How Much Can You Make with a Franchise? Here’s How to Find Out.Pinot's Palette
“How much money can I make owning a franchise?” is the number one question franchisors receive from candidates looking to open a business. And for good reason! It takes a lot of time and money to get a business off the ground and you want some assurance that you will see a return on the money that you put into starting the business.
The great thing about joining a franchise, is you can sometimes get a sneak peek at locations’ performance before you invest. This article helps explain what franchisors can disclose in regards financial performance of franchise locations, and what to look for when evaluating a franchise on financial performance. Financial performance representations will help you create a business plan and help you make strategic decisions on site selection, hiring and marketing.
Where can I find financials on a franchise?
Every franchisor is required to present a Franchise Disclosure Document (FDD) before any prospective candidate may sign a franchise agreement. One of the categories in this document is the Item 19 section where the franchisor presents “Earnings Claims.” This is an optional section, as not all franchise systems disclose earnings of franchises in their system.
Some questions to keep in mind as you are reviewing a franchisor’s Item 19 section:
- How many locations are included in the sample versus number of locations open?
- What is the methodology used to include locations in the sample?
- Does the franchisor tie any Key Performance Indicators to the financials presented?
- Does the franchisor include performance of corporate locations?
- Does the franchisor provide cost information?
A franchisor cannot disclose any other revenue performance metrics outside of what is outlined in Item 19. While the information in Item 19 isn’t a guarantee that your location will perform the same, the information may help you prepare a business plan to reach your financial goals.
How does Pinot’s Palette compare to other franchises?
Whether you are researching paint and sip concepts or other franchise business models, it’s important to see how the businesses you’re researching stack up in terms of revenue. According to Franchise Grade, 43 percent of entertainment franchises and 43 percent of service franchises do not report an Item 19.
Pinot’s Palette is one of the franchises that does provide financial transparency for prospective owners. In fact, compared to two other franchises in the paint and sip category who reported location revenues for 2016, Pinot’s Palette’s average gross revenue was over $70,000 more than its competitors.
While it’s important to have a passion for your business and to love what you do, you also need to make a living as a small business owner. Read and compare franchise concept’s Item 19s carefully and work with your franchise development representative to really understand the numbers behind the business.