Financial Jargon and Tax Benefits on Franchise Business Radio

Currie: Explain what is meant by gross revenue versus net?

Quattrocchi: Gross revenue is total sales. The total amount of money you bring in the house. Net profit is how much is left after paying all your bills and your expenses. Let me say this about total sales and net profit; it is important to understand that franchisors usually set their royalties based on the franchisee’s total sales. So, the franchisor gets paid off of the top line and then the business owner (franchisee) gets to keep and profit off of the bottom line number, which is the net or the cashflow number.

Currie: How does a franchise business owner receive benefits and tax advantages?

Quattrocchi: When an individual becomes a business owner, he instantly morphs into two people. He is the owner that has to be compensated and he’s actually the employee in the  business that has to be compensated. So, he might have an officer’s  salary where he takes out a salary and compensation there. And then he gets paid on the bottom line profit. But in reality, there are other certain advantages that we may take on the tax side. I like to divide tax expenses into three basic categories. There’s the “Ordinary and Necessary Category”, such as rent, utilities, repairs, salaries, and wages. Then we have what I call the “Hybrid Expenses”, that we all have as individuals, but because you are self-employed, you might be able to deduct some or most of those expenses. That would be things like your car expenses, cell phone, maybe your computers, your internet at home and things of that nature that you use partially or mostly using in your business. Then we have other tax advantage situations that I put in a third category simply because they are tax deductible. The most basic would be putting in a retirement plan. Retirement plan for a self-employed guy is basically where you take money out of one pocket and you put it in another, and you get a tax break for it. Obviously, you can’t use that money until you retire. It’s a tremendous tax saving.