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©2000 Sign Biz Inc.
HOW TO READ
A BUSINESS PLAN, PART 4
ANALYSIS
OF
"Sample
Established
Company"
[1-2
Years
Old]
WHAT
HAPPENS
WHEN
SALES
ARE
HIGHER?
To
survive
the
start-up
years,
the
franchise
operator
must
continue
to
put
money
into
the
system,
while
still
building
sales.
It
is
a
matter
of
survival.
If
he/she
succeeds,
and
achieves
reasonably
strong
sales,
there
will
be
money
to
take
home,
but
the
picture
is
not
too
encouraging...
Click
Here
to
reach
the
next
four
exhibits,
E,
F,
G,
and
H,
for
our
tutorial.
You're
almost
there!
To
see
how
royalties
and
ad
fees
impact
on
a
higher
grossing
business,
look
now
at
Exhibits
E
and
F.
Here
the
figures
reveal
a
more
mature
operation,
which
is
now
averaging
approximately
$25,683
in
monthly
sales.
In
expense
assumptions
shown
in
Exhibits
G
and
H,
A
number
of
other
variables
have
been
adjusted
in
both
the
franchise
and
non
-
franchise
scenarios
to
reflect
changes
that
can
occur
over
time
in
real-life
operations:
The
new
assumptions
are:
- Direct
labor
(total
personnel)
has
been
adjusted
upward,
reflecting
the
demands
of
higher
labor
needs
to
maintain
the
higher
sales
volume.
- Variable
expenses
such
as
utilities,
administrative
and
clerical
expenses,
supplies,
phone
and
mail
expenses
have
also
been
raised.
- In
addition,
$100
per
month
has
been
added
for
professional
fees.
Material
costs
have
been
reduced
from
22%
to
19%
to
allow
for
higher
volume
purchase
discounts
and
enhanced
vendor
relationships
for
materials
that
must
be
purchased.
Apart
from
these
adjustments,
we
have
applied
the
same
Franchise
Factor
to
this
example:
An
8%
variable
selling
expense
is
added
in
Exhibit
E
to
reflect
the
6%
royalty
plus
the
2%
advertising
fee.
In
the
non
-
franchise
example
shown
in
Exhibit
F,
this
charge
is
not
included,
but
a
fixed
expense
of
$500
per
month
has
been
added
to
allow
for
advertising
and
brochures.
Furthermore,
to
keep
these
models
as
realistic
as
possible,
a
nominal
$100
per
month
is
allocated
in
the
franchise
example
as
a
fixed
expense
item
for
advertising
and
brochures.
This
is
because
every
franchisee
needs
to
spend
something
for
local
advertising
--
even
it
if
is
just
photocopies
of
flyers
for
a
chamber
of
commerce
meeting
or
for
thank
you
cards
for
clients!
Looking
now
at
Exhibits
E
and
F,
we
look
again
at
the
bottom
line.
Here
we
see
"Net
Income
Before
Taxes"
circled.
The
end
result
reveals
that
on
gross
sales
of
$154,000
(or
$308,000
per
annum),
the
franchise
has
a
net
income
of
$15,800.
The
non-franchise
operation
nets
$26,100
before
taxes.
The
difference
between
$15,800
and
$26,100
is
$10,300.
This
is
the
additional
cost
to
operate
a
franchise
version
of
our
sample
company
for
six
months.
A
franchisee
is
required
to
pay
8%
of
the
gross
sales,
or
$24,640
this
year
in
our
model,
to
the
franchisor
in
order
to
operate
the
franchise
for
twelve
months.
Adjusting
for
the
non-franchise
business's
investment
in
advertising,
this
is
still
$20,600
more
per
year
the
franchisee
must
pay,
on
top
of
the
initial
purchase
price
of
the
franchise.
That
sum
increases
if
gross
sales
increase
over
the
years.
 |
The
sum
of
$20,600
is
a
whopping
40%
of
the
net
income
of
the
business!
Multiply
by
20
or
30
years
(the
length
of
most
franchise
contracts)
and
you
have
your
total
cost
to
"purchase"
the
business.
|
You
are
now
ready
to
begin
your
own
review
of
business
formats!
... click here
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