Many franchisees in Canada are first-time business owners transitioning from a steady paycheck to owning their own business. This shift raises an important question: how do franchisees get paid?
If you’re concerned about earning an income as a franchisee, you’re not alone. However, this concern shouldn’t deter you if you’re ready to take the leap.
Salary via Profit
Your salary as a franchisee will come from the profits your franchise generates. As the business owner, you’re responsible for running and growing the business, and you’ll get paid last, similar to traditional business models.
Every business incurs expenses, such as equipment, inventory, utilities, and rent. Additionally, you may need to pay employees and the franchisor, known as royalties. These royalties cover the support, tools, system, and brand provided by the franchisor. After covering all expenses, any remaining profit is what you, as the owner, can take as income.
Deficit Spending and Income
Typically, you’ll need a minimum amount of cash reserves before becoming a franchisee. These funds serve multiple purposes, including covering personal living expenses while growing the business and supporting the business until it reaches a break-even point and starts making a profit. Using these reserves can delay the time it takes for your franchise investment to pay off.
Utilizing Profits
The primary goal of any franchisee is to generate business profits. How you use these profits depends on your overall goals. If you plan to grow and eventually sell your franchise, you might reinvest more profits into the business to increase its value. If you aim for a lifestyle change and long-term support, you might use the profits for personal expenses as you go along.
Regardless of your goals, achieving them requires the profitable operation of a proven brand. While the franchisor gets paid before you, they are also invested in your success, as higher profits benefit both parties.