Generate passive income by investing into Franchises

June 11, 2025

Generate Passive Income by Investing into Franchises

Everyone knows major franchises - restaurants like McDonald’s and Pizza Hut, stores like 7/11 and Ace Hardware, and even businesses such as Jiffy Lube or Planet Fitness. There are more than 4,000 franchise brands in the U.S. with more than 830,000 total locations. They are a major part of the American business landscape, employing 8.7 million people, and generating nearly a trillion dollars in annual economic output. The industry saw 2.2% growth in 2024 and is projected to grow by 2.5% in 2025. However, franchises are often overlooked as investment opportunities despite their prominence in our everyday lives, and their ability to generate significant profits for their investors.

How do franchises work?

(Retail Dogma)

While we all know what a franchise is, the way its business model works is important to consider. Every franchise is different, but if an entrepreneur wants to become a franchisee and open a franchise location, they must purchase the right to operate using the branding and systems of that franchisor. Franchisors range from massive multinational corporations to local businesses with just a few locations. There are also a diverse range of franchisees, from small local operators with a single location, to institutional managers that have hundreds of locations.

Aspiring franchisees need access to capital to get into the business, and existing fast-growing franchisees need capital to expand their holdings. They can take out debt with traditional bank loans, but that can sometimes be difficult to obtain, take a long time to close, and once held, can be somewhat restrictive. That is why a lot of operators choose to sell equity in their business to access capital, as it can be more flexible and investors can share in the success of the enterprise.


Why invest in franchises?

Investing into a successful franchise offers a combination of benefits that make it a truly unique asset class. At its core, investors are able to own a share of a proven business model with brand recognition and significant growth and income generation potential. The franchise model allows successful operators to expand quickly to multiple locations leveraging the same management and operations to increase profits. Because franchises have shown to be successful businesses, there is a much lower failure rate than with startups, leading to significantly less volatility.

Unlike more speculative asset classes, franchises offer both passive income from the operation of the business and equity appreciation as the value of the business grows. These returns are based on how well the franchise location performs, and as such, are generally uncorrelated to public markets, helping diversify an overall portfolio. They are also a regulated asset, with rules designed to protect franchisees and investors. The Federal Trade Commission (FTC) mandates that franchisors disclose details of the business via the Franchise Disclosure Document (FDD) that contains 23 sections detailing financial performance, operational assistance, litigation, upfront costs and fees, and a lot more. This means that franchisees and investors have full transparency into the business they are entering.

Franchises are also an ideal asset class during times of inflation or economic uncertainty, particularly those franchises that provide essential or low-cost goods and services. Consumers tend not to cut down on purchases from those types of franchises, making many of them recession-resistant. Investing in these businesses also supports the local economy and creates jobs, and equity investors can essentially become brand ambassadors.

The appeal of franchise investing is why wealthy investors and celebrities have chosen to invest in this asset class for decades, generating passive income and equity appreciation with low volatility. Everyday investors have not enjoyed this same access, as traditionally there have been high upfront costs in the six or seven figures, a significant time commitment to find opportunities and the need for operational expertise.

That has changed, with the advent of “fractional” franchise ownership, pioneered by FranShares, where investors can purchase shares in a franchise business instead of having to finance and run the whole business.

Who is FranShares?

FranShares is an investment platform that allows individual investors, both accredited and non-accredited, to invest into franchises. The company was founded by Kenny Rose in 2020 with the goal of democratizing access to this asset class. Kenny has a deep understanding of the franchise world, having worked with more than 600 brands across more than 100 different industries. He worked for the world’s largest franchise brokerage and then founded a franchise brokerage himself before starting FranShares. 

Kenny and FranShares have been featured in Forbes, Business Insider, Franchise Times, and many more notable publications. The company is backed by notable venture firm Chicago Ventures, and counts numerous industry experts among their advisors.

Current Deals

FranShares allows its investors to pick and choose what deals best fit their own investment criteria and timeline. Currently open for investment are:

  • The iconic franchise Pizza Hut, backed by one of the largest operators in the country

  • Celebrity-backed super-food brand everbowl

  • Award-winning, uniquely themed restaurant Hawaiian Bros

  • Child physical education disruptor Kidokinetics

While every opportunity has been thoroughly researched and vetted, when deciding where to allocate capital, investors should consider these factors:

  • Potential returns: Look at the actual and projected numbers for cash flow and potential appreciation and compare that to the initial capital required. 

  • Industry/Sector: Investing in a fast-food restaurant is significantly different than investing in a hardware store or gym. Certain industries offer more stable returns, while others could offer more growth potential.

  • Brand recognition: How well known is the business? Are they a dominant player in their industry? What is their market share and how differentiated are they from their competitors?

  • Expansion possibilities: A franchise’s ability to add locations can be key, so examine how their same-store sales are performing and whether there is market demand for additional locations.

  • Recession-resistance: There are sectors that are likely to see their performance unchanged even in the case of a recession, such as automotive repair, healthcare facilities, and any essential service.

Why invest with FranShares?

Since its inception, FranShares has helped thousands of investors gain exposure to franchise investing, offering many opportunities for tens of millions of dollars, and targeting an average 15-25% annual return. The company connects investors to the most promising franchise investment opportunities across various industries.

Its extensive, institutional-grade due diligence process means FranShares accepts less than 1% of the opportunities that are available to them, ensuring that investors can choose from only the best possible options. An investment must be exceptional in all three main categories - brand, operator, and opportunity. When evaluating the brand, the company looks at the franchise’s unit economics, the strength of the brand, the growth trajectory and potential, the quality of leadership, and competitive positioning. Operators must have a track record of successfully running franchise locations and scaling up their operations, maintaining strong customer service and employee retention rates, and who have a viable expansion strategy. Finally, the specific opportunity has to have favorable terms for investors and strong projected returns.

Investors then can choose between growth and income opportunities they want to target based on their own risk profile and what best diversifies their portfolio. They typically receive regular cash distributions, along with potential equity appreciation. Unlike many other asset classes, there is short-term liquidity and long-term growth potential. The nature of fractional franchise investing also reduces risk, as investors can spread their investment out over multiple different options. This leads to diversification within a franchise portfolio across industries, geographies, and service models.

FranShares allows both accredited and non-accredited investors to participate with a low minimum investment of as low as $500, opening up this access class beyond just the wealthy and connected. You can also invest in FranShares via your IRA, making it easy to build a nest egg for retirement. With low fees, and a commitment to transparency, FranShares is investor-friendly, providing regular financial statements, quarterly performance updates, and monthly communications.

Everyday investors can now reap the benefits of what used to be an inaccessible asset class. FranShares offers a truly passive investment where for a low initial outlay, anyone can benefit from franchise investing.