George Cohon, renowned businessman and founder of...
Many franchisees in Canada are first-time business owners who were ready to own a business of their own. This means that many of them previously relied on a paycheck from an employer for their wages, which can lead to a very important question: how do franchisees get paid?
If you are worried about how you will earn an income as a franchisee, you are certainly not alone. However, this should not prevent you from making the leap if you are ready.
Salary via profit
Essentially, your salary will come from the profits of your franchise. Not only are you running the business, but you are the person who will grow it, too. This means the buck stops with you, and you are also the person who is getting paid last, just the same as in traditional business models.
Every business will have expenses, from equipment and inventory to utilities and rent. Employees can be another expense when they are needed to run the business. You must also pay the franchisor the fees you agreed to when you signed your franchise contact, which are often referred to as royalties. These are the fees you pay in exchange for the franchisor's support, tools, system and brand. Once all of those things are paid, whatever is left over--if any--is what you as the owner can take as income.
Deficit spending and income
Generally speaking, your franchise will likely require you have a minimum amount of cash reserves on hand before you become a franchisee. These funds have different purposes, and they may serve as income to cover your personal living expenses as you grow the business. The reserves are also often needed to help support the business until you reach a break-even point and then begin to profit. Of course, you will use these reserves if needed, but keep in mind that the more you use, the longer it will take for your franchise investment to pay for itself.
Where the profits go
Business profits are the major goal of any franchisee. However, how you use those profits will depend on your overall goals. If, for example, you want to grow your franchise and sell it down the line, you may want to reinvest more of your profits into the business itself to boost its value for that future sale. If, on the other hand, you are looking for a lifestyle change and plan to support yourself using the business over the long term, you may use the profits more for yourself and pay yourself as you go along.
No matter what your overall goals are, you will only reach them as a franchisee through the profitable operation of a proven brand. The right franchisor, although they are paid before you, will also be focused on helping you succeed as higher profits is a goal you both share.