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1 year ago

What are the costs associated with operating a franchise.

1 answer:

5 0

7 Common Costs Associated with Operating a franchise

Exactly how much a franchise costs is different for every franchise company out there, but most of them have similar startup costs. While the franchisor will help you with some of these costs — maybe through deals it has with preferred vendors or by lending you the money — the onus will be on you to come up with the funds on your own. And it’s not just funds to build and open your franchise, you will also need funds to run it until it becomes profitable.

Let’s take a look at some of the most common costs associated with opening a franchise.

Franchise Fee

When opening a franchise, it’s important to remember that you are essentially “renting” the brand from the franchise. That brand comes with a lot of support and recognition, but you still have to pay for the privilege of being associated with it.

Franchise fees can be as little as $20,000 or as much as $50,000 or even more. The amount of the fee usually depends on how much you have to do to get the franchise up and running. Franchises that require you to build a location will be more than a mobile or home-based franchise, for example.

Your fee will usually cover the cost of your training and site selection support, hence why the fee is higher for businesses that require a location. Exactly what the fee covers is different for each franchise. Sometimes it will just act as a licensing fee for the rights to use the brand. When you are doing your initial research, be sure to find out exactly what your franchise fee covers.

Legal and Accounting Fees

These fees are on you, of course, but they are well worth it. Any person who is considering purchasing a franchise should absolutely consult with an attorney who is familiar with franchise law. The attorney you hire can review the franchise disclosure document with you and go through the franchise agreement to make sure it’s fair.

Each attorney will charge differently for this and it will largely depend on how much time your attorney has to spend on the documents, but you’ll probably have to budget between $1,500 and $5,000 for this.

It’s also a good idea to start working with a qualified accounting firm as soon as you decide to purchase a franchise. An accountant can help you set up your books and records for the company and can also help you determine how much working capital you’ll require to get your business set up and have it run until it becomes profitable.

Working Capital

Speaking of working capital, this is the amount of cash that is available to a given business on a day-to-day basis. It’s crucial to have enough working capital to cover a given length of time. This could be just a few months, or it could be a few years. It depends on how much time the business will need to start bringing in enough revenue for it to run.

Franchisors do generally provide an estimate of how much working capital you’ll require, but you should back this up with your own research and do your own calculations with the help of your accountant. Talk to other franchisees in the system about how much they needed.

Build-Out Costs

Build-out costs include constructing the building and purchasing all the furniture, fixtures, equipment, signage and anything else related to the building such as architectural drawings, zoning compliance fees, contractor fees, decor, security, deposits, insurance and landscaping. Your franchisor will give you an estimate of build-out costs, which vary widely between franchises.

If you choose a home-based franchise, obviously there will not be any buildout costs associated with it, but there may be other expenses like vehicles.

Supplies

These are all the things you require to run your franchise. Restaurants will need food, of course, but they also need plates, cutlery and napkins. Other franchises will need different things to offer their services. Your franchisor can give you a list or estimate of what you will need to run your franchise.

Inventory

If you are purchasing a retail franchise or some other kind of franchise that sells products, you will need inventory. This is another cost that will vary widely between franchises, but your franchisor should be able to help you with estimates. You might have to purchase between $20,000 and $150,000 worth of inventory depending on the business.

Travel and Living Expenses During Training

Franchisors will provide training for franchisees and often the franchisee’s management team. While the training itself is usually covered by the franchise fee, the travelling and living expenses to go to a franchise’s headquarters for that training may not be covered. Often, training runs from a few days to a week or so and is followed up with more training back at the franchisee’s location.

You’ll want to determine whether travel and accommodation are covered by your franchisor and, if not, work out how much the training related expenses will cost you.

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Paige noted that she disbursed $7,847 in payments for operations in her travel agency and received $7,162 in cash receipts for s

AnnyKZ [126]

There is negative cash flow of $685 in the case given as the total amount of cash disbursements was $7,847 and the cash receipts $7,162 for services rendered. Hence, the correct option is negative cash flow.

<h3>What do you mean by cash flow from operating activities?</h3>

Cash flow from operating activities (CFO) shows the quantity of cash an organization brings in from its ongoing, everyday commercial enterprise activities, together with production and promoting items or presenting a service to customers.

The missing information in the question is:

Multiple Choice:

negative cash flow.

positive disbursement.

bad debt allowance.

tax credit payment.

Hence, There is negative cash flow of $685 in the case given as the total amount of cash disbursements was $7,847 and the cash receipts $7,162 for services rendered. The correct option is negative cash flow.

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2 years ago

Select all that apply GAAP and IFRS rules ______. require that the same method be used for both internal and external segment re

Alexxandr [17]

Answer:

The correct options are "A, C, and D".

Explanation:

GAAP becomes regarded as a relatively 'rules-based' management framework, seems to be the accounting technique used throughout the United States
IFRS becomes quite 'principles-based', although this would be the accounting framework used in more than 110 countries throughout the globe.
These allow the same approach being used for international and domestic section reporting, which generate reconciliation issues.

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3 years ago

Wimpy Inc. produces and sells a single product. The selling price of the product is $185.00 per unit and its variable cost is $5

Aleonysh [2.5K]

The formula for the calculation is

CM ratio = Unit contribution margin ÷ Unit selling price

The break-even in monthly dollar sales is closest to $578,100

Explanation:

The formula for the calculation is

CM ratio = Unit contribution margin ÷ Unit selling price

Given that

Selling price of the product=$185.00 per unit

variable cost=$55.50 per unit

fixed expense=$404,670 per month

= ($185.00 per unit − $55.50 per unit) ÷ $185.00 per unit

= $129.50 per unit ÷ $185.00 per unit = 0.70

Dollar sales to break even = Fixed expenses ÷ CM ratio

= $404,670 ÷ 0.70

= $578,100

The break-even in monthly dollar sales is closest to $578,100

7 0

3 years ago

Select each of the tasks associated with opening a checking account.

garri49 [273]

Tasks associated with opening a checking account are:

Provide information such as name, address, date of birth, and Social Security Number.
Provide identification.
Deposit at least the minimum balance.
Sign an authorization card.

A checking account makes it simple to access your money for daily transactions while also keeping it safe. Typically, customers can pay their bills or make purchases using a debit card or a cheque. Different methods may be available for accounts to help avoid the monthly service charge.

A checking account's main function is to store your money in a safe location for a brief period of time, making it accessible when you need it to cover bills and other costs.

Customers who open checking account consent to make deposits into the account, and in return, the bank is obligated to carry out their payment instructions.

Before creating a checking account, it is important to weigh your options and find out whether or not the entity will charge you for maintaining the account and any related items. Being of legal age and fulfilling the conditions established by the chosen financial institution are the second prerequisites you must meet in order to open a checking account.

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2 years ago

A) Depreciation on the company's equipment for 2017 is computed to be $16,000.

OleMash [197]

Answer:

Adjusting Journal Entries:

a) Debit Depreciation Expense - Equipment $16,000

Credit Accumulated Depreciation - Equipment $16,000

To record depreciation charge for the year.

b) Debit Insurance Expense $8,100

Credit Insurance Prepaid $8,100

To record insurance expense for the year.

c) Debit Office Supplies Expense $2,583

Credit Office Supplies Account $2,583

To record office supplies used for the year.

d) Debit Deferred Revenue $2,750

Credit Service Revenue $2,750

To record revenue for work done this period.

e) Debit Insurance Expense $4,200

Credit Prepaid Insurance $4,200

To record insurance expense for the year.

f) Debit Wages Expense $5,000

Credit Wages Payable $5,000

To record unpaid wages as of December 31, 2017.

Explanation:

Adjusting journal entries are entries made in the journal to accrue expenses and revenue in line with the accrual concept and the matching principle of U.S. GAAP. The concept and principle require that expenses and revenue are matched in the period they were incurred and not when they were actually paid for or received.

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3 years ago