My business partner and I are in the process of franchising our business. How should we compensate a silent investor?

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 […]


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.

Organisations that are active in the industry, such as Franchize Directions and FranchisingPlus can assist new franchisors in developing their franchise systems and provide guidance on expert advice.

Busi Silwanyana
About the Author
Busi Silwanyana CA (SA) is Head: Lending, Mid-Corporate and Business Segments, in Business Banking, with The Standard Bank of South Africa Limited. She previously worked at Deloitte &Touché and ABSA Merchant Bank (currently known as ABSA Capital). Busi has extensive international experience and a solid understanding of international structured finance, gained while working in London and Los Angeles.

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