Top 7 Passive Income Franchises (and the Risks)April 29, 2022
Are there options in franchising for creating 100% passive income? Yes, but not many. If you have 10 hours a week available certain franchises allow for “semi-passive” ownership, which is much easier to find. We’ll look at passive investment franchises and how much you will need to invest today on Franchise City
TYPES OF PASSIVE OPERATION:
1. 100% Passive Investment franchises: Completely passive, where the owner has absolutely no involvement in the business, and the franchise company co-ordinates all business operations. This is rare, and this is a completely hands off situation, same as owning a stock, and there are very, very few of these.
2. Passive allowed – most franchises do refer to this as “passive” operation, but the owner is in fact responsible for setting up the business. The problem with this model is if you are responsible for hiring someone to run your business and they don’t work out, or the second, third and fourth manager all quit or you cant find someone, that supposedly passive business is now not so passive. This is the biggest problem we see where new owners don’t consider worst case scenarios. If you have a job that is not flexible, or another business that requires your time, and your manager quits, and the franchise remains closed, meaning you don’t go out there and open it, you could be in contravention of the terms of the contract and can potentially lose your franchise.
3. The most prevalent is the semi passive, or manager run model, where the owner invests maybe 10 hours a week overseeing the business from a high level.
If you have a flexible job or business and can commit around 10 hours a week a hair salon, beauty shop, or massage or spa franchise can be a good fit. Your own market demand and demographic needs to be considered, if you need help determining what might make sense in your city give your Franchise City broker a call. But what makes hair, beauty, and massage a good option for passive? 1. You are dealing with a service, not a product like food, so no potential for theft or spoilage, and that additional responsibility of inventory management is nonexistent. 2. The business model is simple, people walk in they sit down, they get the service, they leave and the quality of your manager is not as critical as for example a gym, where your manager needs to have very specific skills to grow the business. Your salon manager doesn’t need to be good at “selling” a haircut, but if your gym manager is bad at sales or customer service your bottom line will suffer. Gyms can be good, depending on your situation. You don’t make much money owning a single salon, so the strategy is multi unit ownership. Most people start their first franchise while still working, and eventually leave their job once they built multi units. In one one of the biggest National chains the average franchisee owns 6 salons. Now very important with big chains is to make sure there is territory expansion availability in the region. If you have no room for expansion your growth is limited and it can make sense to join a smaller emerging franchise system with contiguous territory availability. Again no right or wrong answer your franchise city broker can help. Investment for your first salon ranges from about $160,000 and up, SBA financing available with about 30% down and each franchise has their own minimum net worth requirement averaging around $300k and up. There are also specialty beauty concepts available that show an average EBITDA of over $100,000 per location.
Another interesting option for semi passive is a salon studio, or beauty mall. This is a higher investment but can generate more money than a single salon. In this scenario you open a large footprint location, build out multiple smaller beauty suites within the location, and then rent those suites to individual beauty technicians who want to run their own business. So this location becomes an upscale local beauty destination and you might have nail technicians, hair stylists, lashes, facials, any type of beauty service. The benefit of this model is it’s really a real estate play, you are receiving rent from business owners vs managing employees. Realistically you’ll still need 10-12 hours a week to run the suites, and your total investment will depend on the size of the location and your cities real estate costs -$300k to over a million for larger locations, again financing available with about 30% down.
There are also completely passive income businesses like Bitcoin ATM’s, or supermarket water filtration units, where the investor provides the capital, and the company deploys, manages and if needed repairs the units.You can even check the status of your business on your computer or mobile device. Investment at the low end about $50,000 depending on how many units are being purchased.
NEED HELP FINDING A PASSIVE INCOME FRANCHISE? CALL FRANCHISE CITY BROKERS