Before we get into the best passive ownership franchises – consider this. There’s a common analogy about nurturing your business as you would a plant. A business investment needs the same level of care and commitment.
With that being said, you can still find success in a passive ownership model – passive is not the same as absent. This is because owners have a few different ways to delegate their business responsibilities.
Let’s dig into the basics of what makes the best passive ownership franchises. Are they good investments and who are the right buyers.
Passive ownership franchises are business models where the owner does not actively participate in the day-to-day operation of their business. Instead, they act as an investor to fund the franchise in exchange for a share of the profits.
When it comes to the different types of buyers in the marketplace, the people considering passive franchises are usually not searching for an opportunity that allows them to leave their current corporate job, they aren’t looking for their dream job. Instead, they have an investor mindset and plan to continue growing other streams of income.
Why People Want Passive Franchises
Passive franchises are an attractive option for a professional looking to invest in a business financially, but don’t have the time, experience, or desire to actively run the day to day operations.
It isn’t the challenge of running the day to operations that is the unappealing aspect of working in and on the franchise – It’s the time commitment. Time is a commodity.
The first reason is the ‘Golden Handcuffs’ theory. Buyers considering a passive franchise investment may not want to leave their well paying job to fully take care of their new business. Though franchising gives its owners the potential to make more money than their previous jobs, they may not be ready to walk away from the guarantee of a big paycheque.
Another reason is that these buyers may already be multi-unit owners operating several business investments. They are serial entrepreneurs who prefer to keep investing, rather than slowing down to focus on a single business opportunity.
And lastly, passive franchise buyers could just be investors managing family funds and are used to passive business models. In this case, the franchise is really just another investment. This is a way to diversify their wealth and assets.
Three Typical Paths Forward
Passive owners are essentially investors who fund the franchise for a share of the profits rather than operating the business themselves. That means someone else runs the day to day operations.
There are three typical paths for owners to get their hands on the best passive investment franchises:
- Franchisor Runs the Business. One way to take care of a passive business is to have the franchisor, or franchise system, run it. In this scenario, they assume full responsibility for the day-to-day operations of the franchise. Who knows their brand better than the franchisor? Therefore, the owner really does not have much responsibility in the business at all apart from the financials.
- Manage the Manager. Another option is to hire a manager to run the business. The franchise owner acts as the supervisor, ensuring the manager is performing their duties effectively and that the business is running smoothly. This is ideal for individuals who have some management experience and want to maintain a level of control over the business, but do not want to be involved in the day-to-day.
- Group of Investors Pool Their Money Together and Hire a Management Team. The third option is pooling money with a group of investors and paying for a quality management team to run the businesses. In this case, the owner and co-investors outsource even the managing and overseeing to a team, while still maintaining some say in the franchise. This option is mostly for when owners buy multiple franchises.
Knowing which option is best depends on how much involvement the buyer wants in the business. There’s not a one size fits all style in overseeing a passive franchise, but the options are there.