Keep the following three tips in mind if you are a prospective franchise business owner reviewing opportunities. (And please be sure to review the chart included below for average income in major franchise categories.)
1. Don't be fooled by big, top-line numbers, impressive as they may be.
As a business owner, your take home income will ultimately come out of your business's net profit or "bottom line." While the gross sales/gross revenue of any business (commonly referred to as "top line revenue") may seem impressive, it is critical to understand the profit margin of the business, the percentage of money left over after all business expenses are paid.
Profitability varies from business to business, and industry to industry. How well a business is managed by the owner will have a significant impact on how profitable it ultimately is. I've seen $1 million dollar businesses that don't generate any profits – or worse, are losing money. I've also seen smaller businesses that generate only $100,000 to $200,000 in gross sales, yet turn a net profit of 50 percent.
The key is to not let big top line numbers blur your judgment. The bottom line of a business is much more important. Do your homework and figure out realistic sales and expenses of the franchise business you are considering. Talk with current franchisees about their experience. They will be your best resource for understanding a franchise business's true profit potential.
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