Buying a Franchise

Is Employee-Owned an Option for a Franchisee?

Business teamworkMany franchise businesses rely on a handful of loyal, hardworking employees to keep the franchise running smoothly. This can be true especially if you have several franchises to keep track of — you’re probably running from one to another and trusting the people you’ve hired to make sure everything goes well.

And yet those workers are often working for modest wages, and don’t have much upward movement available to them in their jobs. When you plan your franchise business, you may have to step outside the box to avoid the high turnover and disinterested employees many franchise owners have to cope with.

Take a lesson from some of the most successful businesses in the world and consider employee-ownership rights through stock options. As employees build long-term relationships with your franchise, their hard work will pay off with dividends from their stock options and they’ll reap the rewards of better customer service and profits.

An ESOP, or Employee Stock Ownership Plans, isn’t just for multinational companies with highly paid executives. One franchisee, Kelly Saxton, started an ESOP for his employees of Saxton Group, which owns 50 McAllister’s Delis as well as Pink Berry locations. In an interview with Entrepreneur, Saxton explains his motivation for the program:

It’s very much an employee-driven program, and employee ownership helps emphasize that feeling of hospitality.

As owners of the company, employees are more motivated to do well and to serve customers with caring. Not only is their job on the line for bad service, they have incentives to provide great service to customers and make smart decisions on how best to serve their clientele. By providing employees with a future return on their investment of time and attention, stock ownership motivates employees to give it their all and succeed as part business owners. It also gives employees a larger sense of loyalty and pride in the company they work for, which increases retention rates. When your shareholders are your employees, they have motivation beyond making money.

Developing an ESOP, however, isn’t easy and takes some time. Including employees as part owners sometimes makes decisionmaking more complex and it reduces your overall equity in the business. However, if you’re a multi-unit franchisee, your goal is more about being a successful businessperson in all of your locations and keeping all the businesses at top performance. Instead of being completely concerned with what you have riding personally on the franchise, you have more people to answer to as part of a large company. The team attitude of an ESOP can suit this situation well.

Don’t think that an ESOP will reduce your own profits from the business either, as you can still be the major shareholder for your company and ensure it operates the way you want it to. When you’re thinking about involving an ESOP option for your franchise in the future, be sure to speak with an attorney who is well versed in both franchise law and ESOP regulations.

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