I will assume that the 20% margin you refer to is the net profit margin – that is, the margin after expenses. Even assuming that, it is important to know what expenses are taken in to account before arriving at the margin of 20% – do expenses include a wage for the franchisee, or income tax?
Whether 20% is sufficient depends a lot on what the turnover of the store will be. If turnover is $200,000 per year, a 20% margin means a profit of $40,000 per year, which is almost certainly not a sufficient return on investment. However, if turnover is $500,000 per year, a 20% margin means a profit of $100,000 per year, which may be sufficient.
It follows that you cannot just look at profit margin, but need to look at turnover and the full financial picture. This full financial picture is usually obtained from:
– the disclosure document for the system (although franchise systems are not forced to disclose financial information in the disclosure document)
– additional information provided by the franchisor
– existing franchisees
Tim Kilham, McLean Delmo Hall Chadwick