Whether you should become an owner operator or an absentee owner of a franchise will depend on a number of variables. Some of these depend on the franchisor, some depend on the type of service or product you’ll offer, and some will depend on your personal preferences, financial position and overall goals. In addition, if you’re buying a resale, exactly how much you take a “hands-on” approach will depend largely on whom the seller has for a manager.
Approximately one quarter of franchisors require buyers to commit to a clause in the franchise agreement that precludes absentee ownership. This is a sizeable percentage of the approximate million franchise brands in the U.S., and a percentage that is growing.
However, that still leaves approximately 3,500 franchisors who do allow absentee ownership. The option to handle the franchise as a passive investment is definitely available for many good brands. But another consideration will be the service or product you’ll be offering. Some franchises require more hands-on than others. For example, if you buy a franchise with the need for a high level of expertise in that field or a license that requires a degree in medicine, law, or aeronautics, there’s a good chance that you’ll need to become an owner operator. If, on the other hand, you’re considering a burger joint, you’ll probably be fine hiring a good general manager (GM) who follows the franchisor’s standardized method of operation.
Regardless of the types of services or products offered by different franchises, the most important influence should be your personal preferences. Are you the type of person who would rather know exactly what is happening on an hour by hour basis guided by your own influence? Do you like to look in the customer’s face and shake hands as the owner, offering a personal touch to customer service? Or are you an investor who would rather delegate responsibility to a seasoned manager? Even if the latter choice is yours, know that there are some things you should handle personally during the establishment of managerial operations. For instance, initially you should learn about the key positions of the franchise and how to fulfill those duties attached to them. Only after an experienced team is in place is it safe to spend less and less time at the franchise.
Additionally, even as an absentee owner, you should perform periodic reviews to protect your investment. As an owner operator you would ensure that cash registers balance, that sales volumes are meeting or exceeding expectations, and that marketing strategies are being implemented. As an absentee owner, most of these responsibilities will be given to management. But this does not mean you shouldn’t pay attention to many of these areas. Your money will be at risk; thus, periodically reviewing these points is very important, and might call for a database that you can view electronically as frequently as you choose.
You must also consider the cost of operations for your franchise, and include the expense of hiring a GM to replace your contribution of time. If the expense for a GM significantly lowers your franchise profits, you may not have the capital to maintain his or her salary. This would almost certainly require you to become an owner operator.
Are you just an investor seeking a passive income or are you a type-A personality ready to make a career out of controlling your own operation? Are you buying a job or an investment like a stock or bond fund? Only you can answer this question to your own satisfaction.
Finally, if you’re purchasing a franchise re-sale, how much time you spend micro-managing will rest upon the seller’s prior practice. Was the seller an absentee owner or was the seller also the GM? If the seller has a good management team in place and is already profitable, his or her absence from daily operations will probably not matter very much. Conversely, if the seller was also the GM, then you’ll need to fulfill that role as an owner operator, at least until you can train someone to take over as GM.
If you buy the right franchise, hire the ideal employees in key positions, and have the capital requirements, a franchise re-sale is an ideal way to add to your passive income. Nonetheless, if you need to build and create and enjoy a career, then becoming an owner operator is probably a better choice to satisfy your goal to achieve personal success.