S-Corp vs. C-Corp: Definitions & Differences

If you want to own a business but don’t want to start from scratch and build a brand, buying a franchise is a great way to simplify the process and generate profits in the increasingly competitive world of commerce. In this guide, we’ll walk you through 10 steps on how to own a franchise. In addition to detailing the process of investing in this business model, the following information will help you identify the right opportunities and the ideal franchises for sale. Why Purchase a Franchise Before you can start thinking about owning a franchise business, you need to make sure you’ve chosen the right path. Evaluating the pros and cons is the only way to make a calculated decision. When you purchase a franchise, you’ll have to get used to a limited degree of creative control. So, if you’re hoping to develop products or add your own unique touches to an existing brand, you should probably steer clear of franchising. Franchise opportunities are spread out across a diverse group of sectors, including food and retail brands. That said, entrepreneurs looking for eCommerce opportunities may find affiliate schemes or Etsy stores more accommodating options. Of course, the range of possibilities with franchises is endless. Here are a few key findings about the state of franchising and its impact on the economy: Over 10.5% of all U.S. businesses are franchises.  Franchises create an average of up to 14 jobs, and a new one is launched every 8 minutes during any given business day. There are over 780,000 franchises in the US alone. The franchise industry reportedly accounts for around 50% of all retail revenue in the US. Some sources claim that franchises have a success rate of 90%. Even if that figure is slightly exaggerated, it easily outperforms startup ratios. Franchise opportunities allow you to start doing business right off the bat because the branding side is already taken care of. While you’ll need to work within the existing framework of the established company, you’re mitigating the risk of failure because you’re inheriting a system and brand that have already proven themselves on the market. How to Own a Franchise: Buying a Franchise in 10 Steps If you’ve decided that owning a franchise is the right business move, stick to our step by step franchise guide, which will point you in the right direction while answering a few key questions: How much does it cost to own a franchise? What are the best franchises to own? How will I know if the franchise opportunity is right for me? What are the requirements for owning a franchise?  How do I make my franchise a success? One of the main benefits of buying a franchise is that you can focus on the management aspect without wasting time on the planning and concept stages. Follow these 10 simple steps, and you’ll be ready to run your franchise in style. 1. Find the Best Franchise  First and foremost, you need to determine which franchise is right for you. Food franchises are the most common, but almost 300 industries offer franchise opportunities of some kind. Moreover, there are plenty of websites and trade events where you can find franchises for sale. Assuming you do go for a food outlet, some of the most popular options include a McDonald’s franchise, a Dunkin’ Donuts franchise, a Krispy Kreme franchise, or a Chick-fil-A franchise. Still, it’s important to conduct in-depth research to find the best franchise opportunities on the market. Be sure to consider the following: Costs: Knowing how much money you need to own a McDonald's franchise, for example, is critical when weighing your options. An existing McDonald’s franchise can cost upwards of $2 million.  Opportunities: There are plenty of franchise opportunities, but the key is to pick the one that best matches your skills and budget. Also, make sure you do your homework on the competition and learn about their proximity to your locations. Familiarity: You don’t have to work on a franchise you know and love, but it certainly helps. Passion and knowledge are important during those difficult early stages. Reputation: The company’s track record on social responsibility and its ability to provide quality products and services will affect your reputation.  There are other factors to consider, such as whether you plan to maintain a job alongside the franchise until launch or whether you’re partnering up with other owners.  2. Apply  When you’re done with your research and you’ve found the franchise that is the right fit for you, the company will want to make sure that you’re a good fit for them. Good networking skills and the ability to work collaboratively are useful qualities in these situations, which may explain why franchising is becoming increasingly popular among women entrepreneurs.    You’ll also need to go over the Franchise Disclosure Documents or FDDs. The documents outline your responsibilities, the relevant fees, and the rules and regulations you’ll need to adhere to. The franchisors are legally obligated to provide you with this 50+ page document before any contracts are signed. The FDDs typically include the following: The brand presence in your state and a three-year growth projection, The investment fees and ongoing costs  The support that will be offered to the franchisee Some franchisors may not offer business performance details and information on losses or unit closures. But you can always turn to third parties and the company’s public filings for more info. 3. Attend a Discovery Day Discovery days are an important feature that gives franchisors and franchisees an opportunity to connect and learn more about each other. It is, therefore, considered a key step towards setting the foundation for a long and successful working relationship. It’s a chance for prospective business owners to seek clarity to any questions they may have. Before this event, you should have already completed the necessary research by reading the International Franchise Association guidelines. As a franchisee, you can expect a discovery day to include: A combination of group presentations, one-on-one meetings, and interviews Visits to existing franchise locations The opportunity to meet important people who will guide you to success It should be noted that some franchisors only handle the discovery day via digital channels due to the pandemic.  4. Fund the Venture Studies show that the costs of owning a franchise are around $250,000 for more than half of all franchise opportunities. Many prospective franchise owners will struggle to find that much capital. Thankfully, there is a range of funding options available. Of course, you can make life a little easier by finding the cheapest franchises to start things off or by seeking external funding. Experts suggest liquid capital should account for around 30% of the total costs. Here are a few avenues to explore: Securing bank loans with bad credit isn’t impossible. Still, qualifying for a franchise loan when you have poor credit history will add a few steps to the process.SBA loans are a popular option among prospective franchisees. A Rollover for Business Startups or a ROBS agreement that leverages success from your 401K retirement account.  Private investments from friends and family, which could include crowdfunding; however, it should be noted that you are unlikely to gain investments from strangers for a franchise. Consider a partnership with another prospective franchise manager. While it does reduce your potential financial exposure, it does add some complexities. It also means you need to split the profits. The harsh reality is that you cannot own a franchise with no money. Once you’ve researched how much buying a franchise will cost and approached lenders with a business plan, you have a fair shot at success. 5. Invest in Yourself Studies show that almost half of all franchise owners have a bachelor’s degree. This should come as no surprise, not least because the biggest organizations want every franchise to represent the company in style. Therefore, it’s vital that you understand the qualification requirements. Your franchisor will typically run a host of training services for you and your team. This is to ensure that you continue to manage the company within the framework of the parent company to ensure consistency with other franchises across the nation. Additional forms of self-investment that you may wish to consider are: Advanced research into the history of the company, Body language and communication courses, Your personal grooming to make appearances count, Developing a positive mindset and self-confidence. You are only one cog in the machine, but you must not forget that you set the tone. When you lead by example, it will filter down throughout the business to deliver stunning results. 6. Register Your Business By now, you may have already registered the company. If not, you will need to do so quickly so that you can commence with business operations. The franchise must still be incorporated like any other business, which means providing your Employer Identification Number and other details.  One of the biggest dilemmas revolves around finding the right type of structure for your company.  An LLC keeps your business as a separate entity, which reduces your liability and eliminates other legal requirements, especially when compared to corporations. An S-corp tax election offers tax advantages but reduces your flexibility.  In most cases, an LLC is the way to go. Bear in mind that you’ll also need to open a separate bank account to keep your franchise finances separate from your personal ones. 7. Find the Ideal Location Location is one of the most important aspects when running a franchise, especially when we’re talking about food and retail brands. Finding a commercial unit that’s affordable and easily accessible to consumers is vital. Here, it’s important to think about money and your investment capabilities. Leasing is likely to be the best option for your franchise business, although a commercial real estate loan may enable you to purchase property. While the right location is the priority, you must also consider: The square footage of the internal areas and whether major structural updates or refits are required Accessibility to the front door and the parking lot Safety for all the areas as well as employees and guests Monthly rental costs and the minimum contract duration As well as finding the right location, you’ll need to design the layout of your franchise or store. The good news is that everything from the furniture to the equipment and POS terminals can be provided by the franchisor. 8. Hire the Perfect Team Always seek advice and guidance from senior franchise managers and the parent company. It’s equally important to employ the right people at your franchise store. It’s likely that your franchise will be open for long hours, especially if you want to own a fast-food franchise. Employee engagement stats show that the current rate is just 34%. As such, finding the right workers and providing the tools to help them thrive can make a huge difference to your venture. For a fast-food restaurant, you’ll need to hire: Chefs  Waiters Cleaners  Admins Supervisors Assembling the best team is one of the most important challenges you’ll face. But succeeding in this will give you peace of mind and enable you to establish a better work-life balance. 9. Prepare Your Marketing Tools One of the great things about franchising is that your franchisor will already have logos, slogans, color schemes, posters, and deals in place. Moreover, they may provide you with a template website for the local franchise. Franchising stats show that seven of the top 10 franchises are in the food industry. If you’re in the same sector, marketing items can also cover menus and images of food items. Over four in every five franchises focus on regional audiences. Every marketing plan should be geared towards conversions and revenue. Some of the key features to remember are: Local SEO, social media marketing, and content marketing Affiliate marketing and the power of recommendation Flyering and using posters in prominent areas Perhaps most importantly, you need your shop signage to stand out. Again, this is something that giants like McDonald’s and Dunkin’ Donuts will help with.  10. Open and Operate Once you’ve completed the steps above, you should be ready to launch the franchise. Your franchisor will provide the promotional tools for you to organize an opening event at the right time. Of course, seeking local press coverage can make all the difference. As long as you follow the successful launch with consistent quality in daily operations while keeping one eye on future opportunities, your franchise will have every chance of success.  Final Word  Our guide on buying a franchise and the 10 steps we’ve outlined should give you a far better understanding of whether this is the right move for your career. The potential profits are impressive, but only if you have the right skills and can find the passion for essentially running an established branch for a parent company. The fact that over 780,000 business owners are thriving through this model underlines its potential. And amid the current economic turmoil on the global stage, there has never been a better time to explore this lucrative option.

If you were just to observe an office where an independent contractor and an employee were working side by side, you’d be hard-pushed to see any difference between them. Both would be typing at computers, going to meetings, and using the bathroom.  Even so, they’re not the same. There are both practical and legal differences between them.  In this post, we ask: Independent contractor vs. employee – what’s the difference? We then explore the pros and cons of each and some of the penalties you might face if you classify workers incorrectly.  Employee vs. Independent Contractor Employees are defined as workers on the company’s payroll who receive regular wages and benefits in exchange for loyalty to the organization. An employee, for instance, can’t work for both Citigroup and JPMorgan at the same time. They must also adhere to company guidelines, including all of the stipulations in the employee handbook.  Contractors, on the other hand, are independent workers who get paid for completing projects. They don’t receive any perks or benefits (besides their pay), and they are not on the company payroll. Contractors usually run their own legal business entities, such as limited liability companies. Organizations buy their services “off the shelf,” as and when they need them. If the contracting company sees fit, it can simply cancel them without having to offer any redundancy pay or advanced notice. Contractors sign contracts with businesses hiring them. These set out what the company expects, the deliverables, and how long the work will go on for. Contracts can be short-term, lasting just a few weeks, long-term, or indefinite, depending on the underlying brand’s business model. Businesses often hire contract workers because it’s cheaper than taking on full-time employees. For instance, when companies hire gig workers, they don’t have to pay health insurance, vacation time, 401(k) contributions, or any other benefits. They just pay the fee that the contractor asks for.  Independent Contractor vs. Employee Checklist In this section, we explore the differences between employees and contractors. Pay and Taxes Companies pay employees and contractors differently. As discussed, employees are on the company payroll and typically receive either a fixed monthly salary or a figure determined by their hourly rate of pay. Contractors, on the other hand, aren’t on businesses’ payroll. Instead, companies pay them in a similar way to how they might pay a vendor by making a bank transfer or sending them a check in the post.  There are also differences when it comes to taxes. Firms tax employees on behalf of the IRS by automatically deducting anything they owe from their paychecks. They then provide breakdowns of taxes paid (such as Social Security, Medicare, and federal income tax) on the pay stubs they hand out to employees at the end of the month.  Sole proprietors and partners, on the other hand, must pay contractor taxes independently, according to federal law. Companies they work for don’t pay or hold any taxes on their behalf. As such, gig workers are entirely responsible for paying their own taxes (though, in most cases, they hire accountants to do it for them).  Benefits are another point of departure. Employees typically receive financial and nonfinancial perks as part of their pay packets. Employers, for instance, might make contributions to their health savings accounts, health reimbursement accounts, or flexible spending accounts or offer them free gym memberships, company cars, and so on.  By contrast, contractors don’t receive anything other than their agreed-upon wage. If they want any of the above perks, they must buy them themselves.  Reasons for Hiring Companies hire employees and contractors for different reasons. The main motivation for employing a worker is to gain their loyalty and leverage their skills daily, long-term. The reason for this is simple economics: It’s expensive for firms to continuously go to the market and hire the skills they need on a job-by-job basis, so bringing someone in-house cuts costs.  On the other hand, firms typically hire contractors when they require their niche expertise for a particular project. For instance, it’s common for contractors to work for firms for a couple of months and then leave once they obtain certain milestones.  Furthermore, contractors have less loyalty toward the companies they work for because they’re always on the lookout for the most lucrative projects.  Employment Flexibility Employees have a single employer (unless they have a side gig) and are subject to their employer’s rules. Contractors, on the other hand, work for many firms, either concurrently or sequentially throughout the year, depending on the type of work they do.  Of course, there are independent contractor pros and cons associated with this. On the plus side, they can take time off work whenever they like. However, if they do, they won’t get paid, which is a negative compared to a “standard” employee. Training As you might expect, there are also significant differences in training and onboarding between independent contractors and employees. Contractors, for instance, don’t get much (if any) onboarding at all. That’s because they’re not joining the company long-term. Employees, on the other hand, may receive long on-ramps that introduce them to every aspect of the business, including the culture, hoping that they will stick around for the long haul. Training is also different. Companies expect independent contractors to arrive with fully-fledged skills right off the bat, whereas they may view employees as more of a work in progress, offering professional development as a job perk.  Autonomy Lastly, there are significant differences between the level of autonomy afforded by regular employment and self-employment contracts.  Employees must perform work according to the instructions of the employer. For contractors, it’s different. Firms assign them projects, but it’s entirely up to them whether they take them on or not. Moreover, companies tend to exert less control over where and how the project is completed. Contractors, for instance, don’t have to turn up at the office at set hours or dedicate certain times of day to particular tasks. Classifying Workers The IRS looks for specific factors that indicate whether someone working for you is really an employee. Therefore, it’s critical to get the distinction right. If you don’t, the IRS or workers may take legal action against you. Here are the questions that’ll point you in the right direction: Where does the worker do most of their work? If workers spend most of their time in company offices, then the IRS will likely classify them as de facto employees. By contrast, if they work remotely, they’re more likely to be independent contractors.  When does the worker work? Employees have to work set hours throughout the week, according to a contract, whereas contractors don’t. If you demand that contractors work during set periods, then you may be treating them more like employees in the eyes of the IRS. Is the worker doing full-time, continual work? A worker may also be an employee if they’re doing full-time, continual work for you. Remember, most contractors work for their business clients for a limited time and then move on. If they remain for many years, the IRS may interpret that as a sign that they are actually employees.  Is the worker paid monthly? Another sign that a worker is an employee is if you pay them a set amount monthly instead of on a “per project” basis. The IRS may view such payments as being suspiciously similar to a regular salary.  Does the company pay for travel? Companies will usually pay for employee travel costs because they can deduct them from their expenses. Independent contractors, on the other hand, are usually required to pay for their own transport. If companies pay for contractor transport, the IRS might consider this evidence they are actually de facto employees.  In summary, knowing the right classification for your workers is essential. If you misclassify, you may have to pay both back taxes and fines to the IRS. The size of the bill will correspond to the number of Form W-2s that you failed to file because you didn’t correctly classify an independent contractor as an employee.  Furthermore, if the IRS believes you deliberately and persistently misclassified workers, you may face criminal penalties. These could include fines, jail time, and damages litigation by workers.  Employee Pros and Cons Let’s take a look at some of the positives and negatives associated with hiring an employee.  Pros of Hiring Employees Part of a team and often want to go the extra mile to advance their careers A sense of loyalty and duty toward the firm Able to perform routine tasks over long periods Can take on extra work when the need arises Cons of Hiring Employees Training and professional development can be expensive Salaries must be paid like clockwork, regardless of the business’s cash flow position Perks and other employee-related expenses can add to the cost of hiring Recruitment and interview processes can take a long time Pros and Cons of Independent Contractors Now, let’s take a look at some of the pros and cons of independent contractors:  Pros of Hiring Independent Contractors Save money overall because you’re not committed to paying any benefits or salary Easily hire the right person for the task without the need for additional training Gain greater flexibility; if a contractor isn’t a good match, there’s no need to hire them again The contractor takes care of all the permits and licenses they need; it’s not the business owner’s responsibility Cons of Hiring Independent Contractors Some loss of control over how they perform tasks Difficulty closely monitoring their work and assessing the quality of their contributions Lack of company loyalty Independent contractors own the copyrights to their work unless you write up an agreement stating otherwise Hired short-term and may require administratively costly re-hiring in the future Conclusion Essentially, the difference between an independent contractor and an employee comes down to the relationship of the worker to the firm hiring them. If they receive regular wages, follow instructions of senior managers, and work at the employer’s place of business, then they are probably an employee. However, if they work relatively independently, don’t receive benefits from the employer, and operate remotely, then they are more likely to be a contractor.  Correctly classifying workers is essential. Failing to do so properly can result in having to pay hefty back taxes and fines to the IRS. Furthermore, wrongly classified employees may litigate against you. 

As a business owner, you will be expected to produce three primary financial statements for each accounting period. Given that they each have a crucial role in tracking your company’s financial performance, you’ll need to be able to compare a balance sheet vs. an income statement and know what a cash flow statement is. Whether you’ve just launched your business or want to play a more active role in handling your accounts and financial reporting, this guide will provide the info that you’ll need. An Explanation of Balance Sheets and Income Statements There are over 32.5 million businesses in the US, and they all need to satisfy their obligations for accurate financial reporting and accounting. Before looking at a balance sheet example or a sample income statement, you must first know what they are and how they function. The basic definitions of the main types of financial statements are as follows: Balance sheet: a balance sheet provides a snapshot of the company’s financial health at any given moment. It will detail its assets and liabilities to calculate equity and your ability to cover financial exposures. Income statement: an income statement details the company’s total revenues and expenses over an extended period to underline the company’s overall performance and profitability. Cash flow statement: the cash flow statement details all the monies received by the company, which covers operations, investment, and financing from ongoing operations and external investments.  While all financial reporting tools are used to determine where the company stands from a financial perspective, there are distinct contrasts in what they are used for. For example, balance sheets detail what the company owns and owes to see how effectively debt is used to leverage success. Conversely, an income statement tracks both revenue and expenses to outline whether the company is operating in a way where income outweighs the outgoing expenses. A cash flow statement checks that capital is available. This is a crucial consideration since over a third of small businesses in the US claim they need more cash to operate better. In other words, it’s not about the usefulness of a  balance sheet vs. income statement accounts; it’s about using both of these financial tools together with cash flow statements to get a better picture of a company’s financial health. What Is Included in a Sample Balance Sheet? Before learning how to read a balance sheet, you will need to know what is included on it and what each aspect relates to. Even if you use the best tax software on the market, this knowledge will be vital for extrapolating crucial information. A balance sheet will show your: Assets include account balances across checking and savings, accounts retrievable from what people owe you, fixed assets like equipment, inventory, and intangible assets like copyrights. Liabilities include accounts payable to other companies and both current and long-term liabilities.  Equity - this covers all aspects of the shareholder equity, including net assets, revenue, and invested capital. Recording all assets and liabilities and placing them into their categories, such as current and long-term assets/liabilities, will enable easy reading of the accounting balance sheet. Any such sheet will need to cover five key areas: Current Assets All current assets (highly liquid assets that can generate value within 12 months) should be listed in the first part of the balance sheet. Some of the items that may be listed in your account include: Cash reserves Short-term investments Accounts receivable Inventories The top of this list should include a “Total Current Assets” figure. Long-Term Assets The second section should cover the long-term assets, which are low liquidity items that offer their value in a year or more. Some examples are:  Long-term investments Property and land Long-term equipment Intangible assets The top of this section should include a “Total Long-Term Assets” figure. Current Liabilities The next section will list current liabilities, which are due within the next 12 months. Examples include: Accounts payable to suppliers Accrued liabilities like employee tax withholdings Unearned revenue A “Total Current Liabilities’ figure should be added to the top of this section. Long-Term Liabilities Next up is the liabilities that are not due soon. This section should  include the following: Long-term debt from bank loans Wages, taxes, and dividends Rent and utilities The “Total Long-Term Liabilities” figure should be added too.  Shareholder’s Equity The final section of the balance sheet should detail the following: Retained earnings that are reinvested or used to pay off debts The shareholder equity, which is assets - liabilities.  With all of these sections completed, the balance sheet will be ready to file. What Is Included in a Sample Income Statement? Any good Income statement example should give a clear insight into the financial performance of the company over a longer period. This is because it details both expenses and revenue. It will usually include the following data: Net Sales This figure is pretty self-explanatory and covers the revenue gained across all channels. Other Income This refers to income that falls outside of revenue from sales. When added to the net sales, it should provide a “total revenue” figure. Costs of Goods Sold After the revenue figures, the income statement will list the cost of producing goods, including related services. General Admin Costs Next, it will be necessary to detail the expenses not directly linked to your production costs. This can be followed by depreciation and amortization to gain a ‘total costs and expenses’ figure. Operating Income This figure comes directly after the total costs and expenses. It details the profits made through business operations after subtracting wages and depreciation. Net Interest Expense This covers the company’s debt servicing cost and may be added to loss on extinguishment of debt. This cumulative figure is then subtracted from the operating income to show the pre-tax income, followed by a line to show the tax payment or benefit. Net Income  Finally, the net income will confirm the company’s profits or losses for the period in question. As with all figures in the financial reporting documents, a number displayed in brackets indicates a negative value. A Closer Look at the Difference Between an Income Statement and a Balance Sheet Both documents can be very useful for your in-house financial management practices, and both will be scrutinized by accountants, investors, and partners. However, one of the main differences is that the income statement is dedicated to analyzing the company’s performance over a period of time, while a balance sheet looks at what the company currently possesses to confirm that it can meet its obligations. It should also be noted that the income statement has to come before the balance sheet. You cannot work out the equity without first knowing whether your income outweighed the overheads or vice versa. The numbers detailed in the income statement will be included in the balance sheet, but it also adds assets and liabilities that were not covered in the income statement. But while the income statement feeds into the balance sheet and contributes to the statement of the owner's equity, you should not fall into the trap of thinking that the latter is more important. Ultimately, it is the income statement that first shows whether the company is performing well or needs to address issues.  Likewise, this will be one of the most important features when considering expansions or major investments - because a company that isn’t already doing well shouldn’t be thinking about expansion. Final Words As far as financial reporting is concerned, both the balance sheet and the income statement help explain the company’s financial standing. Understanding the relationship between an income statement and a balance sheet will put your company in a far stronger position. When utilized well, they won’t just help you comply with legal obligations but also help the accounting process and facilitate making better decisions.