Franchising 101: Understanding the Ins and Outs of a Franchise Owner Salary

It’s not uncommon to question how much money you could make as a franchisee. We’re here to throw some light on the topic and show you how to maximise your earnings as a business owner.

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Have you ever wondered what a franchise owner salary looks like? The truth is that it can vary, depending on the sector you work in, the number of hours you commit to, your initial investment and a number of other factors. First, let’s break down the franchisee salary. Then, we’ll look at how soon you could turn a profit and start making money.

Breaking down the franchisee salary

Franchisors can give franchisees an idea of the earnings they could make, but these are often just a ballpark figure. To give an example of how approximate these projections can be, let’s take finance franchise Brokerplan. The franchisor tells franchisees to expect to make between £2,000 and £50,000 a year, depending on how many hours they work. In reality, some generate over £75,000 a year. On the other hand, the tutoring franchise Kumon claims that franchisees with 100-300 students on their books can earn anywhere from £30,000 to £100,000 per year.

As you can see, it’s difficult to pinpoint exactly how much you can expect to make as a franchisee. But we can break down the salary and look a little closer at the sort of factors you should take into account when calculating your own projected income.

What’s a comfortable salary to live on?

One person’s idea of a comfortable salary might differ significantly from their neighbour’s. The best way to calculate how much money you need to survive is to create a record of all your living expenses. Start with your daily expenses, then move up to weekly, monthly and annual ones. It's important to consider all your outgoings, but particularly those that contribute to your financial and familial security.

Remember to include any mortgage payments, university tuition fee savings for your children or finance payments on new cars. It's also essential to consider the little extras and luxuries that soon add up. Unless you're not particularly sociable, you should factor in the occasional meal, drink and trip to the cinema too.

You’ll also need to think about taxes and national insurance contributions, as this can have a big impact on the money you make. The various tax calculations are too complex to cover in any detail here. But, in general, your final tax payments are likely to vary according to how you set up the franchise and whether you’re acting as a sole trader, partnership or limited company. It’s always recommended that you seek guidance from your accountant or financial advisor before you decide how much you take home as income.

Then, top up these costs with however much you would spend on annual holidays, as well as gifts for birthdays and Christmas. This should give you a rough guide of how much you need to live on. Of course, you’ll want to increase the figure you come up with so you always have a little extra in expensive months.

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How long it takes to earn an income

How long is a piece of string? To answer this question, you’ll need to know how long it will take for your franchise to turn a profit. Most franchisors will be able to give you a rough estimate of timeframes, but this won’t be a concrete figure.

Although most franchises are profitable within their first year, this isn’t always the case. It’s important to remember that there are several factors that could influence your ‘break-even point’, from market conditions and the franchise support system to the work you put in. As you can see, most of these are out of your control, so be patient and don't give up if you don’t turn a profit as soon as you hope.

Your objectives will influence your salary

At the start of your franchise journey, you will draft a business plan with the help of your franchisor. This will set out your short and long-term business goals, as well as what will happen with the money you make from the franchise and where you hope to be in five or 10 years. Although you may not realise it, your ambitions can have a big impact on when and how much you start earning.

For instance, if you’re planning to build up a franchise unit from nothing and then sell it at a profit, you’ll need to maximise the value of the business when you present it to a buyer. This may mean taking less money out of the business. Similarly, if you want to develop the franchise over a number of years, you may want to draw out a smaller income and leave money in the business for reinvestment.

On the other hand, if you’re hoping to get rich quick and make as much money in as little time as possible, you’re probably best taking as much as you can from the franchise profits from the get-go.

You’ll lose money at first

Following a franchise business model should help you turn a profit sooner than you would if you were setting up a business from scratch. You’ll probably be able to rely on tried and tested strategies and an existing customer pool.

However, you still won’t make any money in the first few months and you’ll definitely lose a fair amount of money when you invest in the business. Often, franchisees enter into a franchise agreement with an idealised view of how things are going to turn out. In many cases, they don't realise that running a franchise is a tough job and that it can take time to turn a profit.

It’s also important to remember that many franchises operate on a 30-day invoice system and a lot of businesses are notoriously slow at paying. So, you'll need to have some savings to keep you going until you start turning a profit.

How to maximise your salary

Although it’s impossible to pinpoint your franchisee salary, there are ways to increase your potential earnings:

• Choose a low-cost franchise – If you put less money in, it won’t take you as long to repay your debts and reach your break-even point. This enables you to start making a profit sooner.
• Put in more hours – As you can imagine, the more work you put in, the more money you should get out.
• Join an industry you’re already familiar with – Although franchising offers entrepreneurs the chance to join a sector they’ve never worked in before, choosing this option can reduce your income in the short term. By starting a business you already have the skills to run successfully, you can spend the time you would’ve spent learning the ropes making money instead.

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Always do your research

When you’re looking into your franchise owner salary, take the time to do your research. Due diligence is an essential part of the franchisee preparation process and you should never sign a franchise agreement without having calculated your potential earnings. Only once you know you’re looking at a financially viable investment opportunity should you sign on the dotted line.

Your due diligence should also give you a rough idea of when money should start coming in. Although this estimate will be largely determined by financial information offered up by the franchisor and franchisees, it should allow you to plan and prepare for turning a profit.

Finally, we recommend you consult a financial advisor for an expert opinion when you’re starting out. And, if you’re after more information about initiating your franchise journey, take a look at our BECOME A FRANCHISEE pages.