Getting A Higher Price When Selling Your Restaurant In 2019

Getting A Higher Price When Selling Your Restaurant In 2019
Chris Viscup a prominent New York Business Broker with Transworld said “One of the other most important parts of selling your restaurant is to make sure your books are in order. It will be your job to prove out how much money trickles down to you through the company and what this can look like to potential buyers.

Getting A Higher Price When Selling Your Restaurant In 2019
by Gary Occhiogrosso Contributor
Photo by Rod Long on Unsplash

It’s 2019 and after years of hard work you’ve now decided to sell your restaurant, perhaps to open a different business, or retire or relocate. Whatever the reason, selling a restaurant requires a strong strategy, careful planning, and detailed preparation. In this article, we’ll explore some essential tips and steps needed to put you on a path for a quicker sale at the highest possible price along with a smooth transition.

Let’s Start With First Impressions.

The appearance of your restaurant not only matters to your customers, but it also matters to potential buyers. Bad “curb appeal” on the initial visit may be all it takes for a potential buyer to take a pass on a more in-depth look into the investment potential of your restaurant. Make sure everything inside and outside the restaurant is clean. If your establishment is a free-standing building, then the quality of care for the property will be an early indication of the level of care taken in building and growing the business over the years. Items like trimming the grass, keeping the parking lot and surrounding area clean and free of trash are crucial to curb appeal. Maintaining clean windows & glass doors, polishing handles, deep cleaning the grout in tile floors and shampooing carpeting are some simple things that will pay dividends to the buyers first impression. If the restaurant is a storefront location, then you’ll also need to make sure any cleaning and improvements that may be the responsibility of the landlord are taken care of before showing the business.

Nothing says “I don’t care” or “I’ve given up on this place” more than broken or missing equipment. If your kitchen equipment is not in 100% working order, it may set up doubt in your financial presentation regarding production capabilities. Also, nonfunctional equipment is detrimental to employee morale and productively. Ultimately that lack of productivity shows up on the Profit and Loss Statement (P&L) in the form of increased labor cost. Every part of the restaurant should present itself as credible to handle the current volume as well as to grow the business in the future. Make sure all of your equipment works. I can not emphasize enough to take the time in advance to replace or repair any broken equipment.

Remove personal items you do not intend to include as part of the sale. Doing this helps avoid any misunderstandings later between buyer and seller. For example, your personal laptop computer used for the business sitting on your desk may be mistaken as part of the assets for sale. Later in this article, we’ll cover making sure a complete equipment and asset list is written. However, the cleaner and less cluttered the visual aspect of the facility, the less chance for any misunderstanding when it comes time to negotiate.

And lastly regarding the facility, don’t be afraid to spend a little TLC money. Making a small investment, such as freshening up the paint, or replacing ceiling tiles, or reupholstering a ripped seat cover can go a long way to increase the visual appeal of your restaurant. These quick fixes will have a positive impact on your sale price and the time it takes to sell the business.

Put Your Financial House In Order Now

Presenting an honest, straightforward, financial picture of your restaurant is the most critical factor in determining accurate valuation and sale price. Professionally documented results regarding unit economics, profitability, and true owner benefit are what buyers, their accountant, and lawyer will be investigating in the due diligence phase of the process. Whether or not potential buyers purchase your restaurant depends on whether or not they think it will make money and provide a reasonable return on investment (ROI). Therefore, the financial information you provide to the buyer is the most significant factor in determining the success of the sale.

Ideally, you have practiced clear and organized bookkeeping since you started your business. If not, then arrange financial records going back at least one year before the time you list your restaurant for sale. That way potential buyers will have a trailing 12-month picture of the restaurant’s performance and trending. It is likely that buyers will ask to see a profit and loss statements and a balance sheet. If you are unable to create them yourself, have your accountant prepare them in advance so you do not feel rushed later in the sale process.

Make A To-Do List For Yourself

Financial statements aren’t the only aspect of getting organized. This step also includes creating a written list of all hard assets such as furniture, fixtures, small wares, and equipment. Also, a copy of your lease should be available for review in the due diligence phase of the transaction. Additionally, be prepared to document that all of the restaurant’s bills are up to date. Be ready to prove in writing that your sales and payroll taxes are current and paid in full. Employee payroll information needs to be in a presentable format and up to date. A to-do list will help you make sure everything gets done so that the sale goes as smoothly as possible.

The Hunt For Buyers

There are two ways to find potential buyers: find them yourself or hire a business broker. The process of valuation, listing, advertising, and vetting potential buyers is time-consuming and in my opinion, requires professional experience and know how. Although many sellers take this step on their own, a professional business broker can support the process by offering recommendations and presentations that save time and attract more potential buyers.

When you interview brokers, be sure to ask them how long they have been in the business of selling businesses, what their specialty is, how many listings they have now, and how many restaurants they have sold in the past year. Also, ask if they have prepared contracts for this type of transaction and how they plan to determine the value of your restaurant. Discuss their answers with your financial and legal advisors to determine if the broker has the right qualifications, experience, and track record.

One prominent New York Business Broker I spoke with said “One of the other most important parts of selling your restaurant is to make sure your books are in order. It will be your job to prove out how much money trickles down to you through the company and what this can look like to potential buyers. Without this component, you will either fall prey to lower offers than you would otherwise be getting, no offers, or end up with buyers wasting your time and never getting to the finish line. Not having good books leads ultimately to the two biggest deal killers – lack of trust and too much time for the transaction to close. With a good broker and good books, most of the heavy lifting is completed in the beginning, before putting the business on the market. Once you sign with a broker, there should be significant time dedicated to proving out the numbers – what they are, and what they could be. Every minute you spend in the beginning will save 5-7 minutes later.”

On the other hand, if you decide to go it alone and forgo hiring a business broker, then you’ll need to get some additional advice from your attorney and account. They can assist you with the proper valuation and selling price. Setting an unrealistic or emotional price on the business will slow the sales process or cause it to fail altogether. Actions to take also includes advertising and listing the restaurant on websites that post restaurants for sale. Keep in mind professional business brokers also use these websites, so competition exists. However, if you study these websites carefully, you should be able to get a good idea on how to word your ad for better results.

Always Be Ready

Whether you list your restaurant on your own or with a broker be prepared to show your restaurant to potential buyers at all times. Since you may have a buyer visit you unannounced, it means keeping the restaurant clean, fully staffed and well-managed no matter the day and time. You never know when a buyer might drop by to take a look. I also remind my clients that any customer in the restaurant may actually be a buyer doing some research before they contact you.

Once The Buyer Is found

At this point, if you’ve found a buyer and negotiations have been successful, then the final step is the paperwork necessary to complete the transaction. The paperwork usually starts with an “Asset Purchase Agreement.” Your attorney should prepare this document for you. The Asset Purchase Agreement details all the components of the sale. Items such as the sale price, the terms (if you are holding a note), a full and complete equipment list, the amount and value of the inventory you will have at the time of closing, the length of time (if any) that you are willing to train the new owner as well as any contingencies regarding the lease assignment from your landlord and of course a deadline date to close the transaction. Regardless of whether you’re working with a business broker or selling on your own, in all cases, I recommend you have your attorney involved to ensure the Asset Purchase Agreement covers all the various aspects of the transaction.

In addition, once you have a buyer engaged but before the final closing date, you should continue to operate your restaurant as if you are not selling it. Acquisitions sometimes fall through at the last minute, and you don’t want to create extra work for yourself in getting everything back up to par again if that happens.

Plan And Proceed

Smart and detailed planning will minimize glitches and deal-killing problems, throughout the transaction. Business Brokers warn: “The biggest disasters all come with one thing in common – wasted time. Without proper planning, not only may you decide to accept an offer lower than what you desire, but you will lose a good portion of your time getting there. As the saying goes – An ounce of prevention is worth a pound of cure! Make sure you front-load your business and get all the materials you need in order before you sell it.”

I recommend you spend the time upfront, planning the sale, organizing paperwork, investigating brokers and deciding the best time to execute your plan. Selling a restaurant can be a smooth, simple transaction if these tips along with the advice of your accountant and attorney are put into practice.

Branding Drives Restaurant Sales

Create Branding To Drive Restaurant Sales And Growth…

A restaurant must connect with the lifestyle of consumers. The first step to doing this is to have a definite name, image, and brand message.

Create Branding To Drive Restaurant Sales And Growth
By Gary Occhiogrosso
Forbes Contributor
I write about the franchised restaurant and food services industry.

In the past, restaurant advertising consisted mainly of print and broadcast advertisements along with word of mouth. Branding isn’t accomplished solely through conventional advertising. Although advertising uses the branding elements, it refers to so much more. Branding is the practice of making a name, symbol, reasons, and guest experience stand out in the minds of consumers. Branding gives the company and its products a competitive edge above other companies which provide similar products. Thousands of restaurants serve hamburgers, but why when people think about burgers, their minds immediately go to McDonald’s or Burger King? It’s because the power of branding connects the product to a bigger picture. Today’s savvy consumers expect more than merely a place to have a meal. They are not only hungry for lunch but eager to connect with the experience the product or service provides.

Spotlight on branding
In today’s noisy advertising environment restaurants must cut through the clutter with a cohesive advertising and marketing strategy. Franchised and chain restaurant brands spend a great deal of time, effort and dollars on this critical aspect of their business model. Creating and enforcing their brand image is a crucial task for their marketing teams. Smart restaurants marketers understand the need for a consistent brand voice with a clearly defined marketing plan. This consistency is vital because locations in the chain must present consumers with the same image and message to avoid confusion and brand dilution.

Additionally, many consumers want to know what a company stands for, it’s mission, how it goes about its business and why you should eat at a particular restaurant. The need for guest engagement has led restaurant marketers to pivot from purely traditional advertising to creating a total restaurant experience. These experiences include social causes the guests share, their experience with friends and family via social media and their connection to a community. The evolution of social media platforms such as Facebook, Instagram, Twitter, and Yelp, as well as search engine optimization, and online ads have become the new messaging channels used by marketers to increase “occasion to use” and brand loyalty. Today’s chain restaurants employ tactics including traditional advertising, social media messaging and participating in local events that support the community. Creating value and loyalty through brand image and guest experience lives in the mind of the guest long after the meal.

Creating a connection is key

A restaurant must connect with the lifestyle of consumers. The first step to doing this is to have a definite name, image, and brand message. Usually, the owners of the business and a branding team come together to discuss and decide on what the restaurant will mean to their future customers. This step should be accomplished at the beginning of the business planning.

Jennifer Williams, the founding partner, of “the watsons,” a New York City based branding firm, describes the importance of restaurant branding like this: ” The National Restaurant Association reports that Americans spend $799 billion a year on restaurants. Beyond clothing, restaurants are the most searched type of business online. Competition is fierce, and branding is more important than ever before. Whether yours is a franchise or independent restaurant, it takes more than great food and service to lure customers and build loyalty and repeat business. It takes a well-defined brand that resonates emotionally with your customers. A brand is essentially the personality of your business. Moreover, its value is derived from the connection people make with it. In today’s crowded restaurant sector, where many chain restaurants offer similar menus, your ability to differentiate yourself – can make or break your success.

READ THE ENTIRE ARTICLE HERE https://www.forbes.com/sites/garyocchiogrosso/2018/11/14/create-branding-to-drive-restaurant-sales-and-growth/#537d8cd3487a

Learning From Franchisee Mistakes

Don’t ignore the warning signs. Franchisees are indeed some of the most valuable resources of information when you are considering a franchise for purchase.

Learning From Franchisee Mistakes

By: Sheba Pottebaum

Franchisees are indeed some of the most valuable resources of information when you are considering a franchise for purchase. Moreover, some of the best information you can discover as a potential franchisee might be to ask past/current franchisees just what they would do differently if they were able to purchase their individual franchise investment over again. Following are some of the most common areas of franchisee complaints and regular objections.

Marketing – Most franchisors have already addressed marketing as a significant part of their respective “system.” New franchisees are typically inundated with advertisers from every direction at first. Simply, unless you have what you think is a particular untapped source of new business, stick to the marketing plan supplied by the franchisor. Marketing budgets can easily and quickly get out of hand.

Equipment – Equipment costs, particularly concerning more “general” items (appliances etc.), are often a source of complaint among franchisees. Ask the franchisor where they found and how they found the prices for their equipment. Suggest different sources or resources if you find large discrepancies in vendor pricing.

Leases – If you are considering a franchise with a “box” location (retail etc.) its good to ask about the lease terms and how they were negotiated. Franchisees can often get several free months of rent when negotiating longer terms – remember to ask if these months can take place upfront, freeing up capital as you are just getting established.

Build-Out – Be active/involved in the construction cost/estimation. Many times fixtures and materials are priced differently from one region of the country to another.

Labor – Labor costs are usually the area where new franchisees can make initial mistakes. Be diligent and remember not to hire too many employees at first, or promising too much pay initially. There is often a fine line between “making” or “breaking” one’s franchise when employment costs are not estimated correctly.

Inventory – Remember to ask existing and past franchisees how they were able to “tighten” their profit margins. A common area of suggestion is to analyze inventories and pricing. While not just important in the initial phases of the franchise rollout, constantly scrutinizing and adjusting inventories with demand is a way to help profits continually.

Author Resource:-> If you are looking to buy a franchise opportunity, please visit us and take advantage of our sophisticated search engine. We have many franchises for sale to choose from.

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Franchises Whats The Exit Strategy?

Franchises Whats The Exit Strategy?

At an International Franchising Symposium in London, Peter Holt made the bold statement to his audience of Franchisors that they needed to understand …

Dennis Schooley, BBA, CA

At an International Franchising Symposium in London, Peter Holt made the bold statement to his audience of Franchisors that they needed to understand that their business would fail, and in fact all businesses are bound for failure. Needless to say, there were a few shocked faces in the crowd. He was making the point that it really is just a matter of the number of calendar flips before time strangles any business. Its a hard point to argue when you think that the Neanderthal Fortune 100 included Barneys Dinosaur Obedience School. Not a lot of money in that these days.

Evolutionary change would seem to indicate that we should all prepare for failure. Of course, if we do an extremely good job, perhaps our grand children’s grandchildren have the problem, and we can rest easy in the hammock for now. In a much more practical view of the calendars we get to flip ourselves, we should think about creating a successful Franchise business, maximizing the value, and realizing the optimum return with an appropriate exit strategy.

The folly often lies in not considering this part of the equation at the very time that you are considering entry into the Franchise in the first place. That’s exactly the time when you need to give significant consideration to the value of the asset that can be created. Ongoing profitability, cash flow, and emotional fulfillment, are all important criteria in the process of making an informed business decision about becoming a Franchisee. But then so is the growth of the asset value you create, along with the ease of realizing that value at the time you intend to exit.

Snagglepuss always knew it was exit, stage left, but that is not always so clear in the operation of a Franchised business. What is clear is that some dedicated thought needs to be applied at the time of entry so that appropriate strategic planning is put in play. Lets consider a simple example to illustrate the importance of this consideration where you can increase the value of the business by $200,000 in five years, and there is a ready and willing market for the business at the end of that time. A straight-line application of the value increase, without considering the time value of money, would indicate that the real average annual earnings would be $40,000 over and above the net income of the business.

That should tell you that a business that earns $80,000 per year in profit might actually be a better investment than a business that makes $100,000 per year, if the latter has significantly less realizable value at the time of exit. If the plan is succession to family members, then again, the value of the asset to be transferred is of paramount importance, and not just the annual income.

Of course the timing of exit or liquidation will carry significant weight, and its not always in our control. Gilligan’s partnership share of Skippers Cruise Lines would have been much more valuable before he met Thurston and Lovey. That would indicate that we shouldn’t put the hens product all in one wicker carry case. The consideration should include both ongoing profitability, as well as ultimate asset value at the planned time of exit.

The value of planning cant be overstated. The Allies didn’t just decide to go for a boat ride across the English Channel to Normandy one sunny afternoon. The Miami Dolphins didn’t win three Super Bowls in a row in the 1970s because they won the coin toss. They even withstood the infamous Garo Ypremian foibles, because their plan was tight and well executed.

It certainly makes sense that a tight, and well executed, business plan would include both the profitability of the venture, and also the ultimate cash value at the end of the rainbow. The Franchisor should be able to provide you with pertinent information about asset growth, and the factors that will affect transition. If they are unwilling to discuss the matter, the solution is simple run!

All good Franchisors should be looking for Franchisees that wish to maximize the value of their business with a well laid out plan. That will only enhance the value of the Franchise system as a whole, which increases value for each individual stakeholder. For the Franchisee, it really should be a significant attraction to become involved in the business in the first place.

The 21st century businessperson is the spawn of corporate hijinks and technological advancements in todays global marketplace. What mattered in the past is not important now, including individual employees, whole departments, and entire processes. The new entrepreneur needs to control their own destiny, and will not place their fate in the hands of others. They will not risk Mr. Dithers handing them a pink slip. They believe that assessable risk is required to earn financial freedom. They also understand that the proper equation to assess risk includes both current profitability plus long-term asset creation.

Of course, there must also be emotional attachment to the business at hand in order to optimize value. If the plan is to grow the business to maximize value, and there is emotional commitment to that plan, the results can be dramatic. How important is emotional attachment? Ive stayed in hundreds and hundreds of hotels, and yet Ive never seen anyone clean the toilet in their room. There’s simply no emotional attachment to the asset. Ive never seen anyone wash their rental car either. Nurturing, prodding, improving, adjusting, and building, all take commitment in order to be the creator of the ultimate value.

Like a baboon picking fleas, each business opportunity has to be examined carefully. The asset value of some service-based businesses will often hold value, and in fact increase in redeemable value as each new client is added to the business. The exit strategy of a retail location should include an assessment of the initial investment required, real estate values, competition, and demographic factors. The history of increases in Franchise Fees should also be considered to predict future minimum transfer value.

I experienced a good case in point about Franchise Fees. In 1972, a good friend and I decided that March break was best spent at Franchisors as all good first-year college students conclude. We found this new restaurant there that had line-ups around the block – literally. It was called McDonald’s. When we returned to campus, we went to the library to do some research because we were told that McDonald’s might entertain building one more restaurant for the right person. The cost at the time was $25,000. If we could have figured out how to raise the money, we would have become partners in a McDonald’s Franchise, and my bet is we would have at least doubled our money.

Portability of transfer, able & willing marketplace, skills & training required for entry into the business, and predicted brand value at the time of anticipated transfer are all part of the equation. Flexibility of the Franchisor to address new market opportunities will create new markets for the Franchise. In addition, expansion plans of the Franchisor need consideration. Static doesn’t cut it. A plan to continue to bring in new and vibrant Franchisees well into the future will increase brand value, and nurture the market for the product or service of the Franchise system.

O.K., I didn’t say it would be easy to assess. There’s a lot to think about. What I am saying is that it would be foolish to avoid the issue. The timing of exit may be 10 years down the road, or 15, or even 25, but at the very least, it should be considered as a part of a long-term strategic plan. Daniel Hudson Burnham said Make no little plans; they have no magic to stir men’s blood. So plan. Plan to profit. Plan to nurture and build. And plan to exit.

The factors listed above must be assessed and ranked in order of importance before understanding the true value of the anticipated business venture. The maintenance and growth of asset value, as well as portability on transfer will ultimately determine the real return on investment.

Even though Barney was on the bleeding edge when he invented the dinosaur biscuit to reinforce good behavior, his target market ultimately went with the cats and dogs option. Of course, there wasn’t a big market for VoIP and Blogs in that digitally deprived age, when zeros and ones referred to the near death experiences of that particular day. Oh yeah, and it wasn’t that long ago, when McDonald was an old farmer.

The real message is that Barney should have had a plan to find a buyer before Rin Tin Tin and Sylvester showed up on his neighbors doorstep.

Franchising Symposium,businessperson, profitability, service-based businesses,find a buyer, foreclosure, liquidation,Franchisors, Franchisors, succession,Miami Dolphins, exit strategy, cash flow, and emotional fulfillment,new market opportunities, strategic planning, asset value

When Should a Franchisor Step In and Purchase a Franchised Outlet Which Is For Sale?

When Should a Franchisor Step In and Purchase a Franchised Outlet Which Is For Sale?

By Lance Winslow

Often, franchisors will buy out their existing franchisees, or allow their term to expire and then fail to renew it so they can take over the territory and franchised outlet and run it in-house. Franchisors need to be very careful with this so it doesn’t appear as if they are purposely making the franchise relationship difficult so they can move into an established territory that the franchisees has spent a lot of blood, sweat, and tears building up the brand name in that area.

Now then, there’s another situation which happens quite often, and that is when a solid franchisee has determined they want to sell their business, and the franchisor would like to buy that location and run it. It’s easy to get into a bidding war where the franchisee finds a buyer who’s willing to pay X amount of dollars, and tells the franchisor that he must approve this new buyer, or make them a better offer. Still, just because a franchisee finds a franchise buyer doesn’t mean that that franchise buyer is anyone the franchisor would ever care to do business with, or allow into the franchising system even if that buyer were to buy a brand-new franchise.

Are you beginning to see the legal difficulties here? Some franchise agreements are so strict, that not only does the franchisor have the “first right of refusal” but the franchisor in the disclosure documents also demands “the first right of purchase” – in fact in our franchise agreements we stipulated our right as a franchisor to both of those legal clauses. Okay so, when should a franchisor step in and purchase a franchised outlet which is for sale? Just because a franchised outlet is making money, doesn’t mean the franchisor can step in take over the business, and expect it to do the same amount of volume or better.

Remember, one of the reasons that franchisors franchise in the first place is because there is individual ownership, and therefore pride is taken in the franchised outlet, and a company-owned store couldn’t hire a manager who would ever care that much. What I’m saying to you is that as a franchisor hiring a manager to run that outlet, you may not be able to do as well as the former franchisee. In essence, you should expect to lose 20 to 30% of the customers when you change ownership back to the franchisor.

That may sound like a lot to you, but generally, typically that’s what happens. A franchisor should realize that situation prior to buying a franchise outlet for one of their franchisees. If you subtract out the 20 to 30%, and it still looks like a viable business opportunity, the franchisor may decide to put forth the capital and buy out the old franchisee. This is just one consideration I hope you will think on if you are faced with this situation.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 24,333 articles by August 3rd at 3:33 PM will be difficult because all the letters on his keyboard are now worn off now.

Article Source: http://EzineArticles.com/?expert=Lance_Winslow

Quotes from “The Donald” and we don’t mean “You’re Fired!”

Well, yes, I’ve fired a lot of people. Generally I like other people to fire, because it’s always a lousy task. But I have fired many people.
Donald Trump

I mean, there’s no arguing. There is no anything. There is no beating around the bush. “You’re fired” is a very strong term.

Donald Trump

I’m not running for office. I don’t have to be politically correct. I don’t have to be a nice person. Like I watch some of these weak-kneed politicians, it’s disgusting. I don’t have to be that way.
Donald Trump

You can’t know it all. No matter how smart you are, no matter how comprehensive your education, no matter how wide ranging your experience, there is simply no way to acquire all the wisdom you need to make your business thrive.
Donald Trump

I like thinking big. If you’re going to be thinking anything, you might as well think big.
Donald Trump

Well, real estate is always good, as far as I’m concerned.
Donald Trump

I have made the tough decisions, always with an eye toward the bottom line. Perhaps it’s time America was run like a business.

Donald Trump

Watch, listen, and learn. You can’t know it all yourself.. anyone who thinks they do is destined for mediocrity.
Donald Trump

One of the key problems today is that politics is such a disgrace, good people don’t go into government.

Donald Trump

Well, yes, I’ve fired a lot of people. Generally I like other people to fire, because it’s always a lousy task. But I have fired many people.
Donald Trump


It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.

Donald Trump

Anyone who thinks my story is anywhere near over is sadly mistaken.
Donald Trump

Making Money as a Franchisee

This article is written and owned by Matthew Anderson

When investigating a franchise opportunity one of the most difficult pieces of information to get from the franchisor is how much money you might make. This may be frustrating because you are not going to invest in a business until you have a good idea of what you can earn. In most cases the franchisor is not being purposely difficult. The Federal Trade Commission (F.T.C.) and many states have stringent regulations as to how franchisors can provide this information to prospective franchisees. However, there are ways to get this essential information.

Why is the government regulating franchisors?

Early in U.S. franchising history there were many instances of abuse, particularly where unjustified or misleading earnings claims were used to sell franchises. In 1979 Congress passed legislation authorizing the F.T.C. to regulate the franchise industry to try to stop any such bad practices. A number of states also passed similar legislation. The current F.T.C. and state rules do not forbid a franchise company from supplying information about the earnings that can be achieved in their business. They do, however, regulate how this information can be given to a prospective franchisee.

A franchise that wants to provide earnings claims must put it in writing in their UFOC (UFDD) disclosure document. Also, it is essential for the franchisor to make sure that the data provided is accurate and not misleading and they need to clearly label any assumptions or qualifications on the data provided.

Assuming they meet the legal requirements, a franchisor is free to provide whatever earnings information they want to a perspective franchisee in terms of sales, expenses, cash flow and income.

Why don’t all franchisors provide this information?

It sounds relatively simple but there are still many franchisors that don’t provide earnings claims. There are two likely reasons:

First, producing an earnings claim does involve effort and expense for the franchisor. Second, the results may not be attractive enough to assist in the recruiting of new franchisees.

Where else can you find this information?

If a franchise does not provide an earnings claim in their UFOC, (UFDD) the best source of information to find out how much money you might make is the existing franchisees of the system. Call them and ask. Item 20 of the UFOC (UFDD) provides a list of current and former franchisees along with their contact information. You will be talking to many franchisees anyway as part of your due diligence so make sure you also cover the subject of the averages and ranges for earnings in the system. By gathering actual performance statistics, you will have a realistic starting point in determining how much you can expect to make in a similar business.

What’s a reasonable level of earnings for a franchise business?

Once you have earnings data, your next question will be whether the probable earnings represent a good return on your investment.

Remember that when you invest in a franchise, you are investing both your time/talent and your money. Therefore, you should reasonably expect a greater return than you would for a passive investment of money only.

If a good return for a passive investment is 10% to 15% per year, you will want to see a greater return in a franchise opportunity. After all, the time you put into your new business should yield you a return at least equal to the return on the money you invest, maybe not the first year but certainly down the road.

A second important point to consider is that a higher franchise investment does not necessarily mean a higher rate of return. While this seems contrary to common knowledge, there are plenty of low to mid-range investment franchises that provide great return on investments. Don’t limit yourself only to high-investment franchises when seeking that business with a high ROI.

How much money you will make as a franchisee depends on many factors — from the structure of the franchise (e.g. retail versus service), to how long your franchise has been operational, to how well you understand and embrace the system, to your enthusiasm for the business and how it will help you realize your dream. But, with a little research, you can get enough information to decide if this opportunity makes financial sense for you.
About the Author

Matthew Anderson is the founder of The Franchise Shop website which specializes in top UK franchises for sale.

Franchise Opportunities are here

Franchisors using Social Media to grow their business.

Social Media: A New Frontier in Franchise Development?
From Franchise Update

Social media platforms are now emerging as franchise recruitment tools. Granted, it’s still early in the adoption process and only time will tell how successful these new channels are in generating leads and franchise sales.

Read the entire article here, www.franchise-update.com/article/1136/