Building Residual Income By Franchising Your Business

StrategyDriven Entrepreneurship ArticleThe vision for every entrepreneur is to eventually figure out how to scale to the point where the day to day business isn’t reliant on the owner every minute of every day.  For many, this objective never comes to fruition as the business is structured in a way where the business owner is consumed and literally devoured by the entity.  The business owner becomes an employee in reality and the business never grows beyond what that business owner is able to accomplish with their own two hands.  The E-Myth, by Michael Gerber, says it best, to build a business, one must figure out how to get themselves OUT of the business before they can start to work ON the business.  Franchising is a the ultimate definition of scale where a business owner removes themselves completely from operational responsibilities in order to become a coach to others who wish to enter the world of entrepreneurship.  The reason why franchising lends itself to scalable, high-residual income is the same reason that Larry Ellison has a net worth of $49.6 billion and a boat that is larger than some countries.  Once you are able to create the formula for what you do and replicate that formula through scaled growth, you have achieved the ability to generate income for your intellectual property.

Franchising is a unique vehicle in that it allows businesses that traditionally are not scalable, such as restaurants, retail and service businesses to become scaled through franchisee’s investment and willingness to manage the local business.  When you franchise a business, you create a vehicle that supports residual income through long term relationships with independent franchise ownership and contiguous brand equity.  Franchisees pay a fee to you as the franchisor for the rights to your intellectual property and brand recognition in addition to making the investment in opening the new franchise location of your business model.  Where the residual income is derived from franchising is that a franchisee typically commits to a 10-20 year relationship where they are agreeing to pay a percentage of their revenues on a weekly or monthly basis.  In addition, many Franchises also require franchisees to purchase products and business items from the franchisor as well which may be sold at a profit to the franchise network.  This is where residual income is generated and at the time where a franchise system becomes self-sufficient is when the business owner can step out of day to day operations entirely and focus on building the business and moving the company forward.  Visionary entrepreneurs who leveraged franchising to expand such as John Hewitt in the tax preparation business or Ray Kroc in the hamburger business were most likely not the best tax preparers or burger flippers, they were great at finding scale and achieving residual income for their ideas.

To franchise a business one must be in a position where they have the right formula in place, systems, processes and procedures to be able to teach a third party how to do what you do.  In many cases, I’ve found that business owners don’t realize that franchising is a viable expansion model and that they could achieve this residual income sooner than expected.  My advice is always to let the market drive this decision of whether to franchise your business, if people are asking for what you do in their market and how to invest in your business, the franchise expansion model needs to be on the table.

For more information on how to franchise your business, visit Franchise Marketing Systems:

About the Author

Christopher James ConnerChristopher Conner, President of Franchise Marketing Systems has been in the franchise industry since 2002 working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting.  To read Christopher’s complete biography, click here.

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