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ARTICLE | May 21, 2012

Family Business: 10 Tips for Managing a Parent-Adult Child Business

A mother and her daughter, who will graduate in May from college, share ownership of a new Home Instead Senior Care franchise business, a partnership that seems tailor-made for these economic times. More college graduates are having a difficult time finding jobs, according to the U.S. Bureau of Labor Statistics. Teaming with a family member has proven successful. According to the U.S. Small Business Administration, family-owned businesses account for 90 percent of all businesses in the U.S. (large and small) and continue to be a powerful force. And senior care franchising is one way to help new graduates get their careers off the ground. 
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NEWS | May 18, 2012

Is Starting a Franchise From Home For You?

Fox Small Business Center offers tips and expertise on running a home-based franchise business.
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SECTOR REPORT | April 26, 2012

Senior Care Franchise Report 2012

Franchise Business Review's special report Senior Care Franchises offers a high-level look at the senior care/home care franchising sector. We explore what services the sector provides, what’s involved from an investment standpoint, what the “typical” franchisee looks like, and how franchisee satisfaction in the sector has fared in the past year. We also identify the top senior care franchises based on our franchisee satisfaction research.
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ASK FBR | March 19, 2012

How long have you been researching a franchise opportunity?

Franchise Business Review wants to know what you're doing in order to find that right "fit", and encourages all those interested in starting their own franchise to answer this simple question - how long have you been researching a franchise opportunity? (Click here to share) 
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Home > Blogs

What's the Profit? "Owner's Discretionary Income"

by Steve Tanner

Everyone wants to know the same thing when analyzing a business – what’s the profit?

Franchise candidates want to know the company’s earning potential. They should (and often do) ask existing franchisees how much money they’re making and what the financial viability of the system is.

Franchise owners want to know how much value they’re deriving from the business.

Franchisors and their field support staff want to know the operational efficiency of their franchisees.

The problem is that determining “profit” isn’t as simple as looking at the bottom line of a P&L – especially when analyzing a company like TGA Premier Junior Golf that is usually home-based with a single owner/operator. That’s because the P&L often includes a variety of benefits to the owner that are entered as expenses, such as an owner’s salary/draw, entertainment, etc.

At a recent conference, I learned of a financial calculation from a fellow franchisor that solves this problem. It’s called “Owner’s Discretionary Income.” Here’s the equation:

company profit (the Net Income line of your P&L)
+ owner’s salary (including draw, dividends, etc.)
+ fringe benefits (things you’d likely pay for out of your own paycheck if not a business owner)
= Owner’s Discretionary Income

This calculation tells you exactly how much value a business is delivering to its owner. It also tells you how well the business is functioning from an operational standpoint. That, in my opinion, makes it extremely relevant and important for franchise candidates, business owners and franchisors alike.

Steve Tanner
COO, Author of GolfEntrepreneur.com
TGA Premier Junior Golf

Learn more about TGA Premer Junior Golf at topfranchises.franchisebusinessreview.com.

 

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Posted by Eric Stites on 09:04:07 AM on November 4, 2011

Great post, Steve! You make a fantastic point. Every person I talk to that is interested in investing in a franchise business asks the profit question... and they should. But as you point out, there are often many fringe benefits that small business owners are taking out of their business, that don't get reported as profit. I like to call these things "owner benefits" and they can include things like health insurance, life insurance, retirement plans, cars, cell phones, computers and other equipment, travel and entertainment expenses, etc. A small business owner can easily receive $50,000 or more in owner benefits that don't get reported as income or profit. Your formula for Owner Discretionary Income is right on, and it's important for all franchisee candidates to consider these owner benefits when researching any franchise opportunity. Thanks for sharing! Eric Stites President and CEO Franchise Business Review