Maximizing Your Franchise's Profit Potential

4. Reinvesting to achieve your absolute goal. If you find an opportunity that fits well for you and has a great return on investment, and you've got your first unit up and making a lot of money, you can reach your absolute number goal by acquiring additional units. This can either be done through further out-of-pocket investment or through the reinvestment of the profits you're making into growing the business.

I have a good friend who owns more than 40 haircutting franchises. The return on investment in each unit is great, but the absolute dollars in any one unit don't meet his overall total income goal. He found that by adding additional units over time through the reinvestment of profits, he could realize a total income far in excess of what his absolute goals were when he started the business. In the example mentioned in the first point, if you want to make $100,000 per year, make four of the $5,000 investments and you're there.

5. Following the system. The biggest reason to get a franchise, as opposed to starting an independent business, is to acquire the rights to use a proven system to achieve predictable results. A good franchise company has developed its systems through extensive trial and error and should be able to tell a new franchisee exactly what to do to make a lot of money. All you should have to do is execute the system well to achieve the success you want. If you want to make a lot of money, don't be an innovator--just pick a great system and execute it well, and you'll get your wish.

6. Capitalizing your business properly. This is a corollary point to the one about making sure the size of the investment for each unit is reasonable for you. There are many ways to capitalize your new business, including using all cash or using some portion of your cash combined with loans or leases to come up with the total investment. Most franchisees use a combination approach. When you're evaluating how to capitalize your business, keep in mind that the service costs of loans or leases will reduce the amount of money you'll have for other purposes. Too much leverage can be very dangerous and get in the way of making a lot of money.