Accounting Blog for Business
Posted by Cedric Joshua Martinez
Dec 8, 2016 3:36:58 PM
Some people may think that they’re on their one-way trip to riches, but only those blissfully unaware of the disadvantages of franchising can continue like this. To be able to avoid traps (or escape one that you’re caught in), you need to know the mechanisms behind such traps. How are they so effective at luring victims? What triggers their mechanisms? Only when you can answer such questions can you spot these deathtraps from a mile away.
Like searching the ruins of a long-lost civilisation for treasure, franchising has many obstacles to overcome in order to reach your goals. While there are no temple guardians or curses, there are metaphorical pitfalls and other traps that can end your (franchise) life at the spot. Some will seem unimposing at first, but like any good trap, you won’t know you’re caught until it’s too late - unless you develop a keen eye and a sharp mind.
Too focused on the short-term / guaranteed income
Everyone goes into franchising expecting a huge return on their investment, but some didn’t think it would take a very long time before your business can see a profit. Franchisors saw this as a detrimental factor to attracting new franchisee, so they came up with guaranteed income. As the name suggests, you will receive a hefty sum of cash on your first month or so, just to compensate for the long wait for profit. However, those that can only see the short-term are too engrossed with the present figures to notice the 5-10 year in their contract.
Always remember that franchise is a long-term investment. The guaranteed income, while good to have, should not be your end goal. Doing so will make you forego planning for the future and leave you unprepared for the journey afterwards.
Another important aspect to emphasise when going into franchising is planning your budget well. Going over budget usually means that you have surplus on one side of your business, a shortage in the other, and a complete mess. Your goals should be big, but your steps should start small. Only when you’ve found a comfortable pace should you kick it up a notch, elevating you closer to your goal. It may be excruciating to start off at a snail’s pace, but always remember that it is better to keep running continually faster than to crash and burn.
To counter this, always know where you stand financially before making any decisions. If you have an accountant or doing the bookkeeping yourself, you should have a valuable stockpile of resources to tell you just that. Specifically, financial statements are documents that give you an overview of your franchise’s status. The different types can give you another perspective of your business.
This is the outcome of poor understanding or inadequate research of franchising, especially the details of a franchise agreement contract. Without any background information to fall back on, you end up acting out of pure assumption. Therefore, unless you can perform miracles, you are going to make a wrong move at one point, dooming your business into a stale state or worse, total bankruptcy.
Always reflect on your views and opinions by asking yourself some questions. Are these based off of facts and data? Are the sources of your information reliable and trustworthy? Can you be 100% certain that you will come out of this unscathed? A little skepticism can save you from falling victim to a shocking trap.
Some franchisees might think that the initial payment is the only expense they have to worry about, but they’ll be unpleasantly surprised to find out about the numerous obligations in franchising. From taxes to capital investments, more and more holes will be burned through your wallet as you maintain your business. However, not paying these commitments can lead to a fate worse than empty pockets.
The only way to avoid this is through proper research of the obligations required of you in franchising. Changes occur depending on many different variables: your position, country, state, city, etc.
Lacking an Advisor
Even before you get into a franchise agreement contract, you need someone you trust to give you the best decision that you can make. No matter how hard we try, we can’t know everything by reading a book or a blog post. There are some things that can only be learned through experience, but going in blindly obviously comes with a staggering number of risks. A veteran can help you learn on the job while guiding you away from these traps.
If you can’t find an advisor, it may be best for you to look into outsourced accounting services. Outsourcing gives you a plethora of firms to choose from, and with such a wide range, it is almost guaranteed that they’d have the experience that you’re looking for. Click the button to schedule a consultation with us and get a glimpse of the world of accounting outsourcing.
Topics: Franchise Accounting