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Most profitable franchises based on facts, not advertising hype

The Most Profitable Franchises

The most profitable franchises are not necessarily the ones widely advertised or publicized in magazines or general websites. Be careful! Avoid putting too much faith in "hot," "top 10 franchises, or other hyped up franchise lists.

How Do You Find the Most Profitable Franchises?

Below are sources of information you can use to research franchise profitability before deciding if a franchise is a desirable, profitable business opportunity for you. The sources below can help you in focus your research on the good, profitable franchises more quickly.

FDD / UFOC Item# 19. Earning Claims.

Every franchise publishes a Franchise Disclosure Document (FDD) document. Section 19 of the document is designed to give you information about the earnings of each franchise.

While the Federal Trade Commission allows them to, most franchises decline stating profit history of their franchises.

Some provide a list of numbers representing gross sales. Others may provide average sales and net income for each 20% or 25% of franchisees. This is very useful franchise business info. Be very careful in how they identify "net income". For example, does it include a salary for the franchisee, or does he get paid out of profits?

Franchisee Interviews

Franchisees can provide a tremendous wealth of detailed information to help you determine if they belong to one of the most profitable franchises. However, be skeptical about any list of individuals the franchise might give you to call. The franchise expects you to receive a good report from whichever contacts they have given you. If you do any calling, pick franchisees randomly from the list of franchise locations included in the FDD. You should be skeptical of any interview information you receive from franchisees because:

1. Franchisees are often concerned that any "negative" comments could get back to the franchise. If they anger the franchise, it is possible the franchise could cause the franchisee grief. They could provide less support, do an audit on franchise fee payments, do an "inspection" of the franchisee's "compliance" with all the terms of the franchise agreement, etc. Therefore, you are likely to hear a very watered-down statement of any negative issues.

2. Franchisees may exaggerate earnings to "brag" about their situation to a potential future peer. If they think you are about to become a franchise owner, they may not want to share they aren't "performing" well. They may be embarrassed.

3. Franchisees may try to make you think the prospects in the franchise are worse than they really are. They may see you as a potential competitor, and will try to convince you that investing in the franchise is a bad idea.

4. It is difficult to reach enough franchisees to statistically account for differences in profit expectation due to location, owner background, expense levels, customer satisfaction, length of time the location has been open, the amount of competition in the area, etc.

10K and Annual Reports of Public Corporations.

Publicly traded corporations, such as Burger King or Caribou Coffee, typically give investors information about their franchise headquarters performance in their quarterly 10k reports and in their annual reports. From those documents, you should be able to get a sense for the future of the corporation and its franchisees. Keep in mind that corporations could enjoy high profits for a period of time, even if the franchisees do not.

The most profitable franchises overall may or may not be the best investment for you as a franchisee. That is why you have to check your facts beyond, for example, which chain restaurant is on any top 10 franchises list.

Other Factors To Consider To Find the Most Profitable Franchises

Remember that in identifying the most profitable franchises you have to consider factors like how expenses vary by location. It could be that high income earners have old leases with low rents. They may also be in superior prime real estate locations. The earnings information in the FDD is only a starting point for finding the most profitable franchises.

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