How Franchise Ownership Can Diversify a Business Portfolio

Not every franchise owner is defined as an entrepreneurial individual embarking on a second–or even third act of their career. In fact, many savvy investors look to franchise ownership as a means to diversify their business ownership portfolio. There are many advantages to using franchising to expand business ownership profiles, the least of which is a figurative safety net gained through diversification.

This safety net is designed to do two things: 1) prevent the depletion of wealth in the event of a down economy and, 2) a fallback source of income should your current job or position be eliminated. Each of these strategies acts as a hedge against investment risk. But here are some additional benefits to consider:

Semi-Absentee Ownership

As an investor with a healthy portfolio, owning a small franchise operation can be a smart addition to your other assets, but it could also provide you a hands-off approach to running it. The semi-absentee business model allows a franchise owner to run the business from afar, employing the “manage the manager” philosophy. While the semi-absentee business model can create a convenient ownership arrangement, not every franchise is set up to operate as such. You should know that not all franchisors offer this option for their business models. Before entering into a semi-absentee ownership model, you should do a thorough amount of due diligence with the franchisor to determine if it’s right for your particular situation.

Reinvesting Your Assets

When diversifying your ownership portfolio, you can also enter franchise ownership by using your existing assets to secure debt financing by utilizing your existing capital. In doing so, you have now created an additional income opportunity for yourself and a strategic safety net to guard against the depletion of liquidity-based wealth. And keep in mind — a business bought and owned is a business that can one day be sold—hopefully for a profit.

Canada Small Business Loans
Canada Small Business Finance Program is offered through all the major banks. You can borrow up to $350,000 for each company or location and the government guarantees that loan to the bank for 75% of the investment. The loan request must meet the following criteria for use: 1) Capital Expenditures & Equipment; and/or 2) Build out & Location. It cannot be used for franchise fees, working capital, inventory, or training fees.

Business Development Corporation (BDC)
The BDC is a Crown Corporation that only works with businesses. With BDC, you can borrow up to a certain amount on signature or guarantee a personal loan. To discover the current borrowing limits, check with BDC.

HELOCs stand for Home Equity Line of Credit. If you have good equity and a good credit score, it’s also an excellent option for funding a small business. There are certain criteria to be met, so do your due diligence.

In Canada, there is no option for investing in a business tax free, meaning there are severe penalties for accessing money with this option and it’s not an advisable route. You can, however, utilize this money after you’ve bought the business to cover monthly expenses through the launch year. If you’re not earning money before breakeven, your income will be zero. If you take a stipend from your RRSP to cover those monthly expenses, you’ll be taxed at a much lower rate.

Smart investors know the value of portfolio diversification, and franchise ownership can become an attractive choice for expanding your business enterprise. When it comes to investing in long-term projects, retail investors routinely review stocks, bonds, mutual funds, commodities, and even real estate. But if commanding an empire of your own, with oversight in many ownership opportunities, franchising should definitely be under consideration for the many advantages it offers to balance your portfolio.

With franchise ownership, you’ll end up with more control over your investments, an increased opportunity for returns, possibly less time commitment, and true diversification among your investment assets. If you’d like to know what type of franchise businesses you could end up owning, check the franchise directory with FranNet offers and let us know if any have the right appeal for further investigation.

If you’re ready to explore business ownership through franchising, let FranNet of Canada lead you to an opportunity that exceeds your expectations. All of our services are always no-cost and no-obligation. With consultants serving every Canadian province, there’s a FranNet of Canada representative near you, who also lives and works in your territory. Find out who we are by selecting “Canada” on the FranNet Franchise Consultant Directory page of our website.

Jun 29, 2021