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At what point during a five-year franchise agreement should I expect to recoup my investment?
This will vary, depending on the nature of the franchise you’re taking on.
A low cost business could return its investment and start making profits within a few months, certainly within the first year. A premises-based business, which also requires fitting out and employing staff, will take longer.
Indeed, the latter may require an initial term longer than five years to satisfy both yourself and your lenders that the investment will be returned before there’s a risk that the rights to operate the franchise will end.
The way to calculate the time in any particular case is to prepare a detailed financial and funding plan for the outlet in question. This can be done with the help of the franchisor, its recommended consultants or your own accountants, but the majority of the information should come from previous openings. You may even want to check the assumptions with existing franchisees, who have been through the process in practice.
Remember too that it’s not just when the investment will be recouped that’s important. You will also need a cash flow forecast to make sure you have sufficient working capital available to ensure the business can continue trading until that happy day comes along.
Brian Duckett is chairman of The Franchising Centre, part of the world’s largest network of specialist franchise consultants.
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