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NEW: Jacqui Walker

SmartCompany /

I don’t mean to pry, but are you making money? Recent high prices paid for some franchises are not necessarily good news for the industry.

Is it worth it?

If you’re a franchisee, I have a tricky question to ask you. Are you profitable?

When I ask this question, I don’t mean are you breaking even or are you taking home a decent salary. I mean are you getting a good return on your investment?

If you bought your franchise in a big name chain in the past two years, there is a good chance that you are not. Some franchisees in the biggest brands secured some excellent prices for their franchises as they exited the system at the top of the franchise boom a year or so ago.

There was a Boost Juice franchise at Knox Shopping Centre in the eastern suburbs of Melbourne that reportedly changed hands for about $850,000, making a lot of money for the franchisee who set it up a year earlier for about $250,000.

In the west of Melbourne, the Highpoint shopping centre Boost Juice franchise was valued at $1 million by another buyer.

You could say the big prices are good news for franchisees. It means there is a lot of confidence in the brand and the system.

But the big prices have a sting in their tail. If you are the buyer and you paid a big price, that business has to keep performing very very well for you to make a good return on your investment.

As retail trading conditions have softened, this has become tough for many chains. And there is also seasonal variation you have to watch. For instance, people drink less juice in winter.

And worse, sometimes franchise chains are built on a fad. Franchising allows a fast way to take advantage of a fad, but it also means that when the fad is over, there will be more pain as the franchise contracts. I suspect that there are a few people feeling the pressure now.

It’s worth remembering that even in franchising, if you are not making a lot more than a salary, then you should have your money in the bank. It’s safer.

 

For more Eye in Franchising blogs, click here.

 

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