Types Of Franchise Ownership
In this article we will look at the different types of franchise ownership and take a detailed look at each one. We start with the most basic method of franchise ownership, the single unit and move to the more advanced options like master and area development licenses.
Single-unit ownership is the perfect route for first time franchisees to follow when it comes to opening a franchise. This is the best for first time entrepreneurs as it gives you a gentle initiation into the world of franchising. Franchisees open and operate just one unit of the franchise. They are extremely involved in the running of the business and thus gain great hands-on experience as it is necessary to give direct day-to-day supervision.In most cases a small group of employees assist the franchisee in most aspects of the business, except for management. However for small single-unit franchises the owner may be the only employee, particularly in home-based franchises.
Within the single-unit category you can make a further distinction: is it a new or existing (also known as a franchise resale) single-unit franchise that has been sold to you? Again there will be slight differences between the two. One is established and all the marketing, set up and other miscellaneous activities have been done, with the new franchise you still need a location, marketing, training for all staff etc. Also, the price of an existing franchise is often negotiable.
A multiple unit license is when you open more than one franchise of the same concept in an area. The easiest way to think about it is that it’s rather like buying blocks of the same franchise. With this level of ownership you have more of a managerial roll and are more ‘hands off’ rather than being heavily involved in any one aspect of the franchise. The franchisee manages all the units at a higher level. Usually the franchisee will hire managers to perform the daily duties. Multiple units are usually sold at a reduced rate per unit. Although the overall initial investment is higher than opening a single-unit the risk is generally lower as more units increases the chances of success. The multi-unit franchisee has more input and interaction with the franchisee, which is beneficial for both parties.
Area development license
Like the multiple unit option, you open more than one location. This is similar to the multiple unit option except it takes place over a much larger area for example a county or large metropolitan area with several units and it involves the opening of more than one spot at a time. This option requires a large amount of capital and will require the hiring of managers to look after the daily requirements of the business.
Master development license
A master franchise can be thought of as a miniature version of the parent franchise. As a master franchisee you can create sub-franchises within your territory and receive franchise fees and royalties directly. This allows you to purchase the rights to sub-franchise in a certain territory. This is normally offered by new franchise concepts that want to expand quickly. In this option you are operating two distinct businesses, the franchise business and the franchise development operation.
In closing, the varieties of franchise ownership can be quite involved. It is worth keeping in mind that a single unit is the most popular option for entry-level franchisees, while the others are the preserve of the experienced franchisees and well-heeled investors.