When exploring franchise opportunities, understanding the numbers behind the business is essential. While the franchise industry generally strives for transparency, figures can sometimes be presented in ways that are misleading—intentionally or not. As a prospective franchisee, it’s vital to scrutinise these numbers closely and ensure you’re comparing like-for-like and understand the potential.
Below are some common financial claims and terms you’re likely to encounter, and what you should look out for:
“Make £1 million in your first year”
This headline grabs attention, but take a closer look. Most of the time, this refers to revenue, not profit. While a seven-figure turnover may sound impressive, it says little about what you’ll actually earn. It’s a classic example of a vanity metric. Focus instead on the bottom line—net profit, EBITDA, or cash flow—to understand the true earning potential of the business. And if you don’t know what these terms mean, it’s vital that you educate yourself or find an independent, trusted advisor to support you.
“Earn £1,000 a week”
As above, but what exactly does this figure represent? Is it turnover, gross profit, or EBITDA? To determine whether this claim reflects sustainable income or just a best-case scenario, you need to delve into the details.
“Your Investment”
This phrase can be deceptively simple. When a franchisor quotes an “investment” figure, ask what exactly it includes.
Your total initial outlay can be broken down into several parts:
- Franchise Fee: The upfront cost paid to the franchisor for the right to operate under their brand and use their systems.
- Included Extras: Some packages bundle training, equipment, software licenses, and other essentials into the franchise fee. Always request a detailed breakdown to understand what is covered—and what is not.
- This figure could be everything to the point of breakeven. Not necessarily a sum payable to the franchisor, but rather the reality of the financial input required until the business starts generating income.
“Your total investment”
This term might sound more comprehensive, but clarity is still crucial. Ask the franchisor:
- Is this the total amount payable to them only?
- Does it include working capital and operational expenses until break-even?
- Are any costs flexible or subject to change?
- Without this context, you risk underestimating your genuine financial commitment.
“Minimum investment”
This figure typically represents the minimum cash you need to bring to the table, with the remainder potentially financed through a loan. While it can be a helpful indicator, remember:
It does not include your living expenses during the startup phase. Ethical franchisors will flag this and help you consider how long it may take for the business to support an income.
A reputable franchisor will support you through a business planning phase that includes:
- Providing example figures from current franchisees.
- Encouraging you to speak directly with existing franchisees about their experience.
- Suggesting you engage an accountant or adviser if needed.
- Even if you’re not seeking finance, a solid business plan is essential to ensure the numbers add up—and to give you confidence in your decision.
Business planning: Three key models
Sound financial planning should include different scenarios to prepare for the realities of running a business:
Funding model
A conservative, lender-ready plan outlining your borrowing needs, ensuring sufficient capital to operate and grow.
Stress testing
Create scenarios for both slow and rapid growth, as each can strain your cash flow in different ways. Understanding these pressures helps you prepare accordingly.
Aspirational model
Set clear financial and business goals. These benchmarks help you measure success and keep your growth strategy on track.
Final Thoughts
Understanding your numbers can save you from costly mistakes. If something feels unclear, exaggerated, or just doesn’t add up, take a step back. Ask questions, seek professional advice, and never feel pressured into signing a franchise agreement without a full grasp of the financial landscape.
If the figures don’t make sense, don’t proceed. The right opportunity will withstand scrutiny.
