Economic Outcome Analysis Research Paper Example | Topics and Well Written Essays - 1250 words

Economic Outcome Analysis - Research Paper Example The same concepts and models are going to be applied to Andy's Parties business to determine whether it would be viable for it to be franchised. The first fundamental step is to evaluate the business. This step would be help in determining the sale and the profitability of a business. If the sales of a business are decimal, it would be difficult to franchise such a business since the sales reflect the standing of the business in the market. Less profitable businesses are businesses that are likely to have fewer customers and their products and services are not well known to the targeted customers. Andy's Parties’ annual financial record shows that it does not do well in terms of selling its services to its customers. For the whole year it organized an average 650 parties for the whole year (Spinelli, Rosenberg, and Birley, 2004). This translates to nearly one to a maximum of two parties a day at an average cost of $385 per event. These are low sales for the Andy's Parties to c onsider franchising its services. In other words, Andy's Parties services and may be products are not known vastly among its targeted customers; therefore, it would be difficult or quite a challenge for the franchisees to do well in selling Andy's Parties services. ... In this case, the franchisors are usually expecting 15% ROI where if the initial investment for the franchising business is $200,000, the franchisee is expected to look for a minimum of $30,000 as the annual profits of the business. Moreover, the business needs to pay for royalties. The Andy’s Parties annual operation cost is $470,000, thirty percent of this amount is $141,000. This means that when it franchises the business, the franchisee will be expected to have a return of $141,000 at the end of the third year (Spinelli, Rosenberg, and Birley, 2004). From the Andy's Parties annual report, it can only manage $80,000 before tax. This means that its expectation of its franchisees will be more that what it makes by itself. Notably, the franchisees must also pay loyalties above the amount they are required to return into the Andy's Parties investments (Mhlaba, 2004). With this large figures reality, franchising Andy's Parties services will be a burden to Andy's Parties and fran chisee since the reality of profit making will never come by within the expected period. Additionally, the Andy's Parties has not provided its business structure that would help the franchisee to determine their relationship with the franchisor. It is usually vital to couple ROI which is a single unit with other successful base model to warrant franchising. In most cases, it is usually difficult to replicate the success and effectiveness of a single unit especially where the owner of the business is passionate and quite hand on with the business (Hayes, 2005). In this case, it is vital for the business intending to franchise its services to try its business concepts in at least three locations. Therefore, since Andy's Parties has not tried