Franchisees Collecting Monthly Dividends

Ms. Kim Byeong-seon, who lives in Bucheon City, recently opened a skin-care clinic. Her initial capital amounted to 11 thousand dollars, including the security deposit for the lease.

Ms. Kim, however, does not really run the business. Still a franchisee in some sense, Kim has the chain headquarters run it, and collects her share of the profits. Every month, she receives an average of four thousand dollars.

“In the worst case, I can still get back my deposit. The lease is made in my name,” explains Kim. “I don’t have to worry about the daily operation of the clinic. But the return is a lot higher. I cannot make this much by my money depositing in a bank. I have no complaints.”

With more and more people showing interest in franchise businesses, franchisers have come up with a brand-new type of franchise business – the “investor-franchisee program.” The program is helpful for those who have no business background. Since the franchiser is in charge of the whole business operation, however, it also carries a high risk of losing the investment itself.

High yield on investment through professional management-

Café Ti-amo , an ice cream chain, represents a typical example of the investor-franchisee business. For example, a manager trained by the franchiser runs its Uijeongbu store. The owner/franchisee currently lives abroad.

Daslgi also illustrates this new trend. The franchiser chipped in 50 thousand dollar and the other two investors 100 thousand dollars each to set up an Ilsan store. Of course, the franchiser is in charge of the business. One of the investors, Ahn In-cheol, explains, “My monthly dividends amount to three to four thousand dollars. We have documented all possible issues in deeds. I don’t worry.”

Many franchise chains have rolled up their sleeves to attract more investors. An executive of a pork BBQ chain Ttokssam , Jeong Dong-jin, elaborates, “These new types of stores help us secure our advantage in major commercial zones. We use the stores as educational venues for prospective investors.”

One of Ttokssam’s franchisees opened a new shop in Hwajeong as an investor-franchisee. The chain runs the business and gives 20 percent of its revenues to the franchisee.

CEO of Icanbiz, Lee Sang-heon, interpreted the trend, saying, “The new program is good for the franchiser. It can increase its stores and muster up enough capital for the establishment of a large-size store.”

Yumsem , another restaurant chain, runs the CEO Factory program to attract more investor franchisees. The program trains its employees as professional CEOs to help its franchisees.

Key to success: franchiser’s qualifications and lease contract in franchisee’s name-

Various fees yield different amounts of profit for simple franchisees and investor-franchisees. As an insurance against the worst situation, the investor should enter into a lease agreement in his or her own name and make it clear who bears the liability for a failure.

IT CEO Jeong’s case highlights the risk. He invested in a restaurant chain. Faced with difficulties due to sloppy business projections by the franchiser, however, he started running the store himself. He failed due to his involvement in his main job and lack of experience in the new business.

Lee of Icanbiz warns, “Multiple investors may constitute franchisees for a single store. Disagreements among them often lead to failure. To secure a steady and high return on the investment, a prospective investor should do his or her homework very diligently. She has to look into the prospects of the business and the qualifications of the franchiser.”