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On-Site Management

Is it really necessary to be a hands-on franchisee?

To manage or not to manage, that is the question. Whether you've envisioned kicking back in a corporate office or manning the front lines of your franchise, your decision to be a hands-on or absentee owner has great implications for your business. Everything from employee relations to future growth could hang in the balance, so choose wisely.

But is one option better than the other? Franchise Zone asked Andrew A. Caffey, a Bethesda, Maryland, attorney and franchise specialist, for his perspective on these ownership options.

Franchise Zone:What are the benefits of being a hands-on franchisee?

Andrew A. Caffey: In some businesses, it's not just a benefit-it's an essential feature of success. I learned this many years ago from a franchisor who told me the reason he franchised was the business wasn't profitable if a mere employee was running the shop. Employees were actually stealing the inventory. The franchisee, on the other hand, has an interest in seeing the business profit and making sure none of the employees are sabotaging that profitability.

Other benefits include the close and careful management of employees, the ability to give special attention to customers, and the capacity to make everyday decisions about the business.

What are the drawbacks of being a hands-on operator?

If a person is successful in a single retail business and would like to expand that business with additional locations, he or she is going to have to share time between those businesses and cannot be an on-premises, full-time owner/operator for any one business. Something's got to give if the business is going to grow.

In the late '70s and early '80s, some franchisors were attempting to enforce a provision of the franchise agreement that required the franchisee to be a fully active, full-time, on-premises manager not removed from the business in any way. The upshot of those legal cases was that franchisors can enforce that requirement, that in some businesses it's an essential requirement of success. So that precedent was established in the early days of franchising, and some franchisors consider an on-premises franchisee so important, they require it by contract.

What benefits do absentee owners enjoy?

The ability to build multiple businesses over a fairly short period of time. In a lot of franchises, that absentee owner is a developer-the person lining up employees and managers, overseeing the build-out of the business and moving on to the next unit. Absentee owners can build rather quickly without having to spend a large portion of their day on-premises.

What about the drawbacks to absentee ownership?

Not staying close to the employees and the manager. An absentee owner doesn't know how the business is being operated, so, for example, a restaurant's tables and floors could be consistently dirty. A manager without an ownership position may not be motivated to keep things operating in the way the absentee owner would like. So enforcing standards becomes a problem.

And, in franchising, it's a particular problem, because franchisors obviously rely on their franchisees to keep up the standards of the business operation. The franchisor doesn't have a relationship with that store manager. In a franchise structure, it's essential that the franchisee be an active participant in the business.

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