FINDING THE PROFIT IN A BUSINESS BEFORE YOU BUY

The bigger the gap between the amount the company purchased the shirt for and the sale price of the shirt, the better. The gross profit divided by sales will display the gross profit margin; again, the higher the better!

The gross profit is then used to pay all other business expenses (including wages, rent etc.,), after which you are left with a profit or loss. The profit divided by sales will display the net profit percentage, which can be used to compare other opportunities.

UNCOVER OPPORTUNITIES AND MOVE

FORWARD

The numbers are one thing but there may also be hidden opportunities for profit within the franchise operation you’re considering. Operational inefficiencies can make or break a business, particularly when it comes to franchise systems built to scale.

Find out as much as you can about the systems architecture and operational processes of the business you’re looking to acquire. If there’s a lot of manual input you can guarantee there is double (or triple!) handling of data and key information, leading to wasted time and money, as well as the potential for error.

Effective software systems that are well integrated and supported not only improve the efficiencies of your business but also lead to an improved customer experience, which, of course, leads to more sales and – you got it – profit! Plus you’ll have the added benefit of better data and performance insights you can use to make more informed business decisions.

Without much experience, financial statements and digital systems can be quite complex to understand. We understand that the purchase of a business is a significant decision, and suggest you seek professional advice should you need any clarification with financial information such as the indicators mentioned above.

Once you have gathered and interpreted the available financial information, you’ll be in a strong position to establish a range of achievable business profits. Ultimately, where you land within the range is determined by your motivation, drive, skills and abilities as a business owner.

Aaron March is a chartered accountant and director at BlueRock Accounting.

A large part of this growth will be driven via the franchise sector, which is a major employer.

Increased redundancies will also drive people to look at franchise systems as a way forward to learn new skills and generate an income.

So can your prospective franchise provide what is needed to keep the business competitive, to support franchisees, and to help deliver success?

WHAT DO FRANCHISEES ASK THEMSELVES WHEN

LOOKING AT A SYSTEM?

If buying a franchise through an agent or broker, franchisees still want to know who they are going into business with.

It will not be the agent, so meeting the founder or a director goes a long way to giving a prospective franchisee some comfort. This will also help them form a view as to who they are going to be working with and accountable to.

Do their cultural views align? What is the franchisor’s growth and business plan, and does this align with the franchisee’s plan?

Just as franchisors do their due diligence on franchisees, franchisees should and generally will do their due diligence on the franchisor and the people behind the system. This can be done via platforms such as Facebook, LinkedIn, Google, etc.

Franchisees will want to get a sense of whether the franchisor and their management team and staff are passionate about their brand and future, and have a positive mindset.

Does your franchise recruiter have an attitude that is welcoming and encouraging?

BASIC DELIVERABLES

Franchisees will shop around and compare systems within a business sector from the point of view of costs going in and costs to get out, so franchisors need to know what their competitors in the market are offering.

A franchisor who has not implemented proper CRM systems and accounting systems or who has not yet embraced social media is well behind the market. This would be a red flag to a franchisee compared with a franchisor who has all the basic systems in place.

Other questions to ask about the model include:

Is the franchise model easy to follow and implement, and does it offer a service or product that has longevity (ie not just a passing fad)?

Is there a reasonable split of the revenue or other