You’ve been open for a year. Sales are steady. Customers keep coming in. You are busy every day, but when you check your bank account, there’s nothing left after paying the bills.
You expected to earn more by now, but something isn’t working. You are paying employees, covering rent, handling franchise fees, and reinvesting in the business. Yet, at the end of the month, there’s little to no profit.
This happens to many franchise owners. The business looks successful, but the money isn’t staying. Here’s how to fix it.
1. Revenue Looks Good, But Expenses Are Too High
Situation
- Monthly revenue is $70,000
- After payroll, rent, inventory, royalties, and marketing fees, only $4,000 remains
- You are not paying yourself yet
Why This Happens
- Royalties and marketing fees are based on revenue, not profit
- Labor costs increase due to overtime and unnecessary shifts
- Inventory waste adds hidden costs
- Insurance, maintenance, and business fees add up
Solution
- Track all expenses weekly and identify where money is going
- Adjust schedules to control payroll and prevent overtime
- Reduce waste by ordering smarter and improving inventory tracking
- Set aside 10 percent of revenue for profit before paying other expenses
2. Franchise Fees and Royalties Are Cutting Into Profits
Situation
- Royalties are 8 percent, and marketing fees are 5 percent
- On $70,000 in revenue, this means $9,100 goes to the franchisor every month
- You still need to spend money on local marketing to attract customers
Why This Happens
- Marketing fees often fund national branding, not your local store
- Royalties don’t decrease when sales drop
- Required vendors charge higher prices than independent suppliers
Solution
- Ask other franchisees if the marketing fee brings in customers or if local advertising is needed
- Negotiate lower royalties in the first year while business stabilizes
- Review the Franchise Disclosure Document carefully for hidden fees
3. You Are Paying Everyone Except Yourself
Situation
- Employees receive wages every week
- Rent, suppliers, and franchisor fees are paid on time
- You haven’t taken a salary in months
Why This Happens
- Owners think reinvesting everything will grow the business faster
- Profit is treated as whatever is left, instead of being planned
- Unexpected expenses take priority over owner pay
Solution
- Set a fixed salary for yourself and include it in the budget from day one
- Allocate a percentage of revenue to profit before covering expenses
- Reduce unnecessary costs instead of cutting your own income
4. No Plan for Big Expenses Leads to Financial Stress
Situation
- The franchisor requires a remodel costing $100,000 in five years
- Equipment needs replacing, and there is no cash set aside
- Taxes are due, and the amount is more than expected
Why This Happens
- Owners overlook long-term financial commitments in the franchise contract
- Cash reserves are used for daily operations instead of saving for major costs
- Taxes are not planned for and become a last-minute problem
Solution
- Set aside a small percentage of revenue each month for future remodels and upgrades
- Open a separate account for taxes and transfer a portion of earnings regularly
- Read the franchise agreement carefully and plan for required expenses in advance
Running a franchise successfully requires more than increasing sales. Managing cash flow, controlling expenses, and planning for future costs make the difference. A profitable franchise is not built by working harder. It is built by managing money smarter.
Not sure where your profits are going?
Book a free intro call to get expert insights on improving cash flow and making your franchise more financially sustainable.