Q's Investment Tips

Is purchasing a franchise a good investment?

They’re your favorite service stations, restaurants and sometimes hangout spots. If you take a look around the country, you’ll see a countless amount of franchises.

By definition, a franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’ (franchisor) proprietary knowledge, processes, products and trademarks for selling in a different area or region.

Franchises are a thriving form of business worldwide. In the United States, franchises are now replacing independent businesses in certain industries and are growing at roughly six percent per year. We, in The Bahamas, have seen the saturation of fast food franchises and it’s evident of the amount of success they’ve had in our country over the past 25 years. Wendy’s and KFC are arguably the two largest fast food franchises in The Bahamas.

But despite their success, there have been countless others that simply didn’t have what it took to make it in the Bahamian market. Some don’t last very long due to the large amount of capital needed to start and maintain the franchise, while others find the royalty/franchising fee that must be paid every year a bit difficult to maintain. Despite how successful your franchise is, you must pay that company’s headquarters for the use of its brand. Certain franchises have territory control that limit the number of stores they open in a given area because of fears of market saturation and diminishing returns. This is common in Nassau, because most franchise owners here have something called “exclusive territory”, which allows them to be the only franchise holder in Nassau. It shuts out any other person/investors from opening the same franchise on the island.

In 2019, the total monetary layout to open a McDonald’s franchise ranged from just less than $1 million to more than $2.2 million, according to franchisehelp.com. But, like most things, there have been innovative ways that some businesses have gotten around franchises in The Bahamas. Bahama Subs is a prime example of a company that decided to rebrand their business after a fractured relationship with their initial franchiser. They’ve shown that a company can still possibly survive without the franchise, while remaining very similar.

But there are other types of franchises that you can invest in that can provide substantial returns over a longer period. I am of the view that one of the keys is finding a budding franchise that you see has potential and lock them in early! This will allow you to capitalize on cheaper franchising fees because it’s a “budding” business and allow you to maximize profit in The Bahamas because it’s a new and different product.

While all investments have an element of risk, many people assume that franchisors are selling a formula for success. However, that is not the case. You must conduct your own market research and be aware of all the possible pitfalls. Any business venture can prove risky, but be sure it’s a “calculated risk”. In the end, purchasing a franchise can be one of the best investments you’d ever make.

 

• Quinton C. Lightbourne is a certified financial planner with the Chartered Institute of Bankers in Scotland and vice president of the Bahamas Investments & Securities Business Association (BISBA). E-mail: quinton_lightbourne@ hotmail.com.

 

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