A silent investor is a party that provides financial support to the business for an agreed return. The return includes amongst others shareholding or equity in the business, and share of the profits or losses.
Therefore, compensation will depend on the agreement entered into by all the parties, and must be just and fair.
In evaluating the level of compensation for individuals who contributed franchise finance, consideration must be given to the following:
- What is the past financial performance of the business?
- What is the financial position of the business?
- How much the investor invested in the business?
- What is the projected financial performance?
This is not a limited list and it is advisable to consult an expert when entering into a contract or compensating a silent investor.
Remember also that while franchising has for the past five decades outperformed other methods of growing a brand, it is not a cure-all for all business problems. Don’t approach franchising as a testing ground for new or unproven business ideas but rather as a means of expanding an already successful business. You need to therefore have an existing business that is trading successfully before you consider franchising your business.