FranchiseGrade.com has calculated the average Annualized Investment Cost of a franchise location for each major franchise sector based on 1900 franchise systems.
The annualized investment cost is calculated by dividing the average estimated initial investment by the average initial term of the franchise offering. This provides prospective franchisees and their advisers the ability to recognize the long-term investment in a franchise system.
This data is useful to construct cash flow analysis, pro forma financial statements, targeted ROI and to calculate debt payments for franchise investments. Understanding the annualized cost of a potential franchise investment can provide insight into the franchise investment risk and support the need for thorough operational and financial due diligence.
One of the leading causes of franchisee failures is undercapitalized franchisees. Being able to more accurately predict the financial requirements of a franchise investment and compare the results to available investment capital can lower the risk of being undercapitalized.