This article are provided for information purposes only, and are not intended as legal advice.


Franchising, do you buy a franchise or the master franchise for an area if you have the opportunity?

September 22nd, 2009

You are looking at a new franchise concept about to enter the country.  The owner of the franchise concept has sold just a few franchises but the master franchise for an area comes up for sale and you have the ability to develop as many franchises as you think feasible in your territory.  If you only have so much money, which one do you buy, do you buy the master franchise or do you buy a franchise?

 

Buying the master franchise

  • you have to find and train a number of franchisees so that they can generate as much revenue as possible
  • your sources of revenue are the franchise fees earned on the sales of any new franchises, the transfer fee if any franchisee is selling the business and royalties
  • you want to ensure that your franchisees are doing well because that improves the royalties which you receive
  • once the franchisees are established and doing well, all you have to do is monitor and assist the franchisees and train them on new products
  • not dealing with the public, only dealing with a select number of investors/franchisees

 

Buying a franchise

  • you are the ones who deal with the public
  • are responsible for collections
  • continually looking for new customers
  • must comply with the rules of the franchisor
  • are responsible for hiring staff
  • you have a system to follow and if you need assistance, you can fall back on the master franchisor

 

There are pros and cons of both controlling an area as a master franchise. There is a lot of hard work and expenses finding and training franchisees but once the franchisees are established the business will be generating lots of royalties for you if the business is successful. Franchisees will open the door of their business and revenue may be generated much quicker than being the master franchisor however it will take a while for you to establish a regular clientele.  Some franchises are destination location, others do well if they are in the right location.  Often the success of a franchise is based on location, location, location.  Even if you are located in a mall, location is important for higher sales.  Being a master franchisor, location of your office is not an issue because the public never goes to your office.

 

If you had to pick a franchise or master franchise which one is a better choice?  If you really believe in the franchise concept, being a master franchisor may generate larger rewards for less effort once the business gets established.


Filed under: buying a franchise — Gary Landa @ 3:31 pm


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