Most of the people operating a franchise have never owned a business before. However, some have worked as managers in other people’s companies or gained valuable skills during their work life. A lot of new franchisees have previously held different jobs that gave them no-to-little joy or led them to start their own business.
Regardless of their background, almost all potential franchisees have depended on a salary to pay their monthly living expenses at some point in their life (and, you know, the cost of living can be expensive). If you are looking to become a franchise owner, you might be wondering what happens when the paychecks stop coming in.
It’s this concept of pay that’s preventing many people from taking the plunge into business ownership. A lot of people believe they need a job to be able to offset their bills.
No, you don’t need a job. What you need is income.
Being comfortable with that idea is what differentiates people who stick to unsatisfying jobs because of a paycheck from those who want the freedom and independence that comes with owning a business.
Income Through Profit
Because of those who don’t know much about accounting, we would like to keep it simple. As a franchise owner, you won’t get any flat-rate salary. You earn money when you make enough profit from sales and service transactions. Franchisees do not just have to operate their business; they also need to make it grow. The beginning days of a new franchise location can be tough. The electricity cost for a single day can be higher than the profit for that day. Owners (and, of course, franchisors) get paid only when the business becomes successful. But there is no denying the fact that franchisees eventually make money if they are unrelenting in their effort.
There are expenses associated with every business, including rent, inventory, equipment, and utilities. The cost of hiring employees can be expensive, too. Plus, when you are running a franchise, there are monthly fees you will have to pay for the right to use the franchise’s brand, logo, and products. If you still have money left after paying all of these, that can be your income.
Deficit Spending
You need to have significant cash reserves before you can get approved for a franchise, and franchise owners use this money for different purposes. Some use cash reserves to cover their monthly living costs, so they can focus on expanding the business without having to worry about their family expenses.
Another reason why cash reserves are required is to ensure that the business continues to grow until you break even and the business becomes self-sustaining. Every franchise owner will use cash based on their needs, but remember that the more cash reserves you invest in a franchise, the longer it will take to reach a break-even point in the business. Sure, you may still need to dip into the reserves at any time, but it will be good if the business becomes profitable soon, so you can have money to use for other things.
Using Profits for the Franchise Business or for Yourself
The goal of nearly every business is to make a profit. And the more profits your franchise makes, the better. However, how franchisees use the profits gained differs based on their individual goals. If you intend to grow the franchise and sell it in the future, you may want to re-invest your revenues into the business equipment, infrastructure, and growth via marketing and sales. This will help increase your franchise value when it’s time to sell the business.
But some franchisees invest in a franchise to live the lifestyle they desire. The goal here is to become their own boss or own a franchise on a semi-absentee basis and go on vacations in off-seasons while taking the profits without working too hard. If that’s the case for you, you will probably use the profits gained for yourself.
Success Through Profit
No matter what your business goals are, you can only achieve them through the effective operation of a successful brand. Franchise companies know that each franchisee has their motives for beginning the business, and they want to see you succeed. Sure, franchisors get paid before those operating a franchise through monthly fees, but the aim of everyone involved is to achieve success through profit.
Although you may not make money in the early days of your franchise business, it will yield profits as long as you have the franchisor’s support, consistent and recognizable branding, and put in a little hard work. And when the profits eventually come, you can “get paid” in a way that suits your personal goals.
