Aligning the Interests of Owners and Investors in the Franchise World
Article Summary
Hammer & Nails Texas offers platform investment and franchise ownership as two options. An independent franchisee can open their own Hammer & Nails shop in an available Texas market, and an investor can back Hammer & Nails Texas as a limited partner. The traditional way a franchisor grows is by selling licenses to franchisees, and Hammer & Nails Texas offers the investment route as a second route alongside it.
The most common method for calculating royalty fees is a percentage of the franchisee's gross sales, often 5 to 9 percent according to FranNet. MSA Worldwide gives the same range, says the royalty is normally paid monthly or quarterly, and notes that gross sales are not reduced by discounts given to employees or family members, taxes, or returns, credits, allowances, and adjustments. Franchisors collect gross royalties off gross revenues without an EBITDA interest in their franchisees, while franchisees are responsible for their shop's EBITDA and control its operations.
The owner path suits people with the right means, talents, and motivations who want to run their own business on a proven concept, including the corporate refugee. An owner needs strong operational and brand support, and franchisors build success systems for their franchisees because a franchisor's reputation rides on every shop. At Hammer & Nails Texas, a franchisee operates under the brand with the support of the area representative and a proven, membership-driven unit model, and single-unit and multi-unit territories are available. Chad Reid's article on day-to-day ownership of a Hammer & Nails location covers the daily picture.
The investor path is for people who want to keep their day jobs and think about passive investing, such as a neurosurgeon whose highest and best use is to continue in that vocation. A passive franchise investor in Texas holds an EBITDA interest alone because the investor does not personally own or operate the business, while an owner holds an EBITDA interest along with a need for operational support and brand excellence. A royalty model makes little sense when applied to a passive investor and it suits a franchisee, which is why Hammer & Nails Texas provides both ways. Frank Muller lays out the investment case in The SummitView Investment Thesis.
Frank asks what happens if the general partner aligns with investors on EBITDA performance, creating an investment that aligns the general partner and the limited partners together to drive EBITDA. Private funds already work this way: carried interest is the share of a fund's investment profits that a general partner receives as compensation, and the general partner only earns it after the fund's investments perform well enough to meet specific thresholds. At Hammer & Nails Texas, investors back the platform as limited partners, with capital that funds the development and operation of 20 to 30 company-owned Hammer & Nails locations across Texas, and the offering is open to accredited investors.
Franchising offers two paths for two different needs in the market. The traditional way a franchisor grows is by selling licenses to franchisees, a tried and true relationship between two owners who each want to grow the same concept, and at Hammer & Nails Texas we offer a second route alongside that. The Hammer & Nails Texas page on our site presents both as options: platform investment and franchise ownership.1 An independent franchisee can open their own Hammer & Nails shop in an available Texas market, while an investor can back Hammer & Nails Texas as a limited partner.1 Franchise investment vs ownership in Texas is a choice between two roles, and each is suited to different people.
How Franchisors Grow Through Owners
The franchise royalty structure starts with the most common method for calculating royalty fees, a percentage of the franchisees' gross sales that often falls in the range of 5 to 9 percent, according to FranNet.2 MSA Worldwide gives the same typical range of five to nine percent and adds that the royalty is normally paid monthly or quarterly.3 Under its definition, gross sales are not reduced by discounts given to employees or family members, taxes, or returns, credits, allowances, and adjustments.3
Franchisors collect gross royalties off gross revenues, and they do not have an EBITDA interest in their franchisees. Franchisees are responsible for their shop's EBITDA and control its operations, which the franchisor does not. Because a franchisor's reputation rides on every shop, franchisors build success systems for their franchisees. FranNet lists what royalty fees cover, including field consultants, marketing campaigns, and access to proprietary tools and technology.2
The Owner Path
For the right people with the right means, talents, and motivations, franchise ownership for professionals in Texas may be a perfect fit. For the corporate refugee, owning and operating as a franchisee is fantastic. It is an attractive path for anyone who wants to run their own business on a proven concept. An owner needs strong operational and brand support, and the current franchisor model is proven to provide it. At Hammer & Nails Texas, a franchisee operates under the brand with the support of the area representative and a proven, membership-driven unit model, and the page lists a recurring monthly membership revenue model.1 Single-unit and multi-unit territories are available.1 For the day-to-day picture, Chad Reid's What Does Day-to-Day Ownership of a Hammer & Nails Location Look Like? is the next article to read.
The Investor Path
Not everyone is meant to be an owner and operator. Many people have a career they have built, and they may want to keep their day jobs and think about passive investing. Think of a neurosurgeon whose highest and best use is to continue in that vocation. That person's interest in a business like this comes from an investment point of view, and in this instance they hold only an EBITDA interest and do not want to operate the business.
A passive franchise investor in Texas holds an EBITDA interest alone, because the investor does not personally own or operate the business. An owner holds an EBITDA interest as well, along with a need for operational support and brand excellence. A royalty model makes little sense when applied to a passive investor, and it suits a franchisee. For an investor in that position, investing is a path worth considering, and we provide both ways. I lay out the investment case in The SummitView Investment Thesis: Recurring Revenue, Scalable Operations, and a Clear Exit.
Aligning a General Partner and Limited Partners
The question that popped into my mind for investors looking at a business like this was simple, “What if I align myself to them on EBITDA performance? What if I create an investment, which is my background, that aligns the general partner and the limited partners together to drive EBITDA?”
Private funds already work this way. Carried interest is the share of a private fund's investment profits that a general partner receives as compensation, and the general partner only earns carry after the fund's investments perform well enough to meet specific thresholds.4 Carta describes that performance-based incentive structure as designed to align the interests of the fund manager with those of the investors.4
At Hammer & Nails Texas, we invite investors to back Hammer & Nails Texas as a limited partner, with capital that funds the development and operation of 20 to 30 company-owned Hammer & Nails locations across Texas.1 The offering is open to accredited investors.1 In that structure, the general partner's own economics move together with the limited partners, and that is how I approach an EBITDA aligned franchise investment.
Choosing Your Role in Hammer & Nails Texas
Some people want to own and operate a shop. Others want to put capital to work and stay on their current life path. Our motivation is to help people find the right path for them, and we are here for the approach that is right for you. If you want to open a shop, we offer the brand and the operational support to succeed as an owner operator. If you want to invest, we offer the limited partner path. Reach out to SummitView Texas to look at the Hammer & Nails Texas investment options and the franchise ownership path side by side.
Sources
- "Hammer & Nails Texas," SummitView Texas. https://summitviewtexas.com/hntexas
- "Franchise Royalty Fees Explained," FranNet. https://frannet.com/resources/general/franchise-royalty-fees-explained/
- "Franchise Royalty Payments - The Basics," MSA Worldwide. https://msaworldwide.com/basics-of-franchising/franchise-royalty-payments-the-basics/
- "What is Carried Interest? Definition, Taxation & Fee Structures," Carta. https://carta.com/learn/private-funds/management/carried-interest/
Comprehensive Summary
What are the two paths into Hammer & Nails Texas?
- Two options: The Hammer & Nails Texas page presents platform investment and franchise ownership as the two options.1
- Two roles: An independent franchisee can open their own Hammer & Nails shop in an available Texas market, and an investor can back Hammer & Nails Texas as a limited partner.1
- A second route: The traditional way a franchisor grows is by selling licenses to franchisees, a tried and true relationship between two owners who each want to grow the same concept, and Hammer & Nails Texas offers a second route alongside it.
How does the franchise royalty structure work?
- Percentage of gross: FranNet describes the most common method for calculating royalty fees as a percentage of the franchisee's gross sales that often falls in the range of 5 to 9 percent.2
- Payment terms: MSA Worldwide gives the same typical range and says the royalty is normally paid monthly or quarterly.3 Under its definition, gross sales are not reduced by discounts given to employees or family members, taxes, or returns, credits, allowances, and adjustments.3
- Who holds what: Franchisors collect gross royalties off gross revenues and do not have an EBITDA interest in their franchisees, while franchisees are responsible for their shop's EBITDA and control its operations. FranNet lists field consultants, marketing campaigns, and access to proprietary tools and technology among what royalty fees cover.2
What does the owner path offer a franchisee?
- Who it fits: Franchise ownership may be a perfect fit for the right people with the right means, talents, and motivations, including the corporate refugee who wants to run their own business on a proven concept.
- Support: An owner needs strong operational and brand support, and franchisors build success systems for their franchisees because a franchisor's reputation rides on every shop.
- On the page: A Hammer & Nails Texas franchisee operates under the brand with the support of the area representative and a proven, membership-driven unit model, and the page lists a recurring monthly membership revenue model.1 Single-unit and multi-unit territories are available.1 For the day-to-day picture, Chad Reid's What Does Day-to-Day Ownership of a Hammer & Nails Location Look Like? is the next article to read.
What does the investor path offer a passive investor?
- Who it fits: Not everyone is meant to be an owner and operator, and a neurosurgeon whose highest and best use is to continue in that vocation is one example of someone whose interest comes from an investment point of view.
- EBITDA interest: A passive franchise investor in Texas holds an EBITDA interest alone because the investor does not personally own or operate the business, while an owner holds an EBITDA interest along with a need for operational support and brand excellence.
- Royalty fit: A royalty model makes little sense when applied to a passive investor and it suits a franchisee, so Hammer & Nails Texas provides both ways. Frank Muller lays out the investment case in The SummitView Investment Thesis: Recurring Revenue, Scalable Operations, and a Clear Exit.
How does a general partner align with limited partners?
- The structure: Frank asks, "What if I align myself to them on EBITDA performance? What if I create an investment, which is my background, that aligns the general partner and the limited partners together to drive EBITDA?"
- Carried interest: Carried interest is the share of a private fund's investment profits that a general partner receives as compensation, and the general partner only earns carry after the fund's investments perform well enough to meet specific thresholds.4 Carta describes that performance-based incentive structure as designed to align the interests of the fund manager with those of the investors.4
At Hammer & Nails Texas: Investors are invited to back Hammer & Nails Texas as a limited partner, with capital that funds the development and operation of 20 to 30 company-owned Hammer & Nails locations across Texas.1 The offering is open to accredited investors, and the general partner's own economics move together with the limited partners.1
How does a person choose between franchise ownership and investment in Texas?
- Two roles: Franchise investment vs ownership in Texas is a choice between two roles, and each is suited to different people.
- Matching the role: Some people want to own and operate a shop, and others want to put capital to work and stay on their current life path.
- What is offered: The motivation is to help people find the right path for them: the brand and the operational support to succeed as an owner operator for those who want to open a shop, and the limited partner path for those who want to invest.
