The Cost Crunch
Let’s be honest. One of the reasons anyone opens a franchise, or any business for that matter, is to make money. It’s often not the primary reason – certainly things like fulfilling a lifelong dream, being your own boss, changing your lifestyle play a huge role – but it’s a necessary part of the equation.
We all want to profit from our business venture and to do so we need to control costs. Talk to any franchise owner and they’ll tell you, costs are one of their top concerns.
According to a recent survey from the National Federation of Independent Business (NFIB), the cost of health care is a chief concern. The overall complexity of the Affordable Care Act makes it difficult to predict future costs. Not that health care costs are anything new, they’ve always been a concern. These changes just add another layer to the issue.
The broader problem of uncertainty is always a hindrance for franchisors and other business owners. Because actions in Washington, D.C. and state capitols are difficult to predict, it wreaks havoc in planning rooms and causes business owners to act more cautiously than they otherwise might.
The NFIB survey pointed out several other cost concerns that franchisors undoubtedly are facing:
- Uncertainty over economic conditions. We’re still in a slow recovery period and recently we’ve seen consumer spending lag. It’s hard to move forward confidently without seeing more growth and demand in the overall economy.
- Cost of natural gas, propane, gasoline, diesel and fuel oil. In 2013, fuel prices have spiked up several times and remain high, with the exception of natural gas. However, there is uncertainty over the future regulation of natural gas too.
- Federal taxes on business income. When the President and Congress spar over tax policy, business is usually dragged right in the middle of the ring. Some proposals favor big business over small business and vice versa. Others are unfavorable to all business.
- Tax complexity. Correctly preparing taxes and operating within the law while paying the lowest tax possible remains a major cost to all business.
- Frequent changes in federal tax laws and rules. Tax laws change every year and rarely do they simplify the tax code.
- Property taxes. Different states and counties treat property taxes differently, but it remains a major cost for most businesses.
- State taxes on business income. As state financial outlooks continue to deteriorate, state politicians look to business to bail them out in the form of more taxation.
Much of this is, unfortunately, out of the individual franchisor’s control, however it’s good to have an idea of where the costs are coming from, and how they might impact your particular business.
As you’re planning how much you want to spend in a quarter or a year, and how much you expect to make, you don’t want to forget about these very real factors. There are also some practical measures you can take to reduce the burden of these costs.
- Keep Cash on Hand: Remember that cash and profit is not the same thing. You want to keep a cash reserve so that when those tax bills do come, they don’t overwhelm you.
- Make Sure Taxes are Handled Properly: As painful as tax payments are, paying tax penalties is even worse. Make sure all your payroll taxes are paid and filed correctly. Your account or a good payroll service can help you do this without much work on your end.
- Use Technology Instead: Some of your operations may be running less efficiently than they could be with the help of technology. Consider outsourcing in areas – marketing, IT, payroll – that are not core to your business. It may very well save you time and money in the long run.
Costs are the nature of the beast in this business. However, if you’re prepared for them and have a plan in place to mitigate them, they won’t stop you from having great success.
President and CEO, Michael Alter is responsible for the overall business model development, strategic planning and day-to-day operations for SurePayroll, a wholly owned subsidiary of Paychex®. Alter is a nationally recognized spokesman on small business issues. Alter is also a columnist for INC.com and appears regularly in media outlets nationwide, including Bloomberg TV, the Wall Street Journal, Crain’s Chicago Business and Entrepreneur magazine.
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