Finding The (Right) First Franchisee

TEAM RETROTAX™ welcomes our first franchisee Kevin Culkin and his partner Dennis Headings to our organization. Kevin and Dennis will operate their RetroTax business in Atlanta.

SIGNING DAY: (From Left) RetroTax's first franchisee Kevin Culkin; his partner Dennis Headings; RetroTax's President Stan Friedman.

Many emerging franchisors leave the starting gate without having had the benefit of years of franchise experience to draw from. So, they get very excited and thrilled when they launch their concept and sometimes rush into awarding their first franchise too quickly, or for the wrong reasons.

At RetroTax, we decided from the onset, that we were going to be very methodical about our process. We identified six key markets to focus on for our initial development and then looked at our established relationships within those markets, searching for potential franchisee leads. Well, I'm happy to report that the strategy is paying off, as we have just this week awarded our first franchise in Atlanta, GA and we could not be any happier about our choice. Not only will RT-001 operate in a very lucrative market for our opportunity, but he will do so literally in my backyard. RT-001 was awarded to someone that I have known personally and professionally for more than 18 years. Yes, RT-001 is a franchise development professional, turned franchisee. What's more, our kids have grown up attending the same schools and he and I have grown into our franchising careers together, albeit with different companies... until now.

It is with tremendous pride and pleasure that I announce Kevin Culkin as our first RetroTax franchisee. Kevin has the perfect skill set for our franchise, strong interpersonal skills, high level, intangible sales experience and the focus and resolve to succeed in our business. Just as my partner Al Newcomb and I go back more than a dozen years, how much better can it get, then to also have a known entity as your first franchisee. Well, believe it or not, it DOES get better, as Kevin has invited Dennis Headings, a 28 year friend of his, join him in the new business. Kevin and Dennis are here in Indy, training this week and preparing to hit the ground running next Monday morning. How sweet it is. More good news to follow...

So, What are Federal Empowerment Zone Credits Anyway?

When I decided to create my blog, I wanted it to be an informational, if not educational outlet for industry peers, as well as business owners and executives across the nation and around the world. One of the primary functions of the RetroTax concept is to communicate and educate. We make our living teaching employers how they may benefit from those that they employ.

This is important, because it’s usually nothing more than lack of knowledge, that prevents many business owners from redeeming what could rightfully be theirs, namely, BIG $$$. There are several elements of the Federal Wage Tax Credit Programs, but today, let’s focus on Federal Empowerment Zones.

The Federal Empowerment Zone (FEZ) Wage Tax Credit Program is an incentive program created to revitalize the economies of select communities across the country. These zones are often located in some of America's biggest cities: Chicago, NY, LA, San Antonio, are among some of the many. Specifically, the FEZ program provides employers, with a federal income tax credit of up to $3,000 per qualifying employee per year. Employers’ facilities or work sites must be located in the zone and employees must also live in the zone.

The FEZ credit is 20 percent of the first $15,000 ($3,000 max.) of an employee’s annual wages. Employers can take this credit for each qualifying employee through 2009 and apply it directly to their corporate tax liability. (Legislation is currently pending with strong bi-partisan support, to extend this program until 2016) In the case of “S” corporations, LLCs, Partnerships or sole proprietorships, these credits pass through and may be applied to individual shareholders’ or owners’ personal tax liability. In addition, credits are retroactive for 3 years, so that credits of up to $9,000 per qualified employee may be realized in the first year that an employer has us administer the program.

For purposes of this illustration, let me provide you with some insight as to the powerful impact that these credits can have on an average small business owner, when his business is located within the boundaries of one of these zones. For the purpose of this example, let’s take a multi-unit restaurant operator, owning 3 Quiznos, Blimpie’s or Subway type restaurants. Again, for the purposes of this model, I will suggest that each location employs 15-20 part/full-time employees at any given time, and that there would be an annual employee turnover rate of (+/-) 300 percent. Simple arithmetic tells us that this business owner generates (+/-) 180 W2s per year. If only 10% of his annual hires also live in the Empowerment Zone and are therefore, geographically tax credit eligible, the numbers would be compelling. The likelihood is that an even greater percentage of his hires would be eligible for these credits. Let’s take a look at what that means to the business owner:

Federal Empowerment Zone Credits
2008 Tax Year – 180 total hires (X 10%) = 18 qualified employees X $3,000 = $54,000

This program is retroactive allowing the business owner to potentially also claim credits for the previous 3 years.

2007 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000
2006 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000
2005 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000

Identifying and administering these credits could potentially make or break it for many small and medium sized businesses owners, especially in these challenging economic times.

In this illustration, the small business owner could have potentially realized up to $216,000 in personal tax credits during the first year of this program’s administration. How many sandwiches would he have had to sell, to achieve that kind of windfall? What’s best is he could even carry these credits forward for as long as twenty years, if he couldn’t take full advantage of them in the current tax year.

To learn more about these Federal Empowerment Zone Credits now and where they are located, visit our website at http://www.retrotax.com/. Stay tuned for future posts to this blog, for more about Renewal Communities, Rural Renewal Counties and the Work Opportunity Tax Credits.