How Profitable Are Health and Wellness Franchises?
There is no doubt that Americans are more than willing to invest in maintaining their health and wellness. In fact, the $3.7 trillion global wellness industry is expected to grow over 17 percent through 2020. How much money you’ll make as a health and wellness franchisee, however, is impossible to answer accurately. The reason is that there are many factors that come into play when estimating potential profitability. There are, however, things you can do to get an idea of how profitable your health and wellness franchise might be. Begin by finding answers to the following questions:
- What are the estimated costs to open the health and wellness franchise?
- How will I finance these costs?
- How does the health and wellness franchise generate revenue?
- Once open, how long will it take my health and wellness franchise to start generating positive cash flow?
- What are the typical expenses and ongoing fees of the health and wellness franchise?
- How and when will I pay back any loans I’ve taken out?
- If being profitable takes longer than expected and I need more money, what is my plan?
- How much more money will I have to invest in my health and wellness franchise over time?
- Are my financial expectations for my health and wellness franchise in line with what franchisees in the same system are saying and what my number crunching revealed?
- Will the health and wellness franchise generate a worthwhile return on investment while I own it and should I eventually choose to sell it?
The Franchise Disclosure Document (FDD) will contain answers or information relevant to some of the questions above. Items 5, 6, and 7 of the FDD covers initial fees, other fees (i.e. royalties, advertising, etc.), and the total estimated initial investment. Item 19 of the FDD, also called Financial Performance Representations (FPR), will provide information related to the actual financial performance of the franchise at the business unit level. It is important to note that not all franchise companies provide financial performance information in their Item 19, and those that do, typically only share gross sales/revenue, not profitability. To determine the potential profitability of your health and wellness franchise, all likely business expenses must be deducted from its potential gross profit. These business expenses include loan payments, taxes, labor costs, rent, supplies, insurance, royalties, and marketing fees. Once you have a rough idea of profitability, you’ll have an idea of how much your personal income might be.
If your head is spinning thinking of all the number crunching you should do to help ensure that the health and wellness franchise you are thinking of investing in is likely to eventually generate the profit you wish to make, there are two things you can do. You can take a small business finance course online or at your local community college, which will teach you about Profit & Loss Statements and much more. You could also hire an accountant who ideally has franchising experience to help you work through the numbers.
Numbers are not the only thing to focus on when determining the potential profit of the health and wellness franchise you are contemplating. Location, market demand, and the economy will also impact profitability.
Don’t overlook one of the best resources when it comes to understanding how much profit you might make – franchisees. By asking franchisees of the health and wellness franchise concept you are thinking of investing in about how profitable they have been and how long it took them to be profitable, you’ll gain valuable insight into profit potential.
It is inevitable that whichever health and wellness franchise concept you choose to invest in, it will not be profitable for a while, perhaps for quite some time. Be sure you have as clear an idea of the timeline to profitability as possible. It’s wise to outline a five- to 10-year financial plan. Also, be sure you have enough funds available to live the lifestyle you are accustomed to until you anticipate your health and wellness franchise will be generating enough profit to cover business expenses and for you to draw the salary you’ll need to live as you wish to.
By taking the time required to do all of the above, you should end up with fairly realistic financial expectations regarding the health and wellness franchise you are considering investing in and not put yourself in a position where you are financially overextended.