Business ownership on the side: Franchisees keeping their day jobs

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.