Franchises that suit hands-off investors
Business is known for the gruelling hours entailed in kick-starting growth, but what is involved when an investor role is offered to a franchisee?
Generally, a franchise is not considered a passive income source, says Smart Franchise co-founder Kate Groom. If a franchise system advertises an investor-type model involving minimal effort, potential franchisees should first read the fine print, she warns.
“Certainly in the beginning you would need to be involved in the business,” she says. But can franchises be run by an investor who appoints ground-level managers?
Here, Inside Franchise Business explores some franchises that are geared for investor-types...
Just Cuts is a salon business that has been franchising for more than 27 years, and franchisees do not need a hairdressing background.
“Many of our franchisees spend less than 30 hours each week working on their business,” says business development manager Luke Manning. “Our systems, processes, support model and training opportunities help empower stylists to easily run the business for franchisees.
“This can happen as soon as the stylists, who all must be qualified hairdressers, receive the necessary induction and guidance from the Just Cuts Academy. Franchisees then appoint a team leader who can run the day-to-day activities.”
But can a buyer expect passive income from a Just Cuts franchise?
“With Just Cuts, franchisees also set their own pace,” says Manning. “As client numbers and retail sales grow, so does a franchisee’s earning potential.”
In fact, most Just Cuts franchisees are not hairdressers. “We provide our franchisees with a proven, successful system that guides them through every step of opening a salon,” he says. “All you need is a passion for people and a willingness to learn and grow.”
A Just Cuts kiosk salon starts from $80,000 and a full in-line salon from $160,000. The initial franchise fee for a kiosk salon is $12,500, and $25,000 for a full salon.
The model has a fixed weekly franchise service fee, based on 12 units a week, with a “unit” being the current price of a Style Cut. Regardless of the number of haircuts provided each week, the fee stays constant.
Orangetheory Fitness is a gym concept that delivers individual fitness within a group environment. For fitness sessions, members are split into two groups to maintain heart rates alongside other routines. The fitness classes change daily.
A part of the Collective Wellness Group, the model allows for a franchisee investor. However, when it comes to how much face-time is needed of the franchisee, this may vary depending on the flexibility of the franchisee and their personal circumstances, says CEO Arthur McColl.
“The first six to 12 months are a crucial time for the business, and for a franchisee to be seen, heard and felt as a major positive influence on employees as the studio builds memberships, as well as personally interacting with members. They need to lead by example and make sure systems and procedures are followed. Helping the team, from the studio manager to coaches, and really being interested and involved has a hugely positive impact.
“This will set the tone for a healthy, wealthy and successful studio as time goes on, which ultimately allows the franchisee to take a step back to focus on opening another studio or begin building an Orangetheory Fitness portfolio.”
While the franchisee investor still should spend an amount of time within the business, at least in the early stages, the studio manager has the ability to care for the studio.
An investor should know the ins and outs of the business they are buying into so they can make the most of the opportunity. But can a franchisee expect passive income from this model?
“Absolutely, but of course within time, and especially if the time dedication and commitment was evident from day one,” says McColl. “Pre-sales targets should be pushed and the team supported. This will only make things easier and more profitable down the line.”
But running a business is never easy, he warns. “Of course, having a background or at the very least an interest in health and wellbeing or business management will only help a franchisee succeed.”
Investment levels for an OrangeTheory Fitness franchise usually start at $600,000. Site selection, sales support and marketing are included, as well as ongoing support.
Franck Provost Paris
French salon brand Franck Provost Paris is headed up in Australia by master franchisor Jean-Francois Carre. A franchisee becomes a hands-off investor in stages.
“For the first two years, franchisees are involved full time (40 hours a week),” says Carre. “After that, it is possible to go part-time and eventually even out of the business completely (after three years), especially with the help of the management option provided by the head office.”
While a Franck Provost owner/operator is responsible for the business, the administrative tasks can be performed by a third party. Carre says this why some franchisees, who prefer to focus on team and client management, rely on the head office to provide support with accounting, payroll, recruitment and marketing tasks.
These franchisees can expect a passive income, generally after about three years, says Carre. “A hair salon takes a little time to set up, but when the clientele is built up and the team is stable, this is totally possible and an objective for most of the business owners.”
Franchisees can work mainly at the reception desk, focusing on clients and the salon team. Carre says good people skills and dedication are must-haves.
Depending on the site, a Franck Provost franchise is about $291,000 including the rental bond, or about $272,000 excluding the bond. Larger premises in premium shopping centres will incur higher establishment costs, of course.
Franchisees are provided weekly hairdressing training within salon and at the FPP Sydney academy. They are also given help with marketing, salon set-up and choice of location, plus legal help such as with employment contracts, as well as business advice. This is covered within royalties and marketing fees.
Extra business support is available for additional subscription fees:
1. Management option
Head office looks after everything so the franchisee can be relatively hands off. This is a particularly appealing option for investors who are not hairdressers. It includes:
- accounting and financial reporting
- business coaching
- managing and coaching the floor manager
2. Centralised customer service option
Head office answers calls, emails, SMS and live chat, plus supports the salon floor manager with rostering, planning and casual staffing.