Menu
HARIK THOMPSON CPAs
  • About
    • Team
      • Patricia Harik
      • Kevin Thompson
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights
  • Resources
  • Payments
  • Contact
  • About
    • Team
      • Patricia Harik
      • Kevin Thompson
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights
  • Resources
  • Payments
  • Contact

Is a Franchise the Right Move for You?

9/12/2018

 
​Many would-be entrepreneurs wonder what it might be like to open a franchise. There are hundreds of possibilities, each with its own policies and minimum investments, but let's consider one of the most famous. Imagine you're opening your own McDonald's; you have to buy a McDonald's franchise. For a conventional franchise, you have to have — not borrow — $250,000, which means cash, investment securities, vested profit sharing, and/or business or real estate equity. Your total costs to open the restaurant will be anywhere from $685,750 to $1,504,000 for the building and equipment. Forty percent of this has to be from your own nonborrowed funds.
An initial fee of $45,000 gets paid directly to McDonald's. Other money goes to suppliers, so consider this part of your upfront fee. You'll then be trained for nine months on the McDonald's way: standards for quality, service, and value, and formulas and specifications for menu items, as well as methods of operation and inventory control techniques.

You'll have to agree to operate the restaurant from a single location for 20 years — this is the standard franchise license, an authorization granted by the company enabling the performance of specific commercial activities. And you'll have to follow guidelines for décor, signage, layout and everything else that makes McDonald's McDonald's.

In addition to monetary capital, significant human capital is required in the form of business planning and accounting skills, as well as customer service experience.

The franchise model has led to years of profitability, growth and risk mitigation for the company, which receives a royalty based on a percentage of sales. But there still are risks; you have to remain aligned with the firm on operating, promotional and capital-intensive initiatives. You have to project a brand image consistent with the company's values. Of course, you take advantage of the millions the McDonald's company spends each year on advertising.

Consider the Whole Story
Many people think that buying a franchise is a sure way to become a millionaire, and a lot of people become successful running a McDonald's. However, consider all the details. Royalty fees put a serious damper on your take-home pay. After your first 20 years, assuming the company agrees to renew the contract, you pay another $45,000 franchise fee. The total monetary layout to open a McDonald's franchise can range anywhere from $500,000 to $1.6 million. Each year, franchisees must pay a fee equivalent to 12.5 percent of sales, meaning you'll always have two partners: Uncle Sam and company headquarters.

Subtract payroll, food costs and taxes, in addition to the royalties, and you'll see that this isn't an assured life of luxury. You also have to buy raw materials directly from the company or a supplier they specify.

Some franchisers, like Lawn Doctor, for example, will finance franchise fees, startup costs, inventories and equipment to get their franchisees started.

The biggest minus for many people is lack of individual creativity — uniformity is demanded in everything, including uniforms the employees wear. This can mean a bleak existence for a person who likes to be creative. But if it suits your personality, a franchise may be just the ticket. If you are able to make one location work, you'll probably add multiple locations —Businessweek says the average is six. It would be extremely difficult to start your own restaurant chain from scratch!

Running a franchise is a serious decision and should be made with care. Learn as much as you can about the franchiser, its products and the city or town where you are looking to set up shop. Even a great product and a great location won't guarantee a healthy bottom line. Make sure you're aware of the pitfalls before you sign.

Comments are closed.

    Newsletter articles are posted every 2 weeks. ​

    If you would like to have our e-newsletter delivered directly to your inbox, please sign up. Your information is confidential; you can unsubscribe at any time. Subscribe.

    Categories

    All
    1040-X
    1099 Form
    2021 Adjustments
    401Ks And IRAs
    529 College Savings Plans
    941 Form
    ACA Affordable Care
    Accounts Receivables
    ADA Americans With Disabilities Act
    Alternative Minimum Tax
    Annuities
    ASC 606
    Audits
    Back Pay
    Backup Withholding
    Bankruptcy
    Basis
    Benefit Transfers
    Blockchain
    Bonuses
    Budgeting
    Business Closure
    Business Deductions
    Business Interest Expense
    Business Interruption Insurance
    Business Structure
    Business Tips
    Capital Gains
    CARES Act
    Cash And Accrual
    Cash Flow
    Charitable Gifts
    Commercial Real Estate Vacancies
    Communication
    Compensation
    Coronavirus
    Coronavirus Relief Package
    Credit Cards
    Credit Score
    Crowdfunding
    Death And Debt
    Debt
    Deductions
    Depreciation
    Disaster Relief Payments
    Disaster Tax Break
    Diversity Training
    Dividends
    Divorce
    D&O Insurance
    Dollar Cost Averaging
    Down Payment
    Dress For Success
    Earned Income Tax Credit
    Economic Injury Disaster Loan
    Education Credits
    EIN Employee ID Numbers
    EITC
    Elder Mediation
    Employee Direct Deposit
    Employee Leave
    Employee Overpayment
    Employee Ownership
    Employee Pay
    Employee Retention Credit
    Employees Cross State Lines
    Employee Taxes
    Employment Record Keeping
    Employment Taxes
    Entertainers
    ESOP
    Estate Planning
    Estate Taxes
    Estimated Taxes
    Executor
    Expenses And Depreciation
    Expensing Rules
    Family Businesses
    Family Leave
    FATCA
    Federal Excise Tax
    Fiduciary
    Filial (Adult Child) Responsibilities
    Filial Responsibility
    Filing Status Options
    Financial
    Financial Advisor
    Financial Planning
    Flood Insurance
    Floods
    Foreign Earned Income
    Franchise Ownership
    Fraud
    Freelancing
    Furloughs
    Harik Thompson Merger
    Headcount Reporting
    Health Care
    Health Savings Account
    HIPAA
    Hiring Compliance
    Hiring Help
    Hiring Tax Credits
    Hoaxes
    Hobby Vs. Business
    Home Equity Loans
    Home Office Deduction
    Homeowners
    Homeowners' Deductions
    HSA
    Hurricanes
    IC-DISC
    Identity Theft
    Income Tax
    Independent Contractors
    Inflation
    Information Return
    Inherited Mortgage
    Innocent Spouse Rule
    Insurance
    Intestate
    Inventory Management
    Investing
    Investors For Your Business
    IRAs
    IRS CP2000
    IRS Disagreements
    IRS Identity Protection PIN
    IRS Representation
    IRS Rights
    Joint Tenancy
    Key Performance Indicators
    Kiddie Tax
    Layoffs
    Lease Accounting
    Leave
    Legacy
    Life Insurance Trusts
    Loans
    Long Term Care Insurance
    Managing Employees
    Market Capitulation
    Marriage Penalty
    Maternity And Paternity Leave
    Medicaid Trust
    Medical And Dental Deductions
    Medicare
    Mergers
    Mileage Rates
    Morale
    Mortgages
    Multistate Taxes
    Myers-Briggs Personality Types
    Net Investment Tax
    Net Pay
    New
    Newsletters
    New Tax Law
    Noncompete Agreements
    Operating Loss
    Opportunity Zones
    Organize Your Finances
    OSHA
    Outsourced Accounting
    Overtime Exemption
    Padding
    Pandemic Planning
    Papers For Taxes
    Part-time Help Tax Rules
    Passwords
    Payable On Death Accounts
    Paycheck Protection Program
    Payday Changes
    Payday Frequency
    Payroll Cards
    Payroll Scams
    Payroll Taxes
    Pensions
    Personal Finances
    Power Of Attorney
    PPP Loan
    Private Tax Debt Collection
    Profit Sharing
    Property Taxes
    Protecting Wealth
    QSEHRA Benefits
    Quarterly Tax Returns
    R & D Tax Credit
    Real Estate 1031 Exchange
    Real Estate Held In IRA
    Real Estate Investment Trusts
    Reciprocal Agreements
    Records
    Recovery Rebate Credit
    Referral Program
    Rehiring Staff
    Remote Employees
    Reporting
    Reputation
    Retirement
    Revenue Recognition
    Reverse Mortgage
    Sales Tax
    SBA Loans
    Schedule C
    S Corporations
    Self Employment Taxes
    Severance Pay
    Sexual Harassment
    Sharing Economy Tax Implications
    Sick Leave Rules
    Small Business Administration
    Social Media
    Social Security
    Spendthrift Trust
    State And Local Taxes
    Student Loans
    Success
    Succession Plan
    Supplemental Wages
    Supply Chain Risks
    Tariffs
    Tax Brackets
    Tax Breaks
    Tax Changes
    Tax Credits
    Tax Debt Collection
    Tax Deductions
    Tax Forms
    Tax Implications
    Tax-Loss Harvesting
    Taxpayer First Act
    Tax Planning
    Tax Preparation
    Tax Reform
    Tax Refunds
    Tax Scams
    Tax Tips
    Trump's Tax Law
    Unemployment Tax
    W-2 Form
    W-4 Form
    W-4 Requests
    Wage Garnishments
    Wages And Overtime
    Wildfire Solution
    Wills And Trusts
    Withholding
    Work Opportunity Tax Credit
    Year End Tax Considerations

    RSS Feed

Proudly powered by Weebly