Is this a good investment? (Case Study)

A hypothetical franchise costs ~$200,000 to open

It should make ~$80,000 per year once stabilized

Is this a good investment?

Let’s break it down 👇

Cash Invested

A great metric to evaluate is “cash on cash” which means how much money you’ll make in cash flow (after all expenses) divided by the total cash you invest into the deal.

This takes debt into account.

You’ll get a 40% return if you fund the entire $200k investment with cash.

Using 70% leverage (putting 30% down for $60k), cash flow drops to $57k after debt service.

This gives you a whopping 95% return on cash.

Consistency

What are the chances of you hitting $80k profit per year?

Does that assume an average location with average margins operated by average franchisees?

Or is that top 10% location with killer margins operated by the best franchisee?

I recommend basing your models on a 50% average, not the top 10-20%.

Be conservative on the margins. It’s better to play it safe vs. needing everything to line up perfectly.

Let’s assume you hit those numbers. Can they be sustained year after year?

Is this a boring, stable industry or the next Froyo trend?

Can I Scale This?

I’m only investing in a franchise that has multi-unit potential.

This is especially true for concepts with low “profit per unit” such as this example.

Can I own 5 or 6 and put a District Manager (DM) in charge of running the day-to-day?

6 locations x $57k = $342k minus DM overhead $120k = $222k per year

How many stores can my market support?

The DM should be able to drive to all locations on the same day.

If I can successfully operate 1 district, there’s no reason I can’t operate 2, 3, or 4 districts

3 DMs x $222k each = $666k

This is where it gets exciting

 

Profit vs. Sh*t Factor

Finally, it’s what I call the “Profit vs. Sh*t Factor” ratio.

Some businesses can make a ton of money at the cost of many headaches.

It’s one problem after another, and you can never get a break.

A high Sh*t Factor business requires tighter operations and higher quality of leadership to handle everything.

While other models may have low headaches, they also have a lower profit per unit.

PLEASE let me know if you end up finding a high-profit, low sh*t factor business. I’d love to know!

What Do You Think?

Is this a good investment?

Besides the math, you also must consider:

  • Does this franchise fit into my bigger plans?
  • How much time & effort will it require?
  • What are my alternative options?

Most people buy a franchise as a path to escape Corporate America.

Some franchises are excellent “stepping stones” in helping people transition to business ownership but are harder to scale.

Other concepts also start small but can become $1M+ profit per year businesses.

Next Steps

I help people run this exact playbook from end to end

Step 1: Find a great franchise that matches your goals, skills & budget. This consulting service costs you nothing.

👉 Click here to book your first call

Step 2: Grow your franchise by joining a private community of high-performing franchisees. This is only for owners who want to crush it in 2025.

👉 Reply here for more details.

Step 3: Partnerships. I connect people within my community to talent, money, and opportunities.

Cheers!

Brian

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