Many People Looking to Invest In A Franchise Business Are Not ‘Sufficiently Across the Numbers of their Investment’
According to Peter Knight, One of the Country’s Leading Franchise Accountants.
Episode Timeline
- 00:00 – Introduction to the podcast and guest, Peter Knight, The franchise accountant
- 0:47 – What Peter sees in the market and accountants’ view of new franchises
- 2:06 – Benchmark data from existing franchises
- 2:58 – How does a person enquiring for a franchise get the information? The problems with it
- 3:44 – Working out the wages and rent and cost of goods sold
- 4:16 – Next step in the process to come up with the target sales figure to cover expenses, finance, and desired income
- 4:48 – The level of knowledge of buyers
- 5:22 – How much do you want to earn and over what time frame?
- 6:29 – Two approaches or types of people asking about a franchise
- 7:40 – Identifying key factors in information for profitability
- 9:22 – If numbers aren’t great but people still love the franchise
- 10:28 – What he tells franchisors when numbers are challenging
- 11:19 – Benefits for franchisors with a financial basis to work off
- 11:42 – Wrap-up
In the first of our ‘Explainer’ series formats in the podcast, we asked Peter to join us to zero in in a succinct manner on the key factors in assessing the ROI of a new franchise business. That is one that has not traded before and is a new location.
This is as distinct from assessing an existing franchise business ROI which we will look at in a later episode.
The episode is a live recording from the Franchising & Business Opportunities Expo in Melbourne featuring Peter, and we focused on;
- Challenges with New Franchises: New franchise locations, or “Green Field” sites, lack existing financial data, making it challenging to predict profitability. Accountants have to estimate costs such as rent, wages, and other expenses from scratch.
- Cost Estimation Process: Key costs include rent, wages, superannuation, insurance, finance charges, and other operating expenses. Accurate estimation involves obtaining detailed information about these costs specific to the new location.
- Disclosure Document Limitations: Franchise disclosure documents provide general benchmarks and percentages but may lack specific details relevant to individual locations, making it crucial to gather precise figures for a new franchise.
- Decision-Making Styles: Potential franchisees often fall into two categories: those who are emotionally invested in a brand and those who over analyse every detail. Both approaches require careful balancing of passion and thorough analysis to make informed decisions.
