People putting up retailing businesses or purchasing automotive franchises have different reasons for doing so. Some folks do it because of their passion for automobiles, certain retail products, or a natural inclination towards engaging services within such industries. These types don’t mind if they make bundles of cash or not, so long as they get to do what they enjoy doing.
Others build these commercial establishments with hefty profits as their only motivator. Even if they aren’t into cars or retail services, the profits are more than enough to compensate for the perceived disadvantage.
Whether entrepreneurs actually like the trade, or are in it for financial rewards, the bottom line is to make money. People operating out of passion are admirable, but ultimately need to meet the business’s financial demands to keep running smoothly.
Franchisees need to know the potential income of their retail or automotive franchises to get a rough idea as to where they’ll be in the near or distant future. While hiring an accountant is the usual method used by franchise owners, especially those engaged in retailing businesses, the simple formula below can be used to help the entrepreneur do so without professional help.
With that said, the first step is to check the franchise disclosure document (FDD) for total royal payments to determine how much cash current franchisees are jointly paying the franchisor. This document is usually presented by the franchisor to prospective buyers of franchises during the pre-sale disclosure process.
Second step is to jot down the percentage of sales franchisees pay as royalties (commonly referred to as the royalty rate,) as well as the total number of full-time operating franchises recorded in the system.
Third step involves executing the actual formula: divide the total royalty payments by the total number of franchises. This in turn allows the franchise owner to compute the average royalty payment paid by each owner of all retail or automotive franchises.
Fourth and last step is to divide the average royalty payment per franchisee by the royalty rate. The final figure will reflect individual franchisees’ average gross sales.
This formula can be used by all franchise owners of automotive or retailing businesses to identify their potential income. However, it’s important to note that the actual success and possible income of any business doesn’t solely depend on franchisors’ operating systems, but on the management plus entrepreneurial skills of the franchisee as well.