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.
The benefits of being a hands-on franchisee
In some businesses, it’s not just a benefit – it’s an essential feature of success. A franchisor once said the reason he franchised was because the business wasn’t profitable if an employee was running the shop.
Employees were actually stealing the inventory! The franchisee, on the other hand, has an interest in seeing the business make profit and preventing employees from 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.
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, they are 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.
Drawbacks of absentee ownership
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 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.
A franchisor has to think carefully about imposing a contractual obligation for personal involvement in their business because the contract has to be flexible enough to accommodate the different circumstances of individual unit owners and multiple unit owners.
Franchisors benefit from a flexible requirement that encourages franchisees to be directly involved in on-premises supervision. Some franchisors specify that on-premises supervision will be no less than X number of hours per week and that the owner live no more than Y kilometres away from the store’s location because they’ve found that if the owner is on-premises for fewer hours than that, they run into problems.
This is usually found in the franchise agreement where the franchisor considers it an essential part of succeeding in their businesses. After a franchisee complies and establishes a successful track record and, perhaps, acquires additional franchises, they know the business so well that they understand how to run it without being there all day, every day. So the requirements should be flexible to accommodate that.
Related: A Model Franchise
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 perfectly adequate in a particular type of franchise business for the owner to be on-premises four hours a day, with a good manager in place.
In other businesses, the owner may have to be there most of the time the business is open. But especially for a ritual business with long retail hours, franchisors should realise that no one person can realistically be there every hour that the business is open.