TURNING A PROFIT
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ome people buy a franchise because they want to choose their own hours. Others have an entrepreneurial hunger but want the reassurance of going with a brand that’s already well established. Whatever the reason, all franchisees care about their payday: the point in their journey when they’ll be able to assign themselves a comfortable income. It’s impossible to give an average figure for how long it takes franchisees to start paying themselves an income, as franchise models can differ wildly. But it’s safe to say that very few franchisees will be able to draw an income in the early days. “The reality is that the first three months are hard and you’d be lucky to make any money at all while you’re starting to find clients and have a 30-day invoice period,” says Richard Langrick, franchise consultant at Ashtons Franchise Consulting Norwich. “So it’s important to have a nest egg of savings.” That said, Langrick doesn’t think you should hang about forever without paying yourself a penny. “You should be able to pay yourself a wage you can live on within a reasonable period of time,” he says. “You’ve got to live, after all.” To work out what your idea of a comfortable wage is, it’s important to factor in all your living expenses – including monthly, quarterly and annual costs – and put them into your
personal balance sheet. This tally might include necessary outgoings like mortgage payments or university fees for your kids but could also extend to allowances you might want to factor in to help you live happily, such as having enough for the odd meal out. And it’s important you aren’t too strict when setting your personal income, as this is what you’ll have to live on for six months – quite possibly more. “Some franchisees think they can exist on a wing and a prayer and make the classic mistake of being underfunded,” says Langrick. “But if you borrow too little or misrepresent to the bank what you’ll need to pay yourself you could run into cashflow problems.” So while you may well have to trim some of the indulgences you enjoyed while being employed, such as multiple holidays a year, the projections you make still need to be realistic.
The reality is that the first three months are hard and you’d be lucky to make any money at all Richard Langrick, Ashtons Franchise Consulting Norwich
Doing your homework
As they prepare themselves for the reality of running a business, the onus is on franchisees to do their due diligence and not just take the documents the franchisor has provided at face value. “While most franchisors understand that the law requires them to represent the facts accurately, anyone thinking of buying a franchise should go a step further and speak to as many franchisees in the network as possible – not just the ones the franchisor wants you to speak to,” says Andy Myers, franchisee of Transworld West Kent, the business brokerage firm. “That will tell you the truth about projected earnings and no franchisor worth their salt will stop a potential franchisee from doing this.” It’s also a good idea to scrutinise the figure the franchisor provides you with regards to the average length of time it takes franchisees to break even – or, in other words, reach the point at which they’re generating enough revenue to cover their costs and start making a profit. The figure they provide is just an estimate based on other people’s experiences: your journey will depend on a whole host of other factors, including how much effort you’re prepared to put in. “For a business like ours, how successful you are and how much you can pay yourself is largely down to how hard you work,” says Frank Milner, president of Tutor Doctor, the home-tutoring franchise. February 2017 | elitefranchise
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03/02/2017 17:55