topicaladvice
fRanCHise CliniC
Our expert panel offers advice on a range of issues for franchisors
Carl Reader
Carl Reader is head of franchising at Dennis & Turnbull, a leading firm of accountants in the franchise industry.
Cathryn Hayes Cathryn is head of franchising at HSBC.
There are some valuable tax savings available to my franchisees. How can I ensure they make the most of them?
For many franchise networks, there are industry specific tax savings available to franchisees. For example, there are VAT exemptions available to industries such as tuition, care and welfare, complex VAT regulations for food and drink franchises, and often there are optimal structures for most businesses in various industries. As a franchisor you will want to help your franchisees understand these to improve their profitability, and to provide a competitive advantage to your network. One of the first steps you will need to undertake is to ensure that your franchisees are fully educated on the tax areas that affect your industry. If you have an accredited network accountant, they can provide information to your franchisees as part of your franchise training procedures. You will also need to ensure that any ongoing activity is monitored to ensure adherence to tax legislation. The Subway case demonstrated that HM Revenue & Customs are looking to extrapolate investigations across franchise networks, and as such a monitoring process is essential to help minimise this risk. A network accountant can ensure that all franchisees are preparing their returns in a consistent manner, and that they are adhering to their relevant obligations.
It would also be advisable to take legal advice in respect of the implications of any tax strategies implemented, particularly if they could impact your business with regards to the Trading Schemes Act, or if the structure for franchisees requires particular agreements (such as Limited Liability Partnership agreements).
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How can franchisors help their franchisees secure funding?
There are a number of areas where franchisors can help prepare their franchisees for that first meeting with their bank: • Ensure they produce a concise plan that sets out a clear strategy for their business.
• The business plan should include well thought out financial projections, including a cash flow forecast, profit and loss account, and balance sheet, ideally for between one and three years. This is a key area where you can give your franchisees an advantage over conventional start-ups by assisting them with the figures, based on the performance of your existing franchisees. However, the franchisee must own and understand these figures to present a credible case to the bank manager.
• Include a marketing plan detailing how they will target their potential customers and the unique selling point of the product/service offering.
• The plan should address any risks facing the business and what action needs to be taken to either prevent them or minimise their impact (contingency).
• Finally, encourage your franchisees to practise their presentation before meeting with the bank to ensure they deliver a professional pitch.
Your franchisees are in a stronger position than a stand-alone business start-up due to the help and support of their franchisor and other franchisees in the network.
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