Three Types of Franchise Ownership

Three Types of Franchise Ownership

Posted By Nicole Wells

Buying a business franchise is one of the most trusted ways for you to venture into business for yourself. You have the backing of an established brand and an accompanying network of resources. A successful franchise model will provide you with well documented systems, a strong support team, and a great corporate staff to help your entrepreneurial dreams become a reality. But to become a profitable franchisee, it is important to make sure the franchise ownership model you choose is the right fit with your personal and financial goals. There are essentially three different types of ownership models to consider when buying a business franchise, each with a unique set of assets and liabilities. These common models are: owner/operator, executive/absentee owner, and semi-absentee owner. Each model varies in key aspects such as time commitment, upfront/operating costs, level of industry knowledge required, scalability and personal freedoms afforded. Because of these varying levels of commitment and attributes needed, it is imperative for you to carefully examine your motives and goals before buying into any franchise model. Once defined, you can better decide which model will help you reach those financial and personal investment goals. Let’s examine each ownership model with those criteria in mind.

Owner/Operator: Being an owner/operator is ideal if you are looking for an immediate career change. With this type of model, you are responsible for the day-to-day operations of the business. This is a good choice if you want to maintain total control over your investment and become immersed in the chosen business. Owner/Operators make all operating decisions, resulting in a greater time commitment overall. The drawback of this is there can be long hours and you are tied to that geographic location. For most this means, giving up your current day job and the financial security net that provides. Startup period may result in no personal income being generated. However, staffing costs would be lower compared to other models because you are the one overseeing the operation management. Knowledge of that particular industry’s workings is necessary, as you would be immersed in the daily management. Because of the extensive time commitment one unit takes, the number of units you can own is less than other franchise ownership models, limiting your investment’s growth potential. This is a good fit for you if you are detail oriented and like to have control over every aspect of the business and if you are looking for an immediate career change.

Executive/Absentee: This business model is suited for you if you are looking solely for an investment opportunity. The time commitment is minimal as you hire out all functions to operate the unit. You would have little to no involvement in the day-to-day operation. No industry knowledge is needed, as you hire out management. This leads to higher staffing and operation costs. Because the business is operated autonomously, you are able to maintain your current job and commitments. This takes the risk out of a startup period where there can be no personal income generated. You also are not tied to a location geographically, giving you more personal freedom. This model allows for larger scalability because the option for multiple locations is greater. However, you are placing the success of your investment in the hands of people who do not have the same level of investment as you do. You may also have to put up more capital upfront to hire the necessary people to run the daily operations.

Semi-Absentee: This model blends aspects of both owner/operator and executive/absentee model. The Sport Clips franchise falls into this category. This model is ideal if you are looking for an additional income to diversify your current income and build equity while keeping your day job. The time commitment is low, requiring only around 10-15 hours per week, meaning you can keep your day job and the security that comes with a steady income. You hire managing staff for the day-to-day operations and you focus on leading the business strategy and managing the managers. This type of franchise is a good fit for those who are good people managers. No industry knowledge is necessary because you hire managers with the necessary knowledge. Owning multiple locations is a possibility, increasing your investment’s scalability. This franchise model combines the control of an owner/operator model with the time commitment of the executive/absentee model.

Each franchise ownership model comes with its own set of inherent attributes and parameters. When buying a business franchise, examine how those match up with your own personal and financial goals. Once you have done that you will be able to determine which business franchise is for you.