So this is the year you are going to take the plunge into small business ownership. You have tired of the corporate shuffle, you are ready to break free … and you are considering buying a franchise.
Everybody that I work with in my franchise consulting role wants to know this really important question:
“How much am I going to be able to make?”
The answer to that question is this:
When you become a franchise owner, your income will depend on lots of factors:
1. Your market area
2. Your monthly expenses-overhead
3. Your skill set match with the business
4. Monthly royalty % due to the franchise company
5. Your monthly business loan payments
6. Your marketing and advertising costs
Now let’s say that all the stars lined up perfectly on the day that you signed your franchise agreement, and sent in your check for the upfront franchise fee. In this perfect scenario, your market area is incredible, you have a low overhead business, you have been able to find a franchise that really complements your skills, the royalty percentage collected monthly from the franchise company is lower than average, your loan payments are super reasonable, and the marketing costs are next to nothing. Sounds wonderful, huh?
Since my role is not one of “selling” the actual franchises, I cannot legally get into any type of earnings representation. Even if I could, I wouldn’t. The research process I encourage you to follow will lead you to specifics concerning your income potential. Since you are taking the risk, it is up to you to find out for yourself. You really will be able to find out how much you can expect to make by gathering facts, and by talking to individual franchisees.
(Some franchise companies disclose earning claims on the franchise offering documents you receive. Still check with their franchisees!)
Suffice to say, when it comes to your actual income, there are a lot of factors that go into it, including the benefits you can get as a small business owner.
Barbara Weltman, a leading authority on small business, took some time out from her demanding schedule to talk with me about some of the benefits of franchise/small business ownership.
“The biggest advantage (tax wise) of being a franchise / small business owner is the ability to shelter earnings. As a small business owner, each year I can set aside a substantial sum for my retirement years and get a big tax deduction now,” Barbara said. Barbara was also kind enough to offer more advantages of being a franchise/small business owner:
- Expensing the cost of equipment purchases
- Claiming a home office deduction for a home based business franchise
- Writing off the cost of business travel, even though there’s some personal pleasure involved
- Deducting car usage for travel from your office to any business destination
- Educational expenses/business seminars
In summation, as you begin your quest this year towards franchise / small business ownership, and you start to get excited about the prospect of “owning what you do,” please remember to look at the whole picture. When it comes to income from your own business, there are advantages that you get as the owner, that you can’t get as an employee.
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About the Author: Joel Libava is President and Life Changer of Franchise Selection Specialists. He blogs at The Franchise King Blog.
Hi Joel – great post. I would just point out one thing. No matter how many existing franchisees a prospective purchaser speaks to – few if any are likely to say anything negative about a franchisor.
Regarding expenses you can claim from running a small business in the UK, we can also claim for business books, which is useful. I’m not sure if the same applies in the States though.
I appreciate the compliment..
I do, however, disagree, totally with you. In my experience, the way I teach my candidates to research the franchise concepts they are looking at forces them to find all sorts of franchise owners:
Happy, unhappy, new, seasoned, and even those that have left the particular franchise systems they are exploring.
It is how one asks the questions…that determines the amount of information one gets.
Hi again Catherine,
Nice blog you have!
I have a keen interest in learning more about the franchise industry, so I commented on your post, Entrepreneur Magazine’s Top 10 Franchises. My long-range goal is start licensing our business idea of the third place (integrating your home and office into a new place) for entrepreneurs and business minded individuals.
Catherine Lawson: As a start-up company, we have done most of the “Money Mistakes New Business Owners Make” listed on your site and our first location has been a “laboratory” in order develop the idea.
We are now in the position that we have received interest from some parties who want to create some kind of partnership with us. About a year ago, I met a person in Gothenburg, Sweden who called himself a “business developer” consultant. He said that he would help us with the paperwork in order to create a master franchise construction and register a company in America for that matter and help us with contacts and potential franchisee parties, but it turned out that he was swindler and he took plenty of money in advance without delivering anything of value. I have learned a lesson for future ventures… With this experience, I am ready for a second chance to continue the process of a new type of meeting place (café, business center & community).
One of the biggest tax benefits is the ability for a husband-wife team or single-person business to deduct the cost of health insurance premiums.
You get a dollar for dollar deduction of U.S. Federal income taxes. This is not a Schedule A deduction of just a percentage, but a 100% deduction on the first page of your 1040.
This only applies to the self-employed. But heck that’s 20 million business owners. So if you have a home based business franchise, this is another awesome benefit.
When you combine it with a high deductible insurance plan and a health savings account, if you’re healthy you can increase your retirement savings. Because the money in the health savings account, if not used, rolls over year after year. It continues to grow tax deferred.
Pretty awesome benefit. Unfortunately, most of the mainstream press just wants to harp on the sad tune of how high the cost of health insurance is. It is, without a doubt. But most articles will even interview self-employed people to tell their stories, without a whisper about this important tax benefit that makes insurance more affordable. Go figure.
If you’re not aware of this benefit, talk with your tax preparer. See if you can take advantage of it.
Thank you for adding some more encouragement to future small business owners.
So based on your comments, I should have my wife join me?
Well, Joel, that’s between you and your wife. 🙂
But if you are self-employed, then in many cases you can take advantage of the tax break I mentioned.
There are some exceptions. This article still appears to be accurate for the 2007 tax year (even though it refers to 2005):
But, again, always check with your tax preparer. I don’t want anyone to take my word as tax advice, because I am not a tax expert. Just someone trying to spread the word.
I talked to my wife, and she said that if she partners with me, she wants you as her biz advisor!
Anita: I need a biz advisor too! 🙂
Joel: We have talk more about how to proceed with the process of creating “biz & buzz in a cup” with my goal to set up a franchise concept sometime in the future.
Franchise business loan
Bringing out the true chances is really a great method. I like your article being loyal to this type of concern.
Thanks for your post.