Are those franchises attractive to you? Part 2

Last blog, we have touched on the surface of franchises.Today, we talk about something more about franchises.

My first advice, it is always important to consult with your trusted professionals including accountants and lawyers before starting or buying any franchising business. If you look the substantial up front franchise fee, you have no choice but ask questions.

And my second advice is consulting those folks as well when you sell the business. You have to know the tax implication as it will hurt if you make a bad decision.

First of all, a franchise is an agreement between franchisor and franchisees, and franchisees are given the right to market a product or service using the trademark/platform created by the franchisor. In return, franchisees are agreed to pay the franchisor certain fees and royalties, sometimes, advertising is included as well.So, why people are still interested in buying franchising business then? One reason is income guarantees as the franchisor has the proven business model; the second reason is that worry-free package, which includes the price,training, equipment,marketing support,etc.

So,what else that you need to look at when you finally find a franchise that suits you?

• How long is the franchise term? How much will cost for the renewal?

• Are you guaranteed an exclusive territory?

• What are training support? How are the marketing dollars spent?

• Lease/duration of the lease/how to trigger renewals/any rent hike

• What’s your cash flow projection? Are rebates available on supplies?

• When royalties need to be paid? What is the basis, Net or gross sales?

• Does franchisor provide accounting support?Who is doing payroll? How about HST remittance?

Now, you are supported by a proven concept, strong brand and solid systems. Does it guarantee you to be rich? As some people say, failure statistics for franchisees are similar to that of start-up business. So,be serious.

This is an accountant’s blog. We have to talk about accounting, right? So, the franchisee’s accounting tasks include:

• -handling franchise fees

• -managing compliance expenses

• -delivering detailed financial reporting to the franchisor

• -measuring the performance and taking actions

In general, challenges are everywhere for any business. Franchising business has no exception.

1. hiring good staff and setting up payroll from day one;

2. cash is king, monitor monthly cash flow closely;

3. sales are the source of cash flow, if the sale target is missed, make sense of the data and make a better decision;

A lot of franchises are built on low-margin, high volume business models. What does it mean?It means the model relies on big sales figures to make money.Therefore, business owners need to look at the customer data and conduct trending/pattern analysis to understand consumer behavior. If you as franchisee owner, want to make the franchise successful, do a thorough data analysis. I am sure the analysis helps to make the invisible visible and take proper actions.

It’s important for franchisees to recognise that although they are buying into a proven process and brand today, any business found standing still and holding back from change is no path to success.If you need help, give us a shout. We can discuss your franchise in more details. We want you be successful.