Lean Franchising Method, Part 3: Reaching The End Goal Of Franchise Ownership

Post written by

Jason Tropf

We founded and grew 81 franchise locations with $30 million in revenue. Now we help others do the same. Learn more at LeanFranchises.com


In the third part of this series, we will discuss the long-term goals of a franchise owner, based on my perspective, and how to get there.

In the first article, we covered a simple process that we use at leanfranchises.com to isolate the top-performing franchise concepts, using 10 steps. And the second article explained that a top-performing franchise concept isn't all that matters. The owner matters. How do you know that you'll operate it well enough to be a top performer? We discussed ways to discover the top-third, middle-third and bottom-third performers in a given franchise network, so you can match your skill set and background to discover where you would land with your natural tendencies.

When considering your long-term future, there are a few final considerations to keep in mind:

• Buying the franchise with the exit strategy baked in up front

• Recession resistance (planning for inevitable economic downturns)

• Absentee ownership and multiple streams of income

Your Three- To Five-Year Exit Strategy

Buy it. Build it. Sell it. If you can't sell it within three to five years, don't buy it. Even if you don't sell it, buy it and structure it with the exit in mind to keep yourself in check as you move forward. Business valuation models will favor the business owner who does this. In particular, when selling a business, contractual and predictable cash flow will largely impact the value of your business. 

Consider recurring revenue models. One strong cash flow model is the membership subscription model. I find that valuations can be many multiples higher for a business that has a guaranteed monthly income in the form of repeat customer payments. This is something to consider and can be its own full series of articles. Suffice it to say, you will likely sell for higher multiples if you have contracted recurring revenue instead of an average number of new customers. Both may be predictable but one is contractually guaranteed. 

You'd be surprised how few consider this when shopping franchises. Rarely am I asked, "what franchise concepts sell for the highest multiple?" or "what franchise network would a detail-oriented personality thrive in?" Instead, we tend to get caught up in the branding we've fallen victim to and assume it would be dreamy to own a recognized fast food restaurant, for example.

In reality, you may not have considered factors like the 10-year real estate lease you'll personally guarantee, the up-front cost of the construction build-out of a kitchen that requires pulling permits for hood vents and grease traps, or constantly hiring and firing employees who tend to churn often. Ultimately, you may not be considering the fact that you're going to create an environment that you'll spend your daily life surrounded by. 

You may find that you would be much happier in a concept with few or no employees, or even with more experienced or educated employees who take pride in their career. Or, you may find a better fit with a home-based concept that doesn't have the overhead of an expensive, high-traffic retail location with dozens of employees.

When the only way to scale is to open multiple locations that you don't enjoy immersing yourself in, you will likely slow down. If you don't enjoy the environment, launching multiple locations isn't where you'll thrive. On the other hand, the right person will thrive in that situation, seeing it as an opportunity to help others. The money is the same color on the back end but your happiness and your potential to scale are not. 

This is not the only thing to consider, however. For example, in a recession, some businesses will certainly be devastated by budget cuts, so let's consider recession resistance. When launching a business, many of us don't consider this, but it's important to do so before it's too late in the game.

When consumer spending tightens, does the industry historically perform well? Check statistical data to find out. Examples include:

• Automotive repair franchises (especially when paid for by third party, insurance)

• Senior care franchises (especially when paid for by third party, insurance)

• Disaster restoration franchises (especially when paid for by third party, insurance)

• Child development franchises (family and loved ones remain a top priority)

• Health and wellness franchises

The End Goal: Absentee Ownership, Multi-Unit And Cashing Out

I find that the goal of many business owners is to progress to an absentee owner through the following steps within three to five years:

1. Owner-operator

2. Semi-absentee owner

3. Absentee owner, multi-unit owner, cashing out

By no means is this an exhaustive list. So much more should be explored. The point is that someone just like you has likely franchised a concept made just for you. That franchise concept is something you can immerse yourself in because you'll find joy in the process required to build it. You'll be building value in your community by leveraging your natural-born tendencies. From that place, if you build for scale to remove yourself or cash out for optimal returns, even if you didn't originally intend to do so, your ability to contribute more will increase.

To close, this is advice I've shared with my clients and I fully believe in: "I believe it is possible to be happy, wealthy and proud of your contribution to the world. Enjoy working on what you're building. Interact with the type of people you want to surround yourself with. Feel the self-worth associated with contributing to the world in ways that you are uniquely qualified and become a top-performing business owner who creates a legacy and your very own empire."


We founded and grew 81 franchise locations with $30 million in revenue. Now we help others do the same. Learn more at LeanFranchises.com....
