“Semi-passive” franchise ownership has become an increasingly popular goal in recent years. Semi-passive owners, or “executive franchisees,” make high-level decisions but do not personally manage their franchise’s day-to-day operations. While semi-passive franchise ownership offers flexibility and time for other endeavors, pursuing this option requires careful consideration. As a result, prospective franchisees who are considering semi-passive ownership should consult with an experienced franchisee attorney who can help them make informed decisions.
As a prospective franchisee, semi-passive ownership can seem like a good middle ground between taking a hands-off approach to your investment and grinding it out as an owner-operator. But while semi-passive ownership can be a good option in the right circumstances, it is critical to make informed decisions about what makes sense for you based on your personal preferences and financial projections.
Semi-passive ownership necessarily entails additional costs compared to running your franchise yourself. There are additional risks involved as well. If you are considering a semi-passive franchise opportunity, here are some important considerations to keep in mind from national franchisee attorney Jeffrey M. Goldstein:
Semi-Passive Franchise Ownership Means Hiring a Full-Time Manager
If you will be a semi-passive franchise owner, this necessarily means that you will need to hire a full-time manager to run your franchise on a day-to-day basis. You will need to choose your manager carefully. Not only will this individual be responsible for running your franchise, but you will also need to trust them to communicate openly and honestly with you about your business.
Of course, hiring a full-time manager also means paying an additional salary, and you will need to cover all of the other costs associated with adding another employee to your payroll as well. If the first manager you hire isn’t a good fit (or decides to leave for another opportunity), this will mean incurring the costs (and time) involved in recruiting, training, and onboarding another manager to fill the role.
If You Aren’t There Every Day, You Won’t Know Everything That Is Going On
From a risk perspective, if you are not there on the ground (or in the office) every day, you won’t know everything that is going on. Even if your manager is experienced and well trained, this does not necessarily mean that your manager will know all of the ins and outs of operating within the franchise model. From using unapproved advertising collateral to offering unapproved products or services, various issues could lead to trouble with your franchisor—and potentially put your franchise at risk.
Employment issues, health and safety issues, and other issues can pose legal and financial risks for franchisees as well. Here too, if you are not directly involved in your franchise’s operations, you may find it difficult to maintain the standards you would maintain on your own, and you may find it difficult to know when intervention is required.
Training and Oversight Are Essential for Risk Management
With this in mind, training and oversight are essential for risk management when operating as a semi-passive franchise owner. These necessarily go hand-in-hand. While providing effective training can help prevent many of the issues you might otherwise face, it will still be critical to maintain effective oversight of your franchise on an ongoing basis.
Owning Multiple Franchises Comes with Additional Opportunities and Risks
For many prospective franchisees, one of their primary motivations for pursuing semi-passive franchise ownership is to allow them to acquire multiple franchises. While this presents additional financial opportunities, it also presents additional risks.
Owning multiple franchises effectively multiplies the risks involved. Even when purchasing multiple franchises in the same franchise system, each unit presents its own unique set of risks, including the risk of failure. Not only that, but area development agreements and other multi-unit franchise agreements often include “cross-default” clauses—which means that a default under one franchise agreement can trigger defaults under all others. This can potentially have devastating financial consequences.
While there are plenty of multi-unit semi-passive franchise owners, those who are successful have generally devoted the necessary time and resources to building sustainable businesses and managing their risk effectively. If you are prepared to do what it takes, then this could be a good approach. As you evaluate potential franchise opportunities, it will be important to honestly evaluate your own capabilities as well—and to make informed decisions based on what you believe you can manage effectively.
FAQs: Considering Semi-Passive Franchise Ownership
Is semi-passive franchise ownership a good option?
Whether semi-passive franchise ownership is a good option for you depends on your individual circumstances. While semi-passive ownership has its benefits, it also comes with risks, so it is critical to make an informed decision based on your individual capabilities and risk tolerance.
Which types of franchises are best for semi-passive ownership?
Almost any type of franchise can be a potential candidate for semi-passive ownership—unless the franchisor specifically requires franchisees to be involved in their outlets’ day-to-day operations. Semi-passive franchisees can (and do) operate restaurants, gyms, studios, salons, mobile services businesses and a wide range of other types of franchised businesses.
What do I need to do before pursuing a semi-passive franchise opportunity?
As with any type of franchise opportunity, pursuing a semi-passive franchise opportunity requires careful planning and thorough due diligence. All prospective franchisees should carefully review their chosen franchisor’s Franchise Disclosure Document (FDD) and franchise agreement, talk to current and former franchisees, attend a “Discovery Day,” and take other steps necessary to make an informed buying decision.
Request a Free Initial Consultation with National Franchisee Attorney Jeffrey M. Goldstein
If you are considering a semi-passive franchise investment and would like more information about the legal considerations and risks involved, we invite you to get in touch. Franchisee attorney Jeffrey M. Goldstein has well over 30 years’ experience representing prospective franchisees nationwide. To request a free initial consultation with Mr. Goldstein, give us a call at 202-293-3947 or tell us how we can help online today.
