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How Much Can I Make?

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Robert Bond says that all franchise buyers should ask themselves one main question — how much can I make? But answering that is quite difficult since many franchisors and even franchisees don't want to tell you.

"You [the franchise buyer] have a great deal at risk, and you don't get a second chance," writes author Robert Bond in the preface of How Much Can I Make? "Your cheapest form of insurance is the time you put in investigating a business before you invest. Take full advantage of the tools available to you."

Ideally, a buyer could look at financial ratios and EBITDA figures to compare one franchise system to another. After all, buyers need to know how much can reasonably be expected for a return on investment and to compare that return with the opportunity cost of investing time and money to get back even better returns elsewhere. But there is no equivalent to Dun & Bradstreet's Industry Norms and Key Business Ratios for franchises.

Bond is the first to mention that franchisors know what earnings franchisees make — after all, franchisees must pay royalties based on their sales performance. Franchisors are also likely to know franchisees' average profits. Sadly, few are willing to release such financial reports and the few franchisors that provide earnings figures do so in myriad ways, so it is next to impossible to compare systems.

To understand a franchise investment in a meaningful way, there should be other metrics. For example, the satisfaction in the franchise relationship could also be measured through franchisee satisfaction surveys in which almost all franchisees participate. Or franchise agreements could be evaluated by attorneys to see where they fit in a range running from franchisee enslavement to franchisee freedom. After all, there are franchise attorneys who do just that — evaluate franchise agreements. Sadly, no comprehensive listing based on these metrics exist. Some publish franchise best buy lists, but rather than publishing the numbers, it's a case of, "Trust me, this is how our magical numbers come out."

That method of operation does not fit Bond. He publishes the numbers the way the franchisor gives it to him. How Much Can I Make is about as substantitive as it gets in the franchise industry.

Bond's book provides the best launching point to date to compare financials. It's not perfect, but it's as good as it gets at the moment, providing some 93 earnings claim statements that are separated into food-service, lodging, retail and service categories. That's more than anywhere else. This gives the serious investor a point of reference when looking at franchise systems, even if different franchise systems report in different ways.

The information in this book cannot be just obtained from paying thousands of dollars for franchise disclosure documents that can run from $220 a pop (no-cost FDDs may be accessed via free and state databases). The buyer would have to find out which systems provide earnings claims to be able to make comparisons. Bond also sent out questionnaires to franchisors, enabling such things as the comparison of numbers of support staffers, or learning that the chain is concentrated, say,  mainly in California and Florida — good to know if you are in Michigan.

This book is as non-fluff as it gets in understanding the financial returns of a franchise. It won't completely spell out the financials. What it does is show how to put financial performance representations, statements and other related resources to good use.

Franchising Resource Center has some 30 franchise industry books and reports. This book is the one essential reference for any serious franchise buyer doing their homework.

Listen to a Podcast interview of Robert Bond, Where to Find Earnings Claims

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