Want the high ROI of a profitable business but don’t want the headaches associated with running one?
A passive income business may be perfect for you. It’s as close as you can get to having your cake and eating it too. So how do you figure out which businesses are compatible with generating passive income?
Businesses that are good for passive income share the following traits:
- Business Has Simple Operations
- Business Doesn’t Need Owner’s Specialized Skills
- Business Is Established and Has Strong Management
- Detailed Processes and Procedures Help Run the Business
In this article, we will cover each of the 4 traits in detail. We will also provide 9 examples of businesses that exhibit some (or all) of these traits.
If you want to skip ahead to the part discussing the 9 examples of business that can generate passive income, click here.
This post may contain affiliate links. If you click on a link and complete a transaction, I may make a small commission at no extra cost to you.
The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
Table of Contents
Business Has Simple Operations
Simple operations are a telltale sign that a business can be run passively. The simpler the operations the more passive the business can be.
For example, a business with really simple operations will have no inventory to manage, no customer interactions, no physical location to oversee, no complicated marketing strategies to implement, no employees to manage, no order fulfillment, and limited legal requirements to follow.
Think they don’t exist? They do – see my #9 business below.
On the flip side, a business with complex operations may exhibit the following:
- Inventory management (especially perishable inventory like in the restaurant or florist industry)
- Complicated marketing strategies (businesses where constant lead generation is critical)
- Lots of customer interaction (think any retail establishment with walk-in traffic)
- A large employee base to manage
- Operation and maintenance of complicated equipment (factories, etc.)
- Extensive or complicated order fulfillment (e.g., e-commerce, highly technical services).
- Complex legal or regulatory requirements (banking, finance, insurance, etc.)
Business Doesn't Need Owner's Specialized Skills
If you want a passive income business, the business can’t depend on your specialized skills, knowledge, or relationships. I am talking about businesses like professional offices such as those run by lawyers, doctors, accountants, real estate agents, etc.
The value of that type of business is in the person who has the knowledge, skills, and client relationships. It’s very hard to step away from that type of business if you are the owner.
If passive income is your goal, you want a business that anybody can run.
Business Is Established and Has Strong Management
I think this is self-explanatory.
A business that has been around for a while and has successfully navigated ups and down in the economy is less likely to require your constant attention when there is a recession. If it also has a strong management team in place that can run daily operations, you have a winner.
The only drawback here is that these types of businesses take a long time to establish. And if you are in the market to buy a business rather than start one, these types of businesses are going to be expensive.
Mom and pop operations will be affordable to buy, but they probably won’t have a management team at all because the earnings from the business won’t support it. You will need a business that generates enough revenue to support a strong management team and that means you will have to pay accordingly.
Business Has Processes and Procedures in Place
A business that has a clear, well-documented, and comprehensive operations manual will make it much easier for you to run the business passively. An operations manual is basically a roadmap for how to run your business. It lays out how a company does things or gets things done.
If every process is laid out for how you run the business, there is very little room for error or guesswork. That’s the beauty of a franchise like McDonald’s for example. Every step of making the product and operating the business is spelled out.
You train the manager on those processes, and they train the employees. Once everyone knows how to operate the business according to the manual, and the manager makes sure that everyone is doing things the right way, there is far less for the owner to do to manage the business.
In addition to making the business more passive, having a complete operations manual allows you to grow your business easily.
Want to set up a second shop? Just train up a second manager while you are running your existing shop. Once that second manager is up and running, send your most experienced manager to open up the second location armed with the operations manual.
You can be up at the second location in no time. And if you really have growth aspirations and want to franchise out, a robust operations manual is must.
Closing Thoughts on the Four Traits
The four traits we just covered are indicators of a business that can be run passively, but you should not use them to robotically assess a business. For example, if a business has incredibly simple operations, it may not need a management team or a meaty operations manual.
On the other hand, a complicated business that has a very strong management team can absolutely generate passive income for you because the management takes care of the day to day operations.
Think of these 4 traits as factors you should consider, not boxes you should check.
Businesses That Are Good For Passive Income
Laundromats can be a terrific source of income if you are looking for a profitable, reliable, recession-proof business that enjoys an incredibly high success rate.
What’s better is that you can structure your laundromat business to provide passive income to you. After all, the machines are doing the hard work of washing and drying the clothes (with your customers doing the work of loading and unloading the clothes).
The whole process is pretty automated, which I love. Now if you want to make the business as passive as possible, you will need to get the right equipment, processes, workers, etc., in place.
Want to learn more? Check out my article on how to start a passive laundromat in six easy steps.
2. In-Bay Automatic Car Wash
I think you all have seen these before. In-bay automatic car washes are about as automated as you can get when it comes to a car wash.
In fact, these types of car washes are usually unattended and you often see them at 24-hour gas stations, convenience stores, etc. People just pay for their ticket, pull their car into the bay and the machines do the rest.
If you are interested in this type of business, check out my beginner’s guide on how to get started with a passive automatic car wash.
3. Vending Machine Route
Owning a vending machine route can be a terrific way to generate passive income. The idea is that you place a bunch of vending machines in high-traffic locations and make money every time some buys something from your machines.
The only part of this that requires some work is restocking and collecting money from the machines. If you only have a handful of machines, this may not be a big deal, but if you own many, you will want to outsource this function.
You will also want to install your machines with helpful technology that can make you operate your business more passively, such as modern payment readers and inventory tracking software that tells you when you are running low on product.
The software also keeps track of every penny that goes into the machine, so you can hire route runners without worrying so much about them skimming off the top.
For more details on this business, check out my beginner’s guide on how to start a vending machine route for passive income.
4. ATM Machine Route
Like vending machines, this type of business involves you placing ATMs in high traffic areas and receiving a fee every time someone makes a withdrawal.
But it’s even simpler to operate than a vending machine route. You don’t have to worry about buying 14 different types of snacks and drinks and lugging them around in your van.
There is only one type of inventory you need and that’s cash. Fortunately, there are services that can restock your ATMs with cash for a fee.
Interested in finding out more? Check out my beginner’s guide to ATMs for Passive Income.
5. FedEx Route Business
Did you know that you could buy a FedEx delivery route that covers a designated territory? That means that you will make money for each delivery made within that territory. It can be a highly profitable business and, if you structure it right, it can generate passive income for you.
Because you are partnering with FedEx, you do not have to worry about marketing, acquiring customers, or competition. You simply need to focus on making the deliveries within your territory in time.
And that little delivery piece can easily be outsourced. In fact, most owners have multiple routes – they are not driving a truck and making deliveries.
Once you have good managers and reliable drivers in place, the day-to-day operations of this business can be run without your involvement.
If you want to learn more about this business, check out my beginner’s guide to owning FedEx routes for passive income.
6. Bread Route Business
Like a FedEx route, you can buy a bread route that covers a territory. Once you own that territory, you can sell bread to various retailers and pocket a commission for each sale.
I am talking about selling well-known bread brands, like Wonder, Nature’s Own, Pepperidge Farm, and Sara Lee to major retailers like Walmart and Target.
And the best thing is that many of these distributorship arrangements are exclusive, so if the supermarket in your area wants to carry your brand of bread, they must buy through you.
Most bread routes are stable, established businesses and can generate reliable income from day one. It’s a business model that has been in place for a long time and there is a robust marketplace for these types of routes.
Best of all, if you hire the right drivers to run your routes, you can operate this business passively.
To discover more about this business, read my article on buying bread routes for passive income.
7. Billboard Business
Like any other asset that you can rent out, billboards generate money without you having to do much of anything. If you own a nice portfolio of billboards, you can pocket quite a bit of money, especially if you own them in high-traffic locations and have invested in modern digital billboards.
Of course, like with all of these businesses, the billboard business is not completely passive. You will need to oversee the business, including finding new customers who want to lease out billboard space from you when the current customer’s lease expires, etc.
Want to learn more about this business? Check out my article on how to get started in the billboard business.
8. Bounce House Business
I am sure you have seen bounce houses before and understand the appeal that they can have for parents who want to do something special for their kid’s birthday or other special occasion.
The great thing about this business is that you can do it on the side and set appointments according to your schedule.
And it is easy to make this business passive because these are just plastic structures that you deliver, set up, and inflate. When the rental period is over, you deflate the structure and pack it up.
It is not complicated and you can find and train people to do this for you pretty easily.
For more information on how to start a bounce house business, read my article on the topic here.
I saved the best for last.
Blogs may be my favorite passive income business.
Blogs can generate high revenues relating to their price and can be run almost entirely passively. You can buy an existing blog for 25 to 40 times its monthly revenue on sites like Flippa, Empire Flippers, and FE International.
So if you buy a blog for $10,000 you will be earning between $3,000 to $4,800 per year. That gives you an ROI of 30% to 48%!
And unlike other businesses, buying an existing blog can generate passive income without you having to do much of anything. There is no physical location to oversee, no inventory to manage, no marketing needed (if you write good articles, google sends traffic your way), no customer complaints to address, no employees to supervise, and no orders to fulfill.
Blogs are generally monetized through ads or affiliate links placed on the website. That’s just a fancy way of saying you can get paid every time someone visits the blog and views or clicks on an ad or buys a product you are promoting through one of your affiliate links.
It’s really that simple.
To read more about blogs for passive income, check out my detailed article on the topic here.
Three Bonus Ideas!
The 9 businesses that we just covered are not the only businesses that can be operated passively.
That’s why it’s important to remember the characteristics of a passive income business. If you run across a business you are considering starting or buying, use the 4 traits to assess whether that business can be a good candidate for providing you passive income.
It can save you a lot of time and headache down the road.
I have nine rental properties and operate them mostly passively, but I did not include rental properties as part of my list because I view real estate as more of an investment, not a business.
That being said, reasonable minds can differ on this point, so I’ll include it in this bonus section as another option you can explore. If you want to learn more about rental property investing, check out my step-by-step guide to start investing in rental properties.
Speaking of real estate, want to own a profitable and passive real estate business where you don’t have to deal with tenant complaints, broken toilets, and the usual hassles that come with managing rental properties?
The unmanned self-storage facility may be perfect for you. As the name implies, the facility is unmanned, which means you can absolutely run it as a passive income business.
With this type of business, you can enjoy a combination of high returns and low maintenance, all wrapped in the security of a business that has a success rate of 92%!
If you want to learn more, check out my guide to starting a passive self-storage business in 7 easy steps.
I also think franchising can be a perfectly fine passive income business, depending on the type of franchise. One solid advantage that franchises have is that they often have great processes and procedures for operating their business.
Again, I look to McDonald’s as a prime example. Most McDonald’s owners do not run their restaurants. They have highly trained managers that follow the detailed operations manuals to a tee. It works and that’s how they make their businesses run so smoothly.
So there you have it: 4 traits that help you identify which businesses are good for passive income and 9 examples of businesses that are natural fits for being operated passively.
Now I want to emphasize that almost no business can be operated completely passively and there are risks involved in owning any business, so you need to bear those things in mind before you commit to starting or buying a business.
If you want other great passive income ideas, I have an entire series of articles on the topic that you can access here.
Hope this guide has been helpful and I wish you the best of luck in your pursuit of passive income.