How to buy a cash cow

Jim_SamsonCash cow: a business venture that generates a steady return of profits that far exceed the outlay of cash required to acquire or start it.

Sounds nice, right? So how do you get your hands on your own cash cow? Where do you find it? How can you guarantee its success?

Well, you just do this…

Everybody wants a cash cow but nobody knows how to find it or has the courage to actually go all in for it.

That’s because so many franchises lose money after changing hands, and who want to invest their time and money into a cash duck?

First of all, make sure you’re getting a good franchise at the correct price and terms.

Most people only look at the purchase price when looking for a franchise to buy. Obviously that’s a big part of it, but that’s far from the only thing you want to check.

You also HAVE to look at the royalty fees.

Royalty fees can be vastly more important than a one-time startup fee (or purchase price). For instance, let’s say you decide you want to buy a Burger Joint franchise or a Sandwich Place franchise.

Here are the only 2 prices you want to see to begin with:

  • Burger Joint startup fee: $100,000
  • Burger Joint royalty fee: 12%
  • Sandwich Place startup fee: $125,000
  • Sandwich Place royalty fee: 5%

If you’re going to make $50,000 a year at either franchise, here’s what you’d be looking at:

For Burger Joint, you’d be down $100,000 to start, then make (with the royalty fee taking 12% of your annual income) $44,000 a year. In 3 years you’d be up $32,000.

For Sandwich Place, you’d start down $120,000, then make (with the royalty fee taking 5% of your annual income) $47.5 a year. In 3 years you’d be up $22,500.

That favors Burger Joint, but only in the first 3 years!

After that, the royalty fee eats away at your annual income. And the more money your franchise makes per year, the more that royalty will negatively impact what you end up with.

Finding a franchise to buy is relatively simple. You can search for franchises available in your area, or you can search for a particular franchise and find where to startup from there.

The point is that not all franchises are created equal, and you can’t see the difference just by looking at the startup price.

Another thing to note is that there are NO guarantees that any franchise will be profitable once you get your hands on it. Franchises only promise a couple of things…

First of all, they promise a proven “system” that has been profitable for someone else somewhere else.

Second, they promise to inhibit creativity.

A franchise is some sort of cookie cutter business, so finding one that suits you is incredibly important.

Compare startup and royalty rates, research the area in which you want to buy the franchise, and never underestimate the control the parent company wants to have over your piece of the pie.

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