Anyone able to help - I need guidance with "buying" a franchise?

apples1

Mr Apples & I are looking at buying a franchise. We have been thro the interview process with the company & have been accepted. Most of the stores are company owned - although they already have 2 dozen franchised stores.

The next stage is that the company come back with a price which you have to pay upfront and a percentage that they would take from sales each month. These are (we understand) negotiable. They also supply P&Ls, sales statements, overheads info etc for the last two years.

We have just receievd this info. We have to then submit a business plan and if approved we go ahead.

At this stage we need to work out whether it's worth the upfront price and what a fair franchisee fee would be. We would have to be a ltd company as that is a requirement of taking one of their franchises. We have experience of the industry but as employees not employers and know next to nothing about the self employed element. I know nothing about dividends, tax, etc!

As we work through the numbers & the process I would find it incredibly helpful to have someone on here who would be willing to help with my queries and mentor me a bit. Anyone able and willing to do so?

grayfray

Hi Apples, avoid a franchise if it is a vending nut or pringles franchise, this website might be able to help you...look for the franchise section.

http://www.ukbusinessforums.co.uk/forums/forumdisplay.php?f=43

Good Luck

Bean_Counter

apples1 wrote: »

I would find it incredibly helpful to have someone on here who would be willing to help with my queries and mentor me a bit. Anyone able and willing to do so?

I'll help as best I can, although I have no experience of franchises. I am a CA. What do you want to know.

MORPH3US

OP, if you can advise what the franchise is then it would help us massively to help you... don't worry, I doubt anyone will steal your idea...

M

apples1

Bean_Counter wrote: »

I'll help as best I can, although I have no experience of franchises. I am a CA. What do you want to know.

Thank you for your reply. I guess I will probably have more questions as we go along. I could really do with understanding the tax thing! We have been told that we can take dividends rather than pay ourselves a salary as this will mean we pay less tax. What is the tax on dividends and is there any other tax we have to pay. I can't believe it is as simple as having dividends instead of salary to get lower tax??!! I think I was also told we should pay ourselves a small salary then take the rest in dividends - can you explain?

Currently we are both employed. Mr Apples pays higher rate tax. I don't pay tax as I earn only £3700 per year.

If we take the franchise it will be a Ltd Company & we will have it jointly. It would be instead of our current jobs.

I would also like to know what is considered an acceptable amount to pay up-front for a franchise & how much is considered normal for the monthly % fee.

apples1

MORPH3US wrote: »

OP, if you can advise what the franchise is then it would help us massively to help you... don't worry, I doubt anyone will steal your idea...

M

It's an opticians.

apples1

grayfray wrote: »

Hi Apples, avoid a franchise if it is a vending nut or pringles franchise, this website might be able to help you...look for the franchise section.

http://www.ukbusinessforums.co.uk/forums/forumdisplay.php?f=43

Good Luck

It's not but thanks for the link - I'll take a look.

MORPH3US

apples1, if you are going to be a limited company then you will need an accountant to do your accounts... why don't you just ask him all these questions?

I hate tax so can't help further than that without my head exploding... i'm a business advisor but I would referr someone to HMRC or an accountant for this type of thing...

M

Bean_Counter

apples1 wrote: »

Thank you for your reply. I guess I will probably have more questions as we go along. I could really do with understanding the tax thing! We have been told that we can take dividends rather than pay ourselves a salary as this will mean we pay less tax. What is the tax on dividends and is there any other tax we have to pay. I can't believe it is as simple as having dividends instead of salary to get lower tax??!! I think I was also told we should pay ourselves a small salary then take the rest in dividends - can you explain?

Currently we are both employed. Mr Apples pays higher rate tax. I don't pay tax as I earn only £3700 per year.

If we take the franchise it will be a Ltd Company & we will have it jointly. It would be instead of our current jobs.

I would also like to know what is considered an acceptable amount to pay up-front for a franchise & how much is considered normal for the monthly % fee.

The main advantage of dividends over salary is that you save on national insurance. This is either 11% or 1% depending on your salary levels and the 12.8% employers national insurance.

The reason that you would want to take a small salary is that you want to make sure that you pay enough national insurance to ensure that you are entitled to various state benefits and pension entitlement.

There are other factors, including the fact that you must have sufficient distributable profits in the company to cover the dividend payment.

Corporation tax is of course payable on retained profit.

I agree with Morpheus in that you are more than likely to need an accountant to submit your accounts to HMRC and deal with your tax matters. Having said that, if you can keep easy to understand financial records then there is no reason that the accountant should be too expensive.

It is a difficult question about how much to pay for the franchise. I would prepare a business plan to look at your income and expenditure and after you factor everything in, how much moneywill you actually be left with. There are loads of sites with business plans, such as

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073869162&r.s=sl

Sorry out of time and need to go out. Feel free to ask questions and I'll reply as you go.

Good luck!

apples1

MORPH3US wrote: »

apples1, if you are going to be a limited company then you will need an accountant to do your accounts... why don't you just ask him all these questions?


M

If & when we decide to proceed we will of course do this. We are at the investigation stage. As part of my research & investigation I'd like to understand roughly what I'm getting into.

apples1

Bean_Counter wrote: »

The main advantage of dividends over salary is that you save on national insurance. This is either 11% or 1% depending on your salary levels and the 12.8% employers national insurance.

The reason that you would want to take a small salary is that you want to make sure that you pay enough national insurance to ensure that you are entitled to various state benefits and pension entitlement.

There are other factors, including the fact that you must have sufficient distributable profits in the company to cover the dividend payment.

Corporation tax is of course payable on retained profit.

Sorry out of time and need to go out. Feel free to ask questions and I'll reply as you go.

Good luck!

Thank you. Have I been mislead then? There is no less tax (other than lower NI) to pay on taking dividends of an say £40k compared to having a salary of £40k I thought i was toid that the tax bands are lower so you pay less tax. Any help on this appreciated as out net income level will partly determine whether we go ahead or not.

Don't know wanything about corporation tax either yet. Do you pay that on the dividends too. Not sure what is meant by retained profit.

Thanks for your help.