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Most franchise owners are first-time business owners. Many have managed others organizations or developed skills through years of work. Most of us held down a series of jobs that brought little satisfaction or, conversely, inspired us to strike out on our own.
No matter the background, though, nearly every prospective franchise owner has been able to rely on a paycheck to cover monthly living expenses (and living is expensive, right?). So, what happens when you become a franchisee, and there is no paycheck that magically, consistently lands in your bank account?
This concept of pay hinders many people from making the jump into business ownership. After years of independent business ownership and contract working, I cringe when someone says they need a job to pay their bills.
No one needs a job, but everyone does need income.
Comfort with that idea separates those who play it safe (i.e., collect a paycheck from an employer) from those who desire independence and freedom. Franchising is one exceptionally good way to achieve success, but the shift in pay structure is a risky challenge for many.
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Salary Through Profit
For those with fewer accounting skills, I’ll keep it simple. You get no salary unless you make enough profit. Franchise owners are responsible for more than running a business—they must grow it, too. The early days of a new retail location, for example, can be very slim. Keeping the lights on may cost more than revenue on a given day. Business success is what pays owners (and franchisors). But there’s no escaping the fact that owners get paid last.
Every business has expenses: utilities, rent, inventory, equipment. Employees are expensive (but often necessary). And then, in a franchise model, there are ongoing fees for the right to operate the franchise brand. If anything is left after all that is paid for, then owners can take it as income.
Deficit Spending to Provide Income
When you are approved for a franchise, it is with a required level of cash reserves. These reserves have different purposes. For some, they help pay personal living expenses (separate from the business) so that you can work on growing the business without worrying about how to feed your family.
Cash reserves are also required to help support business growth until revenue reaches a break-even point and the business can pay for itself. Each franchisee will use cash reserves as needed, but the more you use, the longer it will take for the franchise investment to pay for itself. It may still be necessary to use the reserves, of course, but the sooner the business is profitable, the sooner you will have funds to use in other ways
Using Profits for the Business or Yourself
Business profits are the goal, right? The more, the better; yet, how a franchisee uses profits varies greatly based upon personal goals. For example, if you plan to grow and sell the franchise later, it is wise to reinvest the profits into infrastructure, equipment, and growth through marketing and sales. Doing so increases the value of your franchise for a higher selling price.
However, some franchise owners buy a franchise as a lifestyle choice. Their goal is to eliminate a boss or be a semi-absentee owner who vacations in off-seasons or skim the profits once established and not work as hard. If that is your preference, you are likely to use the profits for yourself and pay yourself as you go.
Success Through Profit
No matter your goals, a franchise reaches them only through the profitable operation of a proven brand. Franchisors understand the different motives of franchise operators, and they are interested in your success, too. Of course, the franchisor gets paid first through ongoing fees, but success through profit remains the target that suits everyone involved.
With franchisor support, recognizable branding, and a bit of hard work, the profits come. Then, you can “pay” yourself in a manner that meets your personal goals.
Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.