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What's a reasonable return?

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charttv

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I am looking at ways to boost cashflow through the purchase of franchise businesses.

One franchise system proudly proclaims that most of its franchisees return roughly 50% p.a. I know from experience that many businesses my family has owned have done better. I often see businesses advertised that are on PEs of 2-3 which differs greatly to the stockmarket avarege.

What sort of business returns do fellow forumites encounter?
 
Varies widly from business to business.
30% is considered excellent.

Retail with high turnover can be much lower.
Construction like my company can be higher in Nett return.
 
If I were looking at a business, I would separate out the proprietors reasonable wages (if working in the business) and actual profit.

Most brokers include theses wages into the nett profit... makes a lot of businesses look better than they actually are. Most are just the purchase of a job.
 
i own a business. my wife and i run this business and pay ourselves $25/hr per hour we work. the remaining moneys/profit = a 27% return on our purchase price we paid for the business ( if you work it out as a dollars per hour worked as a total it comes to $65/hr ). we have been running this business for the last 6 years. couldnt be happier but they can be very hard to find ie. a business that actually make reasonable money.

cheers PC
 
wayneL said:
If I were looking at a business, I would separate out the proprietors reasonable wages (if working in the business) and actual profit.

Most brokers include theses wages into the nett profit... makes a lot of businesses look better than they actually are. Most are just the purchase of a job.
Click to expand...

paperclip said:
i own a business. my wife and i run this business and pay ourselves $25/hr per hour we work. the remaining moneys/profit = a 27% return on our purchase price we paid for the business ( if you work it out as a dollars per hour worked as a total it comes to $65/hr ). we have been running this business for the last 6 years. couldnt be happier but they can be very hard to find ie. a business that actually make reasonable money.

cheers PC
Click to expand...

Good advice guys, both of these replys are good value and anyone concidering the purchase of a business ...especially a franchise should do the sums honestly..... Remember that almost all franchisors, create franchises' to get their product or service to the market at the lowest cost possible... ie. profit for them, not the franchisee.
Buying a "job" is ultimately just a poor return on capital.
All family members in our business are paid market rates for the roles they undertake within the business. Whats left ie. EBIT is how we rate our performance....because its how any potential purchaser would look at it.
 
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