Discover some important business and marketing factors before purchasing a brand name automotive paint supplier business.
The most important factors that should be considered when buying any franchise is how will the initial investment add or subtract to the bottom line of the profit and loss statement. Many of these factors are somewhat generic for any franchised business. This post looks at some of the major considerations that are generic as well as unique to a franchised automotive repair facility.
What’s in a Brand Name Franchise?
Brand name is one the most important considerations for a business franchise and the automotive repair business is no exception. First and foremost consumers are much more likely to visit a business that they’ve heard of. An automotive repair shop brand name can further help to identify what type of repairs the shop specializes in.
Another consideration is the amount of advertising. These franchises are all well recognized for what they specialize in because of the large amount of advertising. There are plenty of automotive parent companies that have similar franchise fees, where they do little if any advertising.
Automotive Repair Franchise Fees
Franchise fees can vary depending on the brand name. Most automotive repair franchises will have a flat percentage fee based on sales that usually runs around 7% plus other flat fees. Some parent companies may include a flat monthly fee usually disguised by another name like advertising fees.
A fee based on the percentage of sales can have a major impact on the profitability. As an example, lets assume the following simplistic financial statement before the franchise fee of 7% of sales for a given month.
Less cost of Sales $60,000
Gross Profit $40,000
Less expenses $30,000
Net profit before taxes (excluding 7% fee) $10,000
Using this scenario the franchise fees would amount to $7,000 (7% of $100,000 in sales). An independent shop would realize a net profit of $10,000 while the franchised shop, once the fees are expensed would realize a net profit of $3,000.
Automotive Repair Franchise Investment
The initial investment amount depends on a few factors like fees to the franchiser, capital equipment investment, inventory and so on. It’s important when shopping franchises to list and compare what the investment includes and the expected return on investment. Ask the parent company for copies of some of their franchises financial statements. Keep in mind they’re more likely to show very successful businesses and eliminate the ones that are struggling.
Before a decision is made on a particular brand name, the buyer should contact other franchise owners of that brand and find out they’re return on investments. Keep in mind that national brand names will command higher fees, but the extra fees may be worth the brand recognition.