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HOW TO READ
A BUSINESS PLAN, PART 3
G&A
OVERHEAD: For
"Sample Start-Up Company"
In
Exhibits C and D, Administrative
Overhead (for management and
administrative staff, clerical, payroll taxes and
benefits) as well as General Expenses
(such as office supplies, mail and telephone,
utilities and rent) remains consistent between the
franchise and non-franchise scenarios.
Administrative
Overhead in both examples is $24,300 for the
six-month period. General Overhead totals $18,400 for
the same period in both models.
The two
types of overhead are commonly referred to as
"G&A" - your accountant or CPA will
most often refer to these expenses as your
"G&A expenses."
The
difference between Exhibits C and D, the franchise
and the non-franchise scenario, can be seen in Total
Selling Expenses. In the franchise example shown in
Exhibit C, the selling expenses totaled $22,300 for
the six months, reflecting the 8% charge of the
franchise in that total.
In Exhibit D, the
non-franchise operation incurred $14,600 in selling
expenses, as there were no franchise fees applied,
only a fixed expense for advertising.
This is a difference
of $7700 between the two types of operation, or more
than $1000 per month in operation.
What
does this do to the "bottom line?" That is,
what is left over after all Cost of Sales, and
G&A are subtracted from Gross Sales?
Looking
now at Exhibits A and B, we turn to the bottom line.
Here we see "Net Income Before Taxes" which
reflects negative cash flow months as numerals in
brackets, representing $ thousands, i.e. [5.4] equals
minus or negative $5,400.
The
end result, shown in an oval, reveals that after six
months of business, the franchise is down -- or minus
-- <$6500>. The non-franchise
operation is up -- or plus -- +$1,400.
The difference reflects the $7900 additional paid out
by the franchise owner for royalties and mandatory ad
fees (allowing a $200 discrepancy created by the
rounding up of figures in Exhibits).
This
$7900 can represent a lot of new owner anxiety.
The
total percentage difference between net incomes is
7%. If you were thinking it would be 8%, remember
that we added $200 per month to the fixed expenses of
the non-franchise operation for advertising and
brochures, thereby effectively charging 1% against
sales in this non-franchise operation.
 |
This
-$7900 Franchise Factor also represents five
times the net income before taxes of a
business without royalties and % ad fees. |
Let's see
what happens when sales are higher, as in the case of
an established, healthy business.... click here
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