The first thing that stands out is that there is limited funds with which to set-up one of these franchises. Although on paper it looks as though there would be enough money to invest in either Perfect Pizza has a very high initial investment cost. The ready cash requirement is 5 times that need in the dreaming donuts estimates. The key word is that these are estimates these figures will not be set in stone. The main reason for new businesses failing in the UK is not because they are not profitable but because they have cash flow problems. I fear that this high initial start up cost and the ready cash needed will lead to such cash flow problems.
What is promising about both franchises is that they both show a steady increase in Turnover, both companies seem to be capturing market as apposed to loosing it. However the rate of profit growth is not in proportion to these dramatic increases in Turnover. This shows a lack of efficiency within both companies. Even though both companys profits are growing (Perfect Pizza at a faster rate than Dreaming Donuts) they are not growing as fast as the turnover is. Taking into account that the initial set-up cost is so high with Perfect Pizza and there is a potential for a greater loss the increasing profits of the company do not seem to be worth the risk.
As apposed to the comfortably affordable Dreaming Donuts with its still improving profit margins (admittedly not as much as Perfect Pizza). How the existing Franchises are faring Looking at the averages taken from all of each franchise respectively what is worrying is that Perfect Pizzas pre-tax profits have been down over the past two years; where as Dreaming Donuts has shown increase over the past four years. The major thing though is no haw the pre-tax profits are down because they cannot rise every year, but they should not lead to the closing of stores. This seems to be the case with Perfect Pizza as 4 stores closed in 1998 out of a total of 196. Dreaming Donuts had 1 store close out of 30 in 1998. A poorer ratio than perfect pizza, but I feel confident that the potential is there for Dreaming Donuts is there to out perform Perfect Pizza.
62% of Perfect Pizzas customers are over the age of 41. I feel this is a bad thing as the people aged between 25-40 are likely to have the most expendable income. Dreaming donuts shows that its customers are spread out over the age range. I feel that you should invest in a Dreaming Donuts franchise not just because it is the safer option in terms of cash flow, but I feel it is an expanding business with a greater potential than the floundering Perfect Pizza with its falling pre-tax profits.
This potential seems to be noticed buy the Heads of Dreaming Donuts as they have set a high Marketing fee; something I see as a good thing in the long run, it shows they are also looking at the long term. If you do decide to invest in Dreaming Donuts than it will mean you still have the capacity to call on more cash to see you through any rough patches.