When Will My Canadian Franchise Turn a Profit?
The timeline for a franchise's profitability is normally at the forefront of any prospective or new franchisee's mind. This makes sense; you invested time and money into the franchise, so you want to know when you will reap the rewards. When you consider profitability, there are many factors at play that will determine how soon you will see profits you can pocket from your Canadian franchise.
You can buy a franchise in many different industries in Canada, and many of those industries have subsets, too. Some franchise types, such as those that are home-based with little overhead, are capable of being profitable faster than a fixed location with more upfront expenses. A brick-and-mortar location has more expenses, such as rent, the building and inventory, which means that it's likely to take longer to turn a profit.
Your financing avenue
There are many different ways people finance a franchise in Canada. Should you decide to finance your new business, you will be adding new costs into the mix. The principal and interest you'll pay on your loan will lengthen the amount of time it takes to become profitable.
The management style
Manager-run and owner-run franchises both have their upsides and downsides, and the costs are different, too. When you are determining when you may become profitable, don't forget to weigh the costs of working for yourself versus the added expense of hiring a manager to run your location instead.
Understanding the bottom line
Many new franchisees mistakenly believe that the franchise's profits immediately become personal income. There will be loan payments, taxes on your profits, capital expenditures and other expenses that will be paid before you can pay yourself.
Keep in mind that turning a fast profit with your franchise shouldn't be your primary goal. The equity in your franchise is something that will build and grow over time. If your goal is to be able to sell your franchise one day, focusing on your profits may not turn out to be as profitable as you may believe. Looking at what your franchise is worth in your market is sometimes a clearer indicator of how much and when you will turn a profit.
Because there are so many variables, there is no guaranteed way to determine when your franchise will become profitable. However, if you keep the above factors in mind, you can gain a better estimate of when you will move into the black.