Absentee ownership franchise

How is absentee ownership different from semi-absentee franchise ownership?

Absentee ownership entails minimal owner involvement in the business. In this model, owner involvement is focused on strategic oversight. An appointed manager handles the operational decisions and daily management. In semi-absentee ownership, owner involvement is greater. Here, the owner maintains significant participation in operations, marketing, and management, and delegates daily tasks to staff. The absentee model can be thought of as “executive oversight,” while the semi-absentee model is akin to “part-time active management.”

Do all franchises allow absentee ownership?

No. Many franchisors require first-time franchisees to be actively involved in running the business. If you are looking to become an absentee franchise owner, it is highly advisable that you study the franchisor’s policies in the Franchise Disclosure Document (FDD) and directly discuss the ownership structure with the franchise development team before investing.

What’s a realistic return on investment for absentee franchise ownership?

Returns vary depending on the franchise concept, location, execution quality, and market conditions. In the UK, successful absentee franchises often generate 5-25%+ returns on investment (ROI), after taking management costs and owner profit into account. In the US, this figure ranges from 5-12%, depending on the type of franchise business. Reviewing Item 19 of the franchise’s FDD will help you get better insights into the specific franchise’s earnings. You can also speak with current franchisees to discuss potential returns.

Can I start an absentee franchise with no business experience?

Starting an absentee franchise with no business experience is not advisable, as it can be more challenging and entail greater risk. Most successful absentee owners either have business management experience, are prior franchise owners, or have relevant industry background. First-time business owners should start as owner-operators or semi-absentee owners to learn how to run the business before transitioning to a fully absentee status. For those who lack the experience but would like to be absentee owners, it’s advisable to consider franchises that offer extensive training, have strong systems in place, and have proven success with investor-owned units. Hiring experienced management while working with franchise consultants or mentors will also be highly beneficial.

How do I ensure my manager doesn’t steal from the business?

You can implement multiple financial controls. Examples include dual-signature requirements for checks and large expenses, daily cash reconciliations and bank deposits, separate individuals handling cash and bookkeeping, regular external audits or surprise audits, point-of-sale systems that track all transactions, security cameras in cash handling and storage areas, background checks, including credit reports for managers, and regular financial statement reviews to pick up anomalies. Also, create compensation structures that reward honesty and performance rather than creating incentives for theft.

What happens if my general manager quits suddenly?

Have a contingency plan in place by hiring an assistant manager who’s capable of stepping up temporarily. You can also have a well-maintained operations manual with detailed procedures for continuity. Focus on building relationships with key staff who can assist with management tasks. Additionally, have a recruitment plan and candidate pipeline ready. You should be prepared to increase your involvement temporarily during the transition. Franchisor support for crisis management will be very helpful, and management placement or temporary staffing services can also be an option to consider.

Is absentee franchise ownership actually passive income?

No, a more accurate description is “leveraged income” or “semi-passive business ownership”. Although you may not be working in daily operations, you will still be expected to exercise consistent strategic oversight, monitor finances, lead the management team, carry out periodic site visits, problem-solve, and make decisions. For those interested in a completely hands-off income stream, traditional passive investments could be a better option. However, if you want higher returns with a manageable time commitment, absentee franchises offer a stable middle ground.