On-Site Management

What to Consider

Are there types of franchises where being absent from the premises absolutely wouldn't work?

Yes, such as businesses selling valuable inventory. I know in one franchise system, the franchisee was having particular problems because his employees were taking home some of the more valuable boxes of product that were cooked and sold in the restaurant. In businesses that run on relatively small margins already, that can be devastating to the profitability of the business.

In cases like that, is it beneficial for franchisors to require that franchisees be on-premises?

A franchisor has to think carefully about imposing a contractual obligation for personal involvement in these businesses because the contract has to be flexible enough to accommodate a lot of different circumstances of individual-unit owners and multiunit owners.

Franchisors benefit from a flexible requirement that encourages franchisees to be directly involved in on-premises supervision. I work with one franchisor that specifies on-premises supervision will be no less than X hours a week and that the owner live no more than Y miles from the store's location because they've found if the owner is on-premises for fewer hours than that, they run into big problems.

This is usually found in the franchise agreement when the franchisor considers it an essential part of succeeding in their businesses. After a franchisee complies and establishes a successful track record and, perhaps, receives a second or third or fourth franchise, they know the business so well at that point that they understand how to run a business without being there all day, every day. So the requirements have to be flexible to accommodate that.

Franchisors also have to be careful that this requirement isn't overbearing or limiting or that they're requiring more involvement than is necessary. It may be, for instance, perfectly adequate in a particular type of franchise business that the owner be on-premises four hours a day, with a good manager in place. In other businesses, the owner may have to be there virtually the whole time the business is open. But especially for a retail business with long retail hours, franchisors have to realize no one person can probably be there every hour the business is open.

What else should prospective franchisees consider if they're thinking about being hands on or hands off? What's involved in that decision employee-wise? Cost-wise?

That's pretty hard to answer in the abstract. Anyone evaluating a franchise should understand what's spelled out in Item 15 of the UFOC [Uniform Franchise Offering Circular], which directly addresses any contractual obligations the franchisee has to participate in. That item specifically discloses whether personal participation in the direct operation of the business is required, whether the franchisee has to enter into any kind of personal guarantee or confidentiality obligations and whether that franchisee has to require anything contractually of its managers or senior employees who supervise, or help to supervise, the business.

If you decide to be an absentee owner, how hands off should you be? Should you still be checking in? Would you have any hand in hiring?

That may depend entirely on the trust you have in the people managing your business on a daily basis. If you have great people in place who are experienced managers, that may free you up a bit more.

Are there certain businesses or industries that work better for a hands-off owner?

I have to say, none come to mind. Maybe that says something.

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