GB Franchise Model

The principle of the arrangement is to give the appointed principal a market remuneration, as well as 50% of the improvement in the profit from the commencement of the franchise. The principal will also receive an equity entitlement based on 50% of the increased turnover for each financial year; provided they remain employed by the franchisee for a further three years.

Set-Up

Under the Grubers Beckett franchise model a person is appointed from the existing staff who is usually the team leader or, if one is not available, from outside the organisation (hereinafter referred to as the “principal”).

At the commencement of the franchise, a company is set up to establish the franchise (the “franchisee”). This company is owned 50% by the principal and 50% by either Alf Gruber or Louise Gruber (the “owner”). The company issues 100 shares at $1 each and these are evenly acquired by the principal and the owner at their par value of $1 ($50 each).

Prior to the establishment of the franchise, the practice operated as a branch of Grubers Beckett or as entity in its own right. Under the franchise arrangement, the franchisee will be responsible for servicing the clients of that branch which are owned by the Grubers Beckett partnership.

Calculating Initial Costs

The first task is to establish the break-even level at the commencement of the franchise. The owner, franchisee and principal calculate and agree on the following figures:

base turnover level;
amounts allocated to individual expense lines; and
the market remuneration payable to the principal.

Once the above are agreed upon, there is a 9% licence fee that is payable to the owner/s of the fees. For the purposes of determining the franchise fee which is simply the amount left over, wages is assumed to be 50% of the base turnover.

For example, the calculation of the franchise fee based on the assumptions is as follows:

Assumptions:
Base turnover	100,000
Overheads	30,000
Base turnover		100,000
Less : Wages – 50% of above		50,000
Gross Profit		50,000

Less : Overheads		30,000
Less : Licence Fee		9,000
Less: Franchise Fee		11,000
Net profit		0

The actual profit or loss at the starting point will be dependent on whether the actual labour costs exceed or are less than 50% of the turnover. Given that the benchmark % of labour to turnover is in the vicinity of 35%, this is a generous assumption.

Ongoing Calculations

At the start of each subsequent financial year, CPI is calculated and this is added to the licence fee, franchise fee and base turnover. Where the actual turnover exceeds the base or CPI adjusted turnover, an additional 5% franchise fee is to be applied, and the principal is entitled to 9% of this excess on the basis that there are sufficient profits to do so. Once these expenses have been deducted, the remaining profit gets split evenly between the principal and owner.

Assumptions:
Actual turnover:
Year 1	$110,000
Year 2	$120,000
Actual wages %	50%
Licence fee	$9,000
Franchise fee	$11,000
CPI	5%

Profit Entitlement
	Commencement	Year 1	Year 2
Base turnover	100,000	100,000	105,000
Actual turnover		110,000	120,000
Less : actual total wages costs		55,000	60,000
Gross profit		55,000	60,000

Less : Overheads		30,000	31,500
Licence fee – owner	9,000	9,000	9,450
Licence fee – principal		900	1,350
Franchise fee	11,000	11,000	11,550
Franchise fee – additional 5%		500	750
Net profit for year		3,600	5,400

50% of profit payable to owner as shareholder		$1,800	$ 2,700
50% of profit payable to principal (over and above market salary) as shareholder.		$1,800	$ 2,700
Total amount payable to principal		$2,700	$4,050

Equity Entitlement
50% of equity payable to principal after three years		$5,000	$2,500
Cumulative balance of equity due		$5,000	$7,500

For further information, or to organise your meeting to discuss further, please contact Alf Gruber on alfred.gruber@grubersbeckett.com.au or 0414 961 268.