Robert Kiyosaki’s book Rich Dad Poor Dad was one of the first business books I read. At 20 years old, it was shocking revelation that my way of thinking wasn’t the most effective for success. I’ve gone on to read several other of his books, and the Cash Flow Quadrant is one my favorites. The model is a great illustration of transitioning into franchising and the difference between owner/operator, semi-absentee and resales.
The Cashflow Quadrant
The Cashflow Quadrant is made up of 4 distinct ways of making money. Here’s a breakdown of each quadrant.
E – Employee: This is self-explanatory. You have a job. You are relying on other people to pay you. Many of my candidates come to me from this quadrant after committing 30 or more years of their life to Corporate America and being replaced by someone younger and cheaper. I call this aging out of the E quadrant, and unfortunately, it happens a lot. Other candidates come to me to gain more control over their income. This is the least stable of the quadrants.
S – Self-Employed: This is the most common form of business ownership in America. In this quadrant, you’re the magic. It is significantly more stable than the E quadrant, because you probably won’t fire you. It also builds equity, allowing you to sell it when you’re ready to retire or move on. In franchising, these are typically owner/operator models. It’s a great transition from a job and typically has a lower startup cost. You get control over your calendar and decide how and when you want to work. Some candidates start here and transition into the next quadrant by adding additional units and hiring leaders to run the day-to-day.
B – Business Owner: This is similar to the self-employed quadrant, but the difference is that you are not the magic. This type of franchise is often called semi-absentee, because the owner does not need to manage the day-to-day operations. There are several ways to get into this quadrant. As I mentioned, one is organic growth within a franchise. Candidates with more capital can skip the first step of being an owner/operator and find franchises that are designed for semi-absentee operations or invest in multiple units up front. For candidates that need a steady income while they launch, the semi-absentee models are a perfect fit. While your business is growing, you can continue to work your job, transitioning from the employee quadrant directly into the business owner quadrant when you’re ready.
I – Investor: This quadrant is about making your money work for you. For some that means real estate or the stock market. In franchising, think of that in terms of a resale business. The beauty of an existing franchise is that there is immediate cashflow. That usually comes at a price though, and great operators usually expect 3-4x cashflow to buy them out. It’s a great option for many, and great news for those looking for an exit strategy.
What's Your Perfect Fit?
Where in the cashflow quadrant do you fit? Are you happy as an employee or looking for more? Do you want to be hands-on or do you want to have a trusted manager overseeing daily operations? Do you want to build it so you set the tone for business or do you want an existing franchise you can buy? Maybe you’re not sure what’s the best fit for you. That’s why we offer a free service to help you identify your needs and desires to find a perfect fit for you.
Jessica Houston, Franchise Consultant