to a lower margin where expenses grow in proportion to your revenue.
Third, look for a happy and healthy business relationship between the owner of the franchise and its existing franchisees. If opinions expressed by existing franchisees about operations are too far out of alignment, a wide variety of management problems can occur that may hurt profitability.
Last, the location of the franchise is extremely important. The best brands in the world simply won’t do as well as a franchise if the location is terrible. Location is so important that it can overcome negatives from not perfectly executing the other aspects of franchise prospecting and ownership.