Financial Advice

by Simon Lord

last updated 02/12/2019

Guaranteed Income

by Simon Lord

last updated 02/12/2019

What importance should you place on a work or income guarantee?

A number of franchises offer some sort of work or income guarantee, especially in the services sectors. If you are leaving a regular pay cheque behind for the first time, the idea of a guarantee can be an attractive one because it reduces some of the risks of setting up your own business.

However, having a guarantee is still not the same as being employed. The amount guaranteed is likely to be enough to see you through difficult times or the initial start-up period, but to get a real return on the time and investment you put in, you will need to make the business work. If you do not believe that you will be able to exceed the guaranteed amount and achieve your real goals, don’t buy the franchise. On the other hand, if you just want some reassurance while you get your business-building skills up to speed, a guarantee offers a safety net.

If the guarantee is important to you, it’s important to know what it is and what it covers. In general, guarantees are divided into two types: work guarantees, where the franchisee is guaranteed a certain value of work that they must go out and do in order to generate income, and income guarantees, where the franchisee is guaranteed a minimum income. Income guarantees are less common, so make sure you find out which is being offered.

Whichever type of guarantee is offered, there are certain to be a number of conditions that have to be fulfilled before the franchisee can collect upon it. For this reason, franchise buyers need to be careful to confirm exactly how any guarantee operates before making their decision. Here are some questions that may help:

  • What is the purpose behind the guarantee being offered?
  • Is it a guarantee of work to an agreed value or of income to a set level?
  • What is the guaranteed amount?
  • Under what circumstances will it be paid?
  • How long will it be paid for?
  • What special conditions apply (eg. must I accept any work given anywhere? Must I contact the franchise office every day for work?)
  • When is the guaranteed amount payable?
  • What happens if the franchisor cannot afford to pay the guarantee for the specified period?
  • What evidence is there that the guarantee has actually been paid out?
  • If you take the guarantee out of the package, does the franchise still appear to be attractive and viable?

This last question is perhaps the most important of all. Franchising is generally a very low-risk way to go into business, but if you want to lower the risk even further, don’t rely solely on guarantees. Choose wisely, do your research and above all take advice from a franchise-experienced lawyer and accountant. True success depends not only on the training, support, and systems provided by the franchisor but on the commitment and hard work you put in ­– and no-one can guarantee those. In the end, your success is up to you.

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