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Franchising is a popular way for entrepreneurs to expand their established brands. Within franchising, there are several different types of franchisees, including single-unit franchisees, multi-unit franchisees and master franchisees. Master franchisees have more responsibilities than single or multi-unit franchisees as they recruit and manage sub-franchisees. Becoming a master franchisee can offer benefits such as increasing revenue and exclusive territory rights. However, it also involves significant responsibilities and risks. This article will explain master franchisees and the advantages and disadvantages of becoming a master franchisee.
What is a Master Franchisee?
A master franchisee acts as a middleman between the franchisor and individual franchisees. This position comes with the unique responsibilities of:
- running your franchises; and
- recruiting, training, and supporting new franchisees.
Master franchisees tend to operate within a specific region, developing the franchisor’s brand.
This role involves significant management responsibilities and the ability to strategically plan to grow and successfully maintain the brand’s presence in your region.
The Advantages of Becoming a Master Franchisee
1. Influence and Revenue
As a master franchisee, you will strategically plan the brand’s expansion within your territory. You may have the authority to adapt the franchisor’s model to suit regional market conditions better, increasing the brand’s local appeal and profitability.
In addition to earning from your franchise locations, you can earn revenue from selling franchise locations and collecting ongoing royalties from sub-franchisees. This additional income potential can result in higher overall earnings than a single-unit franchise.
You will manage and help the subfranchisees to run their businesses. Your franchise agreement will likely state that you must share a percentage of this with your franchisor.
2. Exclusive Territory Rights
Depending on the terms of your franchise agreement, you may have exclusive territory within which to operate. Franchisors often grant territory rights to their master franchisees. These rights enable you to develop and sub-franchise within your defined area. Therefore, you can expand your business without internal competition.
3. Enhanced Support
Master franchisees often receive higher levels of support from their franchisors. Such support might include:
- advanced training;
- marketing materials; and
- financial incentives.
Ensuring that your franchisor provides sufficient support is crucial, especially given your increased responsibilities. The franchisor should outline this support in the franchise agreement.
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This Disadvantages of Becoming a Master Franchisee
1. Significant Management Responsibilities
Managing an extensive network of sub-franchisees can require substantial oversight and coordination efforts. You will be responsible for ensuring your sub-franchisees comply with brand standards and operational procedures. You might also have training and support responsibilities, including providing your sub-franchisees comprehensive initial training and ongoing support.
These significant responsibilities mean you must seek adequate support from the franchisor. Also, it is critical that you only seek to become a master franchisee if you are ready. If you are new to management and franchising, beginning with a single unit is best.
2. Administrative Burdens
You will take on a franchisor-like role in your area. You will be responsible for:
- enforcing sub-franchise agreements;
- maintaining detailed financial records; and
- reporting to the franchisor while managing sub-franchisees.
These tasks can add a layer of complexity to your operations.
3. Increased Risk Exposure
Your sub-franchisees’ success directly impacts your profitability. Poor performance by sub-franchisees can lead to reduced royalties and potentially damage the franchised brand’s reputation. Moreover, disputes with sub-franchisees or failure to comply with the franchise agreement can lead to legal challenges. Such challenges can be costly and time-consuming to resolve. For these reasons, it is a great idea to consult a franchise lawyer who can identify and mitigate the potential risks of becoming a master franchisee.
Key Takeaways
Being a franchisee enables you to operate under an established brand with a pre-defined business model and comprehensive support system. The main advantages of becoming a master franchisee are increased control and income. However, this control carries significant responsibilities. Master franchisees take on a franchisor-like role. Therefore, before signing a master franchisee agreement, determine whether you have the right skills and experience, particularly within the franchising industry and management.
If you require legal advice about becoming a master franchisee, our experienced franchise lawyers can assist 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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