Since the franchise industry took off sixty years ago, the industry has undergone many changes and improvements. The methods behind start-up, advertising, and daily operation have all evolved, but arguably the largest change comes in methods of expansions. As some franchises have grown to be worldwide power-houses, they have begun offering multi-unit ownership, master franchisee licenses, area developer positions, and territory licenses.
So what does that all mean? And what is the best expansion option for you? Keep reading to find out!
In a multi-unit ownership agreement, the franchisee is given the right to operate multiple outlets within a defined location, be it a city or county. Franchisees can earn serious money from operating more than one store, but it also involves increased responsibilities in operation.
There is no guarantee that owning one franchisee will enable you to obtain a multi-unit franchisee agreement. Franchisors typically have high standards in granting multi-unit rights. Qualifications could include:
- A proven business management track record
- Ability to motivate staff
- Commitment to improvement
- Experience as a successful franchisee
Franchisors will expect market and competition research, as well as start-up costs, to accompany each proposed unit.
IS MULTI-UNIT OWNERSHIP RIGHT FOR YOU?
Owning and operating one business is taxing, so it is important to be sure it is the right decision before signing a multi-unit ownership agreement. Will the proposed region/territory support multiple units? How successful is the existing unit(s)? Do you have the capital and resources to open and support new units?
It is also worth noting that it is possible to purchase additional established franchises from either the franchisee or franchisor, rather than beginning a second unit on your own. It is often possible to inquire these businesses at a discount. You can also examine sales, cost and profit records before deciding whether to acquire the unit. It is advisable to review these records carefully, as they can reveal any problems in the business; if it has changed hands repeatedly, for example, there are probably issues.
MASTER FRANCHISE LICENSING
Another means of expansion in franchising is to acquire a master franchise licence, which puts you in charge of other franchisees within an established territory. These territories vary in size.
A master licence is high-investment, but high-return. With a master franchise license, you play a dual role of franchisor and franchisee.
In your role of franchisor, you will have the authority to hire and train new sub-franchisees within your region, thereby earning a portion of the fees they pay to the main franchisor. This will be an ongoing income stream for you.
In your franchisee role, you will still own your personal franchise unit(s) and will be working for the established franchise brand, though you will have a great deal of freedom within your territory, hence the high price.
IS A MASTER FRANCHISE LICENCE RIGHT FOR YOU?
As with the decision to become a franchisee, choosing to purchase a master franchise licence should be preceded by extensive market research and careful scrutinising of all terms to ensure you fully understand your obligations and rights. An experienced solicitor should review the proposed contract before signing. Your territory should be carefully and clearly defined; be prepared for some franchise units to struggle and know that you may need to step in and assist.
Recruitment is the main responsibility of an area developer/representative, meaning the franchisors retain all fees and royalties, then pays them out to the developer. The developer may earn a percentage of those profits or have an agreed-upon fixed fee. Usually the franchisors and the developer lay out plans for expansion and agree upon a certain number of franchises to be sold and opened by a set date.
Perhaps the largest advantage of this method to franchisors is the risk-reduction, as they are still directly responsible for franchisees and do not lose control over the franchises. For the area developer, that means there is less of a financial investment than with a master franchise license and less responsibility; it can also be less profitable and grants far less independence.
IS AN AREA DEVELOPER/REPRESENTATIVE POSITION RIGHT FOR YOU?
Area developers/representatives are typically very personable and charismatic, as they deal directly with people and sales. They must become knowledgeable about the business and learn sales tactics, but being a people-person is generally a good starting point. If you are confident in your ability to acquire the required number of franchisees outlined in your agreement with the franchisor, this could be an excellent opportunity.