Building Passive Income by Franchising Your Business

by FMS Franchise | Articles
3 minutes
Building Passive Income By Franchising Your Business

As business owners, we all have this never-ending void in our hearts to achieve the dream of residual income. Every entrepreneur gets tired of pushing the machine forward and constantly feels the stress, weight, and anxiety of keeping up with the responsibilities of overhead and additional operating costs in running the business. 

Everyone knows the value of residual income, but it seems that very few are able to achieve truly passive income in any business endeavor they take on.  How can Franchising help you achieve residual income in your business and what strategies can be used to build passive revenue streams more effectively?

  1. When you franchise your business, you are selling your intellectual property, ideas, and systems for operating your business model.  Franchisees provide dedicated management, and investment in the local operations and oversee the ongoing operational concerns of the business.
  2. Franchisees pay back the Franchisor a consistent royalty based on gross revenues generated in the franchised business.  Royalties are paid either on a weekly or monthly basis and are collected usually using an ACH debit process from the franchisee’s bank account.
  3. When you franchise your business, the franchisees may be required to purchase products or supplies from the franchisor as part of the Franchise Agreement. Because Franchisees are committed to a franchise relationship for 10-20 years, franchising creates a dedicated and long-term purchasing relationship with the franchisees who have invested in a franchise model.
  4. In most franchise development strategies, we target owner-operated franchisees who invest in the business and work in the business. With a vested operator, the performance of the operating unit is generally much stronger than absentee owner-managed businesses and provides you as the franchisor with a stronger residual income base through increased royalties.
  5. Franchising typically lends itself to a much higher performance rate than company-owned growth or entrepreneur startup businesses. With this lower failure rate and increased ability to scale the business, the franchisor realizes residual income growth faster and more efficiently than through comparable growth strategies.
  6. Good franchise models are generally centered around a technology platform that allows for rapid expansion and the franchisor to provide support to a larger number of locations. By making the investment in operating technology as the franchise grows, the Franchisor has more ability to grow quickly and achieve passive income.  Less manual interactions with operational issues and more streamlined processes through technology allow for higher degrees of residual income growth.

Franchising your business requires management skills, capital, and the ability to support growth through a broad network of different personalities, markets, and competitive landscapes. Certain businesses and business owners are more apt to make better franchises, before you make the move to franchise your business, we recommend an initial consultation to review the potential for franchise expansion.

Contact us for a no-obligation consultation on whether to franchise your business.

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