Franchise/tax/NI/other

Iwillresolvemydebt

Hi, I'm considering taking on a franchise, which presumably means becoming self employed. Please can someone help me with the implications on costs; ie, income tax, NI and other? I realise you will not be able to give specifics but i'd appreciate any answers on what I might earn... For example, if the Franchisor suggested I would receive £26,000 in profit, I realise this is not totally true... but what would I expect to receive based on this...? Many thanks!:undecided

paulwf

The franchisor should ideally give you 5 year projection for turnover which breaks down all the different costs month by month. At the bottom should be the figure you are left with i.e. profit. From this figure you'll have to deduct any bank loans (this could take up a large chunk of your profits if you require funding) and of course any tax/NIC due. The exact amount of taxes will depend on the company structure (Ltd or sole trader) etc.

Never trust a figure that just says "you'll make x profit" without seeing a proper financial breakdown.

Iwillresolvemydebt

Many thanks...

Yes, I appreciate that. I have been given a breakdown based on year one; I would anticipate the latter years to be the same or better which I can certainly live with. Each month in the forecast money has been set aside for stationery, fuel, marketing etc as well, of course as the franchise fee! Would "ltd or sole trader" depend on the Franchise agreement?

paulwf

Some franchise agreements specify Ltd Co, I think this is because the accounts and other info is more comprehensive and transparent.

Have you actually got a draft copy of the franchise agreement yet? Did they request any payment for this so they can see you are serious? Have you signed an NDA with the franchisor so that you can both talk to one another openly? Have they allowed you to talk to other franchisees about how they are doing? Note it is generally bad form to ask other franchisees in depth questions about their personal finances, though they should be able to shed more light on the financial breakdown.

Vetting a franchise is quite a long process, I think a good start for now would be to get a draft copy of the contract so you can see all the charges and then take the info to an accountant who can sanity check their figures and advise on taxes.