Franchise Q&A


Q&A [Bio] Amanda Hilario is joint franchisor of Screen Rescue Q How will the


operating margins of a profit and


loss statement help in my evaluation of a franchise opportunity?


A.The profit and loss statement (better known as the P&L) is one of the most important financial reports to study in your due diligence of a franchise opportunity, as it will provide a simple snapshot of the health of the business and this should play a big factor in your decision – one way or another. One of the key numbers to scrutinise is the gross margin. This is often shown as a percentage of revenues using the following simple formula: (gross profit/turnover) x100. Canny entrepreneurs prefer to invest in high gross margin franchise opportunities because these figures demonstrate that there are ample resources left after making a sale that more than cover the remaining costs of the business. Once the franchise is established, these surplus resources will also provide the funds to develop and grow the business without the need for more financing.


20 | Businessfranchise.com | July/August 2014


The most important number to drill down, however, is the operating margin, otherwise known as ‘return on sales’ (ROS). A good operating margin is needed for any franchise business to be able to pay for its fixed costs. A higher operating margin means that the franchise business you are evaluating has less financial risk. Significantly, in a recent survey of 200 senior marketing managers, 69 percent found the ROS formula very useful within their own businesses: (operating income/ revenue) x100. The percentage you arrive at highlights the percentage of sales revenue that gets ‘returned’ to the company as net profits after all the related costs of the activity are deducted. This formula is particularly effective when evaluating your shortlist of brands side by side. The results allow you to judge their performance on an equal footing, regardless of the size of the business.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84