Other Factors to Consider
The value of the investor’s time and capital is an important factor to consider when analyzing a franchise investment
There is a significant opportunity cost by working full-time in the franchise and forgoing both a fixed salary and the earning potential of the invested capital.
We strongly recommend weighing your time commitment and invested capital return potential when analyzing potential franchise profits.
How to Evaluate a Franchise Profits and Investment Information
In order to evaluate a franchise, the investor needs to take into account the initial investment, the expected profit (after the business becomes stable), the compensation for their time, and a fair expected yearly return (7% in this case).
For this example, assume that the initial investment consists of $250,000 (including working capital), compensation for your time calculated at $80,000 and the yearly profits after three years are $200,000.