Table of Contents
All franchise businesses rely on carefully crafted franchise agreements. One type of franchise agreement is the master franchise agreement. Master franchising is a particular form of franchising. A franchisor gives additional rights and responsibilities to master franchisees. This is in contrast to single or multi-unit franchisees. This article will explain what master franchise agreements are and the unique opportunities they present for franchisees and franchisors.
Master Franchise Agreements
The franchising model involves a business owner giving others (individuals or entities) the right to run a business utilising their brand name. As a franchisor, you also allow your franchisees to use your operational procedures and replicate your proven business model. You, as the original business owner, are the franchisor. The franchisee is the person or entity that buys the rights to run a business under your franchised brand. Master franchising follows this same approach but provides additional rights to your franchisees.
Master franchising involves you, the franchisor, also allowing your franchisee to sub-franchise to others. Typically, in franchising, only the franchisor can recruit new franchisees. However, through master franchise agreements, you will provide a master franchisee with exclusive territory in which they can operate. In this territory, your franchisee can recruit and manage sub-franchisees.
Master Franchisees
Master franchisees have increased responsibilities compared to single-unit franchisees. In essence, master franchisees act as intermediaries between you, the franchisor, and the sub-franchisees your master franchisee recruits. As such, your master franchisees enable you to substantially develop your franchised brand’s reputation within a particular area. Relatedly, recruiting master franchisees can also lead to rapid expansion.
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Key Considerations for Franchisors With Master Franchise Agreements
1. Training and Support
As a franchisor, you are responsible for providing training and support to your franchisees. It is irrelevant whether your franchisees are single-unit or master franchisees. Like other franchisees, master franchisees need a sound understanding of your brand, its values and how to operate.
Your master franchisees are responsible for maintaining and enforcing brand standards within their territories. To do this, they need a good understanding of those standards. Further, they need to know how to conduct their roles, including recruiting and managing sub-franchisees.
2. Provision of Exclusive Territory
A fundamental component of master franchise agreements is the provision of territory. Franchisors will provide master franchisees with a particular region to develop and operate within. Within this territory, your master franchisees will recruit sub-franchisees and maintain brand standards.
Prospective master franchisees expect you to grant them a defined territory, which you will stipulate within the franchise agreement. Your franchise agreement should contain well-defined terms and territorial boundaries; these are crucial for successful master franchising.
3. Experience Level
Consider the experience and skillset you will require your master franchisees to possess. Master franchisees typically have plenty of experience in franchising and may also have industry experience.
Someone new to franchising and the industry is unlikely to be an ideal candidate for master franchising. This individual will likely not have the necessary knowledge or skills to conduct their roles effectively.
4. Current Franchisees
Prior industry and franchising experience is pivotal for master franchisees to succeed. As such, you may consider allowing your current single-unit franchisees to progress to master franchisees. Your current single-unit franchisees will be well-placed to take on this responsibility. They will have prior franchising experience and an acute awareness of your brand and its standards.
For example, you might initially recruit a franchisee to operate a single unit. Ideally, your single-unit employee is aligned with your brand’s values and runs their franchise well. Further, this single-unit franchisee of yours ideally should also be receptive to training programs. When renewing their contract, you might offer them the chance to operate multiple units. If they succeed, you might allow them to progress to master franchising. They will then operate within a particular territory, recruiting and managing their sub-franchisees.
5. Legal Advice
It can be an excellent idea to seek legal advice when considering master franchising. Master franchise agreements will include additional terms and stipulations compared to standard single-unit agreements. A lawyer could review your drafts or draft this contract for you. They can also identify potential risks and help you to mitigate them.
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Key Takeaways
Master franchising is an advanced strategic franchising approach. It allows you, the franchisor, to develop your brand within particular areas. Simultaneously, you can offload some regional network management tasks to your franchisees. Franchisors grant master franchisees the ability to recruit and manage sub-franchisees within a defined territory. This model enables you, as a franchisor, to pursue rapid brand growth.
Key steps for franchisors considering master franchising include the following:
- developing sufficient training and support provisions;
- defining a master franchisee’s exclusive territory;
- taking experience level into account when recruiting master franchisees, this includes a candidate’s experience and industry knowledge;
- considering ‘master franchiseeship’ as an option for progressing your existing franchisees; and
- seeking legal advice to mitigate risk and ensure franchise agreements protect your brand’s interests.
If you need help determining whether ‘master franchiseeship’ is right for your existing franchise brand, contact our experienced franchise lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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