Business ownership on the side: Franchisees keeping their day jobs


Franchisees are increasingly hanging onto their day jobs even after they open their businesses. (SHANNON STAPLETON/REUTERS)
June 28, 2012

Prasad Raju has a good job as an IT architect, but he’s lately been feeling like he could use a larger financial cushion.  So he’s opening a Great Clips for Hair salon within the next few months.

But Raju doesn’t plan to ditch his 9-to-5, nor does he plan to master the art of Zooey Deschanel bangs. Instead, he’s going to hire a manager to run the operation while he continues working.

In fact, he said he chose Great Clips in part because “I was seeing other franchises that would make me quit my job, and that was a bit of a drawback.”

Raju is one of a relatively small percentage of franchise owners who manage their franchises remotely and keep unrelated, full-time jobs on the side. Franchise experts say there’s been a recent uptick in interest in this type of arrangement among owners who hope to both generate a second income stream and to hedge their bets in case of layoffs in their industry.

Heather Rosen, president of FranNet of Virginia, a franchise advisory firm, said about half the people she meets with want a franchise that can be run remotely. She said these individuals generally fall into one of three categories: Some are unable to find jobs but want to keep their options open in case they do get an offer. Some are consulting, and want to supplement work that can be less than steady. And others, like Raju, are employed and want to make money on the side.

Raju plans to open his Great Clips in August and is still scouting for a location. He said the salon should generate an average of $40,000 to $50,000 net income after it gets up and running, according to the franchise disclosure documents.

“Franchising appealed to me because they have a proven model,” he said. “If you can execute your model, you’ll be successful.”

Two full-time jobs

Not all franchisors are willing to accommodate the set-it-and-forget-it approach. In its “Is Franchising for You?” online FAQ, the International Franchise Association warns prospective franchisees that owning a franchise business is a “60-70 hour a week job” and that, “managing a franchise is a full time job. It requires great sacrifices of personal and family time.”

Semi-absentee business models are also expensive, Rosen said, because the owner must not only rent the space but hire a competent manager.

“When the credit markets tightened and the recession began, most people couldn’t get the capital they needed to open those types of businesses, and those who had the capital were afraid of putting that much of their own money on the line,” she added.

Because of that, the past few years have seen growth in lower-investment franchises that can be operated out of a home office or executive suite.

But that may be changing now, as franchisers look to grow but potential operators still struggle to secure the necessary financing.

“While franchisors generally prefer to have active business owners, given the current credit environment, prospective investors who are well-capitalized because of second income streams may be more appealing candidates,” said International Franchise Association CEO Steve Caldeira.

Great Clips not only allows their owners to keep a full-time job, in some cases the company encourages it. Unlike in sales or food preparation, a hair salon has little day-to-day use for someone who isn’t a trained hair stylist.

“At Great Clips, there’s not a whole lot a franchisee can do in the salon,” said Rob Goggins, Great Clips’ senior vice president of Real Estate & Development.  “Virtually everyone is cutting hair, so we encourage the franchisee to focus on staying on top of key metrics and looking for ways to expand.”

And it’s not easy to become a Great Clips franchisee. Goggins said that while someone doesn’t need experience running a salon, they usually do need a net worth of at least $300,000, and owners must often open up two to three franchises before they can afford to quit their day jobs.

Managing from afar

Although the practice may boost income, attempting to run a business and work a full-time job simultaneously gives rise to obvious challenges.

“Any small business is a full-time job,” said Warren Lee Lewis, chair of the franchise and licensing practice at Akerman Senterfitt. “To put that on top of a regular job, it’s going to be difficult.”

Ken Piering is a chiropractor who has his own practice and also owns an Elements Therapeutic Massage in Owings Mill, Md., and he said he’s “pretty pleased” with his setup, in which a manager runs the day-to-day of the massage studio while he checks in periodically through an Internet-based system.

But the process hasn’t been without its hiccups: The original manager was not always able to be in the shop and had to be replaced, and Piering’s wife has had to come in occasionally when a front-desk employee called in sick.

Lewis said remote, Internet-based monitoring systems like the one Piering uses can help offsite owners watch sales throughout the day or even monitor the action in the store through a video camera. Great Clips, for instance, uses a proprietary software called Styleware that can pull 140 different reports on business metrics throughout the day.

“We also encourage our people to carefully screen employees before they hire them,” Goggins said. “If there are issues, quickly move on to someone else.”

Raju declined to name his employer but says his company knows he’s planning to open a franchise. He thinks he’ll be able to handle the human-resources aspect of his new venture by meeting with the staff regularly on evenings and weekends.

“It all starts with me—how I set my expectations and how I treat the manager,” he said. “If you hold people accountable, set their expectations and take care of their needs, I think it should work.”

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