Numbers · 2 min read
Know your unit economics
Franchisees buy a return, not a brand. Understand the unit before you sell it.
Start with the full opening cost
The investment case has to cover everything it takes to get a unit open, not just the franchise fee. That means fit-out, equipment, opening stock, professional costs, training, launch activity and enough working capital to trade through the early months. Base each estimate on actual supplier quotes and real operating experience wherever you can, rather than rounded guesses.
Build the trading model from the bottom up
Model each line separately: sales assumptions, cost of goods and gross margin, labour, rent, rates and other occupancy costs, utilities, local marketing, insurance, software and payment costs, maintenance, and any franchise royalties or fees. Every figure should trace back to something you can explain — your own trading records, quotes or clearly stated assumptions.
Test more than one scenario
Prepare a base case, a downside case and an upside case. A candidate should never be shown only the optimistic version. Check how sensitive the result is to lower sales, higher labour costs and higher occupancy costs, because those are often the lines that move the outcome most.
Separate profit from cash
Accounting profit is not the same as cash in the bank. Working capital, the timing of VAT and tax payments, stock, deposits, debt repayments and unexpected repairs or equipment replacement all affect cash. A unit can look profitable on paper and still run short of cash, so model both.
Know the payback question
Candidates will naturally ask how long it might take to recover their investment. Do not promise a payback period. The answer should come from an evidenced opening cost and realistic cash generation, with every assumption clearly labelled so the candidate can test it with their own advisers.
Make it repeatable
One strong, owner-run site is not enough on its own. The model should still work with a paid manager and a normal staffing structure. Before offering a franchise, understand whether the economics remain viable for an independent operator who is also paying franchise fees.
What a candidate should be able to see
A practical pack includes an opening-cost schedule, the assumptions behind the model, illustrative profit and loss and cash-flow scenarios, the key sensitivities, all fees, and clear caveats. Make it plain that illustrations are not guarantees — they are a transparent starting point for the candidate's own due diligence.
Good unit economics are not about making the numbers look attractive. They are about making the assumptions visible.
Wondering whether your business is ready? Check your readiness or start a conversation.