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.
We have completed a study on the changes in Ongoing Fees in the franchise industry using our data from 2013 – 2016 to publish the report.
A Franchise Disclosure Document (“FDD”) presents key components of the franchise program including the obligations of the franchisor and franchisees.
As franchise system development becomes more competitive franchise systems are employing a new strategy to grow their brand and increase franchise sales.
The composition of the franchise investment differs in key areas such as: franchise fees, royalty rates, territory protections and Item 19 disclosures.
Data has become essential to having a successful franchise development team. Those that maximize the power of data will sell more franchises.
When reviewing an FDD, we always keep our eyes out for any errors. The error that is the most troublesome for us is when we see Item 20 errors.