Investing in franchises allowing absentee ownership can have extremely attractive returns for an investor-owner. Absentee ownership is sometimes also referred to as fully passive ownership. The annualized ROI for such investments often far exceeds the returns an investor-owner will see from the stock market or real estate.
Investing in a franchise business, an investor wants the financial benefits of starting and owning a new company but can't put in more than a few hours a month to work on it. Is this doable? The simple answer is yes! This post will discuss how this can work and which franchises allow absentee ownership.
Profile of an Absentee Investor
Many of these investors already have good-paying, full-time jobs and have existing investments in the stock market and real estate. These aren't angel investors or venture capitalists (VCs), nor are they willing to take the same risks, but they are looking to diversify their portfolio with high-return assets.
The two primary questions that absentee investor-owners have are:
- How much of their time is needed for the business, and
- Which franchises have the highest ROI?
The nature of the proven, scalable business models of franchises adapts well for less than full-time ownership. While many franchises offer semi-passive options, which means these investor-owners still must dedicate 10-15 hours per week to the business, that doesn't work for the investor. A growing trend is to offer absentee ownership, in which just 2-3 hours a month is required.
Partner With Another an Investor-Operator
One solution for a passive investor is to bring on another investor who doesn't mind spending part-time on the business. This second investor will likely want to have a semi-passive role but is willing to spend more time on the company.
One challenge is that both of you must see eye-to-eye on the division of ownership and responsibilities to assure fairness. The second investor has to agree with the absentee investor's less active role.
Fully Managed Franchises
The newest trend in the world of franchising is fully managed franchises. A fully managed franchise is one in which the franchisor oversees the business's day-to-day operations.
In this case, the investor creates and wholly owns their franchise company. In addition, they put up the capital to operate it. The franchisor oversees the rest. The franchisor will typically handle the hiring, training, and management of staff; managing the implementation of marketing and advertising programs; overseeing customer service; running payroll and accounting. And anything else it takes to run the operations of the business. In these cases, the franchisor operates as an operating management company.
Where does the investor spend their time? They spend maybe 2-3 hours per month with the franchisor, reviewing business performance metrics, approving budgets, and giving final approvals on plans. But, to be clear, at the end of the day, the investor has ultimate responsibility for the company.
What are the Returns on an Absentee Ownership Franchise?
In another article, we will explore in detail how to actually measure the ROI of a franchise business but suffice it to say now, and returns can be substantial. An investor gains the net income from the company's operations while the business is owned and the exit value from a future sale. The existing sale can be as much as 2-5 times the net income for the 12 months before the sale.
The ROI from owning a reasonably successful franchise business can easily average greater than 30% over the life of ownership. It's not unheard of for the returns to be significantly greater than that.
Which Franchises Allow Absentee Ownership
The following three franchises allow absentee ownership
- Fetch! Pet Care – This is an established pet-sitting and pet-walking service. The initial investment range for this franchise is less than $100,000
- Furry Land Mobile Grooming – This is a luxury, all-inclusive, van-based mobile grooms franchise. The initial investment range for this franchise is $123,000 to $256,000
- Spray Foam Genie – This is a solid brand that focuses exclusively on world-class quality spray foam insulation. The initial investment range for this franchise is $167,500 to $290,000
Franchises that allow absentee ownership can be lucrative investments. As there are many franchises looking to grow quickly, you should expect to see a growing trend to these fully managed services for the investor that want a fully passive investment.