Putting Risk In Its Place
With the right plan, skills and drive you can accomplish anything you set your mind to and eliminate risk in the process. A lot of people think of business owners as big risk takers, but really they are big risk avoiders! We work to eliminate all the risk we can and understand those risks we are unable to eliminate. Once we have done that then business owners will take a calculated risk.
As I look at the field of franchise opportunities I see a wide range of great options, but know it is scary for candidates that would leave a job to start them. Some of the most compelling franchises out there are so confident in their abilities and how well their systems are built that they will create ways that their new owners can mitigate risk and make taking the leap more palatable.
There are a number of ways a franchisor can help new candidates. Outright eliminating the franchise fee, oddly enough, would not remove risk. It might even have the opposite effect as there is a benefit to an owner having money in the deal.
One of the older ways that franchisors made it easier for candidates to take the leap was to create semi-absentee (very hard to be fully absentee where your money is concerned) franchises where new franchisees can keep their job while they begin building their franchise empire. The business model has to be simple, streamlined and easily run by a manager. There has to be a relatively stable employee base and they are more likely to provide a service than products or food.
These semi-absentee models have been used by countless corporate executives looking for a future transition out of their jobs and business owners looking to grow a portfolio without selling their first full time business.
The game plan is to make a reasonable down payment (often on a SBA loan), leverage the bulk of the investment , pick a location, hire a manager and then manage the manager with 10-15 hours per week (often a married couple splits the responsibility).
Once you have your first store open and doing well then you open another. And so on, and so on. We have seen some owners grow this into a cash flow and asset that while not huge is a great resource for them. Others have grown truly enormous portfolios that they keep as long as they like for the ongoing revenue then sell the asset they built when they want to retire.
Please note: The fact that a franchisor offers a semi-absentee franchise alone does not make it a smart buy. There are still a lot of criteria that need to be met for it to be successful.
Some investors want to build an even greater perception of investing safety by acquiring an existing operating franchise. While you do have to select a resale business carefully, we have been able to help our candidates find some true values out in the market (so they do exist).
Right now there are hundreds of these operating portfolio building franchises for sale. There may never have been a better time to look for an existing semi-absentee franchise to purchase for your portfolio.
But wait, there’s more…
Within the past year we saw another approach where a franchisor who is immensely confident in their offering found a way to mitigate risk for their franchisees. It is the first of its kind and we hope we see it again from other brands.
While they offer a traditional franchise fee plus startup costs get you 100% ownership in your business, they added a second option. In this alternative approach they ask the franchisee to pay $79,000 up front. As the franchisee operates the franchise all of that franchise fee is paid back over 3 years. If the franchisee hits certain performance goals they kick in added bonus money.
Starting to sound like a job? Noting of the sort!
The franchisee owns 50% of the business (for the $79K that they get back over time), having just partnered with a huge brand. The amazing thing is that for their 50% of the business the franchisor kicks in over $300,000 the first year or two for your office, staff, vehicles and equipment!
If you grow aggressively they keep expanding the team, facilities, vehicles and equipment without you giving up any more of the business. Through the other brands under their umbrella they even funnel some lead flow.
The franchisee gets 50% of the profits, medical insurance (you know it is a big deal), access to 401K and much more. Additionally the franchisee owns 50% of the asset they built with their new partner, so you get paid if you sell the business too!
25 years in the franchise business and I am not sure there is any program I have ever seen that offers this much risk mitigation for a franchisee who is ready to go to work and begin building their empire.
Long gone are the days where every franchise offered an unmeasurable risk. You can better evaluate the opportunity in front of you than ever before.
Jobs are still less risky, you say. How is that working out for you? Do you risk being downsized, having your comp plan restructured, being replaced by the (lower paid) person just below you in the food chain? Are you building an asset, just not your own?
With the options above, it is getting harder to say that a job is safer than controlling your destiny!
What is your success story? Let’s go find it!
George Knauf is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. Contact the Franchising USA Expert George’s Hotline 703-424-2980.