Starting a new franchisor vs. buying a master franchise

Many small business owners at some point think to themselves; I would like to franchise my business. And, even if they’ve never considered the notion, often a client will tell them that they should. Of course, no small business person has ever built their business along the lines of Michael Gerber’s “E-Myth” style, and even if they did, it could take 10 years to debug the business model to make it perfect. , and at that time such a business model may not be appropriate in the economy. Many business models have come and gone; video rental stores, photo developing, and copy stores to name a few, each of which is a perfect sector to franchise, at the time.

Now, since developing a perfect business model takes so long, and there are no guarantees that it will get there, developing a franchise business later is a very risky undertaking. It may be much more prudent to simply buy a Master Franchise and develop a region, state or country under the Franchisor’s business model and become what they call a “mini-franchisor”. Let’s talk about this for a moment.

The December 2016 issue of Global Franchise published an important article titled; “14 Questions a Prime Franchisee MUST Ask”. In that article, the author stated that a master franchise buyer should certainly ask; “Is there flexibility for the main franchisee to negotiate the terms of the sub-franchise agreement?” and then scored; “Not really, but you could say there is no money in master franchises if sub-franchises are not sold. Look for language in the master franchise agreement that says’ unless otherwise agreed by [insert franchisor], the initial franchise fee will be … ‘This indicates that there may be an established procedure whereby the lead franchisee could sell franchise units at a lower initial fee if necessary. Any possible flexibility should be negotiated with the franchisor before the master franchise agreement is signed. “

Exactly!!! You see, when franchising a concept and just starting out, you often have a few deals to make along the way, and this means there is a bit more negotiation when selling your first 10-20 franchises. If you buy a master franchise, you are essentially playing the role of franchisor and will essentially be a new franchisor in the region outlined in your contract. If you can’t make deals to get things going, you may have trouble expanding at an appropriate rate to ensure a proper ROI for you, and you could find yourself in trouble and not being able to keep up with your development schedule and agreement to do. grow the system. Consider all of this and think about it.