Are Your Franchise Expenses in Line?


This worksheet calculates the percentage of your business expenses in relation to revenue, and compares them to peer franchisees' expenses. Unusually high percentages for expenses may indicate areas to look for cost savings.

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* Are Your Franchise Expenses in Line?

Full Description

You'll put in:

  • Your annual revenue
  • Your annual expenses in detail (from cost of goods sold to royalties)
  • Average franchisee annual revenue
  • Average franchisee annual expenses (To get these numbers, go directly to your franchisor. Most franchise agreements stipulate that income tax returns must be submitted to the franchisor annually, and franchisors should make this information available to you.)

The worksheet will tell you:

  • Percentage of each expense in relation to revenue for you and for fellow franchisees.

Major variations between these percentages should raise a red flag. For instance, if the salaries and wages percentage is 35% for your franchise and 25% for the average franchisee, you should find out whether it's because you pay more per hour, or if your employees are working more hours. Whatever the cause, it's worth investigating.

The Experts

This worksheet appears in inc.com courtesy of Round Table Group Inc. The Round TableGroup is an outsourcing consulting network of more than 1,000 university professors andindustry experts providing help to businesses on a broad range of topics, from marketing to finance to production. Inc.com recommends the Round Table Group -- visit their site or contact them by E-mail.

Steven R. Chapski, CPA, CFE, CSM, is a partner of Chapski & Chapski, CPAs, LLP, which offers accounting services in the areas of litigation support, bank examinations, insurance claims, and licensors/franchisors. The firm's customers have included franchisees in the printing, automobile accessories, food, and home inspection industries.

The Problem

Owners typically purchase franchises to be in business for themselves but not by themselves. The franchisors usually have developed marketing programs and technical expertise to assist franchisees in generating sales. However, most franchisors do not assist franchisees in evaluating their costs, even though they could, via access to the franchisees' income tax returns.

How can franchisees break down their costs and compare their expenses to those of their peers? This worksheet can help the evaluation process first by highlighting what information a franchisee should be looking for, and then by computing the numbers to show how the one business is doing compared with similar businesses.

The Solution

As franchising has become more popular and competitive, more franchisors will offer the average franchisee's revenue and expenses to their current franchisees for cost comparison purposes as a way to further service their partners.

To complete this worksheet you'll need to contact your franchisor and get across-the-board franchisee averages.

An Example

Expenses Your Figures Percentage Average Franchisee
Figures
Percentage
Total Revenue $200,000 100% $250,000 100%
Cost of Goods Sold $50,000 25% $60,000 24%
Salaries and Wages $70,000 35% $62,500 25%
Repairs and Maintenance $5,000 2.5% $8,000 3.2%
Rents $20,000 10% $30,000 12%
Taxes and Licenses $1,000 0.5% $1,500 0.6%
Interest $5,000 2.5% $6,000 2.4%
Depreciation $5,000 2.5% $6,000 2.4%
Amortization $2,000 1% $3,000 1.2%
Advertising $13,000 6.5% $17,250 6.9%
Insurance $2,000 1% $3,000 1.2%
Utilities $5,000 2.5% $6,000 2.4%
Royalties $15,000 7.5% $18,750 7.5%
Other $2,000 1% $3,000 1.2%
Net Income $5,000 2.5% $25,000 10%

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* Are Your Franchise Expenses in Line?