So you want to make Passive Income, and you're wondering if a Passive Income Franchise is possible. It certainly is. Passive Franchises aren't easy, but they can be worth it.
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One of my franchises is 2485 miles away from where I live right now, and the other one is 157 miles away. I know, it's crazy. I'll tell you how I've managed that in just a second. My name is Tariq Johnson and I'm a personal growth junkie, a reformed financial adviser who owns 2 juice bar franchises.
Okay, let me start by telling you that the store that's 2485 miles away was not intentional. My wife and I were living in California at the time and we decided that we wanted to open up a juice bar franchise. Now, the location that we were opening up was going to be in a brand-new shopping center, so it took a long time. When I say a long time, it took a few years. Shortly after opening, we decided that we were going to move to Florida; great timing, I know. So, here we are today a whopping 2485 miles away from our store, making passive income.
Drop me a comment below let me know what passive income strategies excite you; I'm curious to know.
Okay, so the first thing that's important to note about our franchises and the passive income, is that it takes money, moo-lah, dough. Franchises require a pretty large capital investment in order to get them opened. Now, this doesn't have to be your money. If you don't have any money, I actually made a video and blog post about how you can start a franchise or buy a business with no money. Our stores are completely paid for, we don't have any loans on it, we don't owe anything. That really helps our bottom line and making sure that we experience a profit in our stores because obviously, if we had a loan on the stores, then that would be a large added expense on the bottom line that would impact our profit margins.
Now, that doesn't mean that you can't make money in a franchise while having a loan on it and make passive income. It really just depends on what the business is, the industry, the typical profit margins, the amount of sales, how you manage your expenses, and then how you manage the overall business. So, a really important thing to note about making passive income in these franchises is that we own juice and smoothie bar franchises, the isn’t rocket science, guys. Now, although it's only juices and smoothies, there is a certain level of complexity and moving parts to our operations. The great thing about buying a franchise and potentially using it for passive income is that, when you buy a franchise, you're buying a system. So, what you really need to make sure is that your team and your staff are good at following the system. Don't get me wrong, a lot of people screw this part up, but in our franchises, one of the ways that we're able to make passive income is that we follow the system. Tada! That's a really big part of the puzzle. If you want to make money passive income and franchises, making sure to follow the system is key.
With making money in passive income franchises, a large part as you can imagine is having a good manager. Having a good manager in place is really the backbone to making passive income in a franchise. Now, I know what you're thinking, “What happens if the manager leaves?” I'll cover that in just a second. A key part in the strategy is making sure that the manager has been trained by you or by someone with corporate.
In our stores, the location that we have in California that's 2485 miles away, the store manager that I have in place now had been trained by me as well as the manager that we had in place before, who is really strong and had a lot of experience in different areas. So, an important part to the strategy is training. It's important that the manager is trained by us directly or by someone that is highly competent in running the business. I also want to make sure that the manager has really good communication skills, is detail-oriented, has good leadership skills, and most importantly, has integrity. Having a manager that you trust is by far the most important aspect if you're going to be making money in a passive income nature with the franchise. You could have the best manager in the world in terms of their skill set, but if you can't trust them, that ruins everything else about that manager. So, the fact that we have managers in place that we can trust is a really key part to our passive income strategy.
Ultimately, us having a good manager saves us a lot of time and headache. One of the things that I do is I get on a phone call once a week with each of my managers and we go over in detail what is happening right now in the business, what's working well, what are our challenges, what are things that come up, opportunities that come up, and staffing. It's important that there is an open range on this conversation. Sometimes they're asking me questions that I think they should be making the decisions on. I try to empower them and allow them to make as many decisions as possible. They might ask me, “Hey, what do you think if I hire another person or hire another couple people?” my answer is usually, “That's up to you. You're the manager, you're leading the operations. As long as we're meeting our metrics and maintaining our proper labor costs so that we manage our margins, then you decide on how many staff that you need, that's a call that you make.” A really important aspect is allowing my managers to have the flexibility and freedom to be able to make decisions and not micromanage them.
Now, this did not always come easily for me. When we first opened our store in California, I was micromanaging like crazy. Actually when we bought our second location, I was micromanaging like crazy too. I think that part of that was because of the large financial investment that we made. What I've learned is that in order to retain quality people, you've got to give them room to breathe. So that's been one of the learning lessons for me and working with my managers. I try to allow them to do what they do best, and only get involved in the decisions that I feel are important on working ON the business and not IN the business.
A key part of this strategy is making sure that my second and third command to the manager are also cross trained and know their responsibilities as well. It's difficult for them to be able to be trained on everything that the manager does, but by having them be cross trained and know how to handle some of the responsibilities that the manager handles, it ensures that if one of my managers were to leave, then at least we have a few people in place that know how to pick up where they left off. That's really important, especially with one of our stores being 2485 miles away, I mean...that's really far. It's not like I can just hop in the car real quick and get to the store if something's going down or if my manager leaves.
I did have a situation about a year ago where the manager that had been with us since we opened the store, wound up leaving. So...I did end up flying out to California in order to interview managers to really make sure that I had a strong candidate. It turns out, I promoted the existing assistant manager to the manager position because I felt confident that he was the best person, and him having an existing understanding of their operations and the way things worked really made a difference, or else I would have had to spend a few weeks out there training a new manager and getting them up to speed on all the operations and the way we do things and my communication style. So, the easiest thing to do in that situation was to promote our current assistant manager to the manager role. He's done an amazing job and it's been a really good decision.
So, one of the downsides to using a franchise as a passive income opportunity is the fact that it lowers your profit margins. If I was there actively working in the business, I wouldn't have to have a manager that I'm paying a salary for, I'd be able to have lower labor cost, and because of that, I would wind up having a higher profit margin. Depending on the type of business, this may or may not be a good strategy based on someone's individual situation. One of the downsides to using a franchise as a passive income opportunity is that, typically, your profit margins are going to be lower, because of the fact that I have a full-time manager that I pay a salary for. I'm okay with this because the amount of additional money that I could make, I'm able to compensate for that by focusing on other opportunities outside of the franchises. By doing that, I'm able to make a great living outside of the franchises and then have the franchises as a passive income opportunity.
Now in thinking about if I were to ever sell the businesses, it would be really easy to show a potential buyer the bottom line of what our labor costs are, how much I'm paying the managers, and if they were to step in to manage the business full-time, the amount of money that they could save by not having that labor cost.
One of the intangibles that doesn't really show on the bottom line by having a manager in place and me not actively being part of the business is the level of care that I as the owner would have for the business; effort that I would put in, how proactive I would be, the opportunities that we would be able to take advantage of in the community, and me just being the face of the business as an owner.
I do believe that if I were actually working in the day to day of the business, I would be able to increase the sales higher, effectively manage our cost a little bit better, and maybe that would result in higher profit margins. Me making money in other opportunities, to me, offsets all of that. Over time, what I've done is I've given my managers more and more responsibilities. As we've learned to trust each other more, communicate better, and develop a relationship and learning how each other works, I give them more and more responsibilities so that they can handle things like running payroll and hiring and firing staff and making the really important decisions in the business, so that frees me up to be able to continue to focus on things with my other opportunities.
I really try to make sure that I have as many things set up on autopilot as possible. That's one of the benefits of utilizing a franchise again, is that it's a system. As long as you follow the system, generally speaking, then you'll be successful. Now, there are some caveats that are in there and I'm not going to cover that here, but there are a lot of people that fail with franchises, and the road to making passive income with the franchise has not always been easy. So, I've incentivized my managers and my staff as much as possible so they have a vested interest in the operations. Things that are really important to me in the business, I make sure to incentivize them based on those things, so that way, they're important to them too. And this has proved to be really helpful because it allows them to take ownership over those things and get excited on the fact that, if they meet this certain metric, then they get a reward.
Look, we know the reality is that people want to know what's in it for them. So, by incentivizing my managers on the things important to me, it's a win-win. Again, I don't want you to think it's been all sunshine and rainbows. The journey has been difficult. In the beginning of the business, I spent a lot of time actively in the business, getting things up and running. So, it's only become a passive income after spending time in the business, getting the foundation set and established. I did create a video and post that talks about whether someone should buy a franchise and the pros and cons.
When we bought into the franchises, our goal was not to be 2400 miles away from the store, our plan was to be 10 or 15 minutes away from our location. So, the lesson learned here is that if you plan on buying a franchise, don't move, or move and keep it as a passive income...I'll see you in the next one.