The Ins and Outs of Franchising

June 02, 2017

By Antoinette Mirkovich, CPA

A franchise is a type of business structure that allows an individual to purchase the right of use for that particular company.  The business owner, called the franchisor, licenses the right to operate a business using the franchisor’s business name to an individual (franchisee).  Before purchasing a franchise, you should carefully consider what is entailed.  Having a franchise means that your business is based on a successful idea, and you can use the business’ trademarks and brand names to help you enjoy a part of that success.  As the franchisee, you’ll pay the franchisor a fee for a certain period of time.  The fee may be a percentage of revenue or an upfront fee, or a combination of both. 

Perform research on the franchise to make sure it is the right fit: Attend seminars and ask existing franchisees for assistance.  Instead of purchasing a new franchise, think about purchasing an existing one.  Consider how the business operates, and the location of the franchise. Have a solid understanding of the franchise agreement.  Take advantage of the assistance given by the franchisor regarding set up of the business.

The price of a franchise can vary widely depending on the type of business.  There are also costs for training and marketing.  Consider the net profits of a franchise, all the different types of costs to run one and financing arrangements.  When looking at the franchise’s financial information, carefully review the median income from a particular area, as income levels may differ in a geographic region.  One particular franchise may have lower costs compared to other franchises. 

Use your best skillset to help grow your franchise.  If you need assistance in a particular area or role, hire a reliable and experienced person so you can focus on other issues.  Even though the franchise provides resources, it is ultimately up to the franchisee to make it a success! 

About Antoinette Borkowski

Antoinette Borkowski is a Senior Manager in the Private Business Services Group providing tax compliance and advisory services to high net worth individuals and closely held businesses managing all aspects of tax preparation and estate planning.