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Return on Investment

How to invest in franchises

June 22nd, 2023 By Emily Norwood

Savvy investors have been reaping the benefits of franchises for years, and who can blame them? There are somewhere between 750,000 and 800,000 franchise establishments in the United States, generating upwards of $800 million. Who wouldn’t want to get themselves a slice of that economic pie? If you’ve considered jumping into the franchising game, there are now more ways than ever to get started.  

The benefits of franchise investing

The main appeal of franchises lies in their low volatility and high potential returns. This has made the franchise model a perennial favorite of sophisticated investors looking to diversify their portfolios and income streams in the long term. The franchise model’s ability to scale new technology and adapt quickly to in-demand products and services makes it particularly resilient in times of economic turmoil. Unlike other types of assets, franchises don’t necessarily reflect the negative impact of inflation; in fact, it can actually lead to higher profitability and investor distributions. A more profitable business appreciates faster, providing a long-term hedge against inflation.

Types of franchise investing

It’s important to note, however, that not all franchise investment models are created equal. The correct fit will depend on a number of factors, including your current financial situation and goals for the future, both monetary and lifestyle-related.  

Hands-on franchise ownership

Franchises are, by design, proven businesses that are primed for market entry. If you have an entrepreneurial streak, direct franchise ownership can offer an appealing turnkey experience.  Becoming a franchisee means you’ll enjoy the benefits of a loyal customer base and brand recognition that’s been developed over many years, even decades. Furthermore, the centralized marketing efforts can drastically reduce marketing costs while providing higher visibility for the brand. Also, franchises offer various financing options. This can provide additional flexibility for startup costs, which can be considerable depending on the industry. 

All these factors drastically shorten the runway for your business to begin generating profits. This makes outright ownership an attractive option for those who want to become their own boss without having to go through the process of starting up their own business.

Semi-absentee ownership

Most franchise investors have little interest or capacity in assuming the role of an owner/operator. This level of responsibility would require you to be involved in all aspects of the day-to-day operations of the franchise, leaving little time for other pursuits. A potential alternative is semi-absentee franchises, which are designed to be run by a manager or management team, although an owner or investor may be required to check in and occasionally assist with operations.

Absentee ownership

The ideal ownership model for time-conscious investors looking to diversify their portfolios would be an absentee franchise. These businesses run with little to no involvement from their owner/operators, generating truly passive income. While this sounds like a phenomenal proposition, a franchise with the means to be run on the absentee model is a rare find – at least it used to be. (We’ll come back to this in a minute.)

Publicly traded franchise stocks

Investing in franchise stocks is an attractive option for many retail investors. These stocks are typically very accessible, trading on all the major stock exchanges, and provide an opportunity to diversify your portfolio without requiring the large capital commitment of direct ownership. In terms of stability, franchise stocks often demonstrate less volatility even during market downturns, which can help protect against significant drops in overall portfolios. A well-managed stock portfolio may end up generating steady returns that can then be reinvested to sustain gains in the long term.

Fractionalized franchise investing with FranShares 

You may already have some familiarity with fractionalized investing, which allows pools of individuals to invest in expensive assets like vacation homes, private jets, and racehorses. In the venture capital realm, the equivalent would be a syndication, which is a special purpose vehicle (SPV) that allows multiple investors to back a single company. 

At FranShares, we’ve taken this method of ownership and applied it to franchise investing. There’s no need to dive into day-to-day operations or spend hours analyzing the latest trades on the Nasdaq. Our approach allows investors to purchase partial ownership in a portfolio of pre-vetted, managed franchise locations with high return potential – for as little as $500. 

How FranShares works 

FranShares invests in locally operated franchise locations alongside our pool of investors. We then act as the operator for each location and distribute the resulting recurring franchise profits to each investor.

FranShares also remains a co-owner and stakeholder in our investment portfolios. We assume all management responsibilities for our franchise locations and appoint teams who are experts at creating successful franchise businesses. This allows FranShares investors to enjoy returns on their investments while avoiding the stress and responsibilities of full franchise ownership. 

Benefits of investing with FranShares

We combine deep industry expertise with a zero-fee approach to ensure our investors maximize their long-term returns – without the risk of losing their shirts. Our mission is to help investors reap the benefits of franchise investing with a unique business model that offers:

  • Passive income
    Our best-in-class franchise management team ensures that our investors enjoy truly passive income through quarterly distributions – without managing the franchise. In other words, we do the legwork while you sit back and enjoy the returns.
  • Flexible capital commitment
    We offer accredited and non-accredited investors the opportunity to invest for as little as $500, although our model also appeals to ultra-high-net-worth investors. Our platform allows everyday people to become fractional franchise owners with the ability to invest the right amount of capital for their own personal circumstances.
  • High-yield diversification
    Franchises are real assets with little or no correlation to the overall stock market; thus, they act as a hedge against inflation and are not subject to the same level of volatility. 

    Furthermore, our fractionalized ownership approach allows investors to fully diversify their franchise holdings. Owning a portfolio of franchises across different geographies and industries creates an effective buffer against challenges that may shut down a single franchise or location, such as service franchises closing temporarily during pandemic lockdowns.
  • Low risk
    FranShares only invests in recession-resistant franchises with a track record of success to minimize volatility and give our investors peace of mind. We perform all due diligence and thoroughly vet each franchise partner for strong brand recognition and market positioning.
  • Government-regulated
    The franchise industry is regulated by the FTC and as a registered investment vehicle, FranShares is also regulated by the SEC. The FTC requires full disclosure of each franchisee’s background, financials, and performance. In addition, we provide our investors with reporting and regulatory compliance documentation above and beyond what these regulators require.
  • Zero fees
    Traditional investment vehicles charge at least a 1 to 2 percent asset management fee , and that can significantly cut into your returns as an investor. But because FranShares participates in every fund, we are able to waive all platform fees and pass along those benefits to our investors. 

Our profits come from co-investment in franchise locations as well as brokerage commissions from the franchisor, not the fund. This approach both capital for our investors as well as creates parity in the investment opportunity.

Ready to add franchise investing to your portfolio?

If you’re an investor who’s looking to incorporate alternative assets into your 2023 strategy, investing fractionally with a FranShares franchise portfolio offers high earning potential and diversification in a completely passive model. 

To learn more about FranShares and this unique opportunity, speak to our Investor Relations team.

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