When planning to buy a franchise business, you may come by the opportunity to join a franchise as a ‘master franchisee’. Otherwise, you may acquire a right of first refusal to become a master franchisee at some point in the future. So what is a master franchisee? This article explains the role of a master franchisee within a franchise and its advantages and disadvantages. Therefore, you can decide if it’s the right role for you.
What is a Master Franchisee?
In a franchise system, the role of a master franchisee is different from that of the standard franchisee (or sub-franchisee). The role encompasses a broader range of responsibilities over a number of different individual franchises.
Essentially, the master franchisee acts as the franchisor for a number of individual franchisees in, for example, a specified state.
What is a Master Franchise Agreement?
The master franchise agreement is a document that sets out the detailed requirements of your role as the master franchisee. Furthermore, it details your responsibilities to the sub-franchisees operating under you and any franchises that you might individually operate.
There is often some confusion of terminology when it comes to decoding the parties in a master franchise agreement. This is because there are often different variations of terms to identify the same party in an agreement. However, the two key parties to a master franchise agreement are the:
- master franchisor; and
1. Master Franchisor
The master franchisor is sometimes referred to as the “master” or the “head franchisor”. This person can be thought of like the CEO of the franchise system and is ultimately entitled to grant franchises or master franchises.
2. Master Franchisee
The master franchisee is sometimes referred to as the “sub-franchisor”. This role is more like middle management. Under the master franchise agreement, you may have a right to issue sub-franchises within the relevant territory. In turn, you must report back to the master franchisor.
If you own and operate an individual franchise, you may be able to become a sub-franchisor or master franchisee. However, this is not an essential feature of this role. Depending on the terms in the agreement, the master franchisee may have a role in managing a number of individual franchisees.
Why Become a Master Franchisee?
You may be interested in entering into a master franchise agreement if you bring a lot of prior industry experience. You may also be interested if you have existing contacts who are eager to run a franchise themselves. Instead of operating a single franchise, you may be keen to manage and recruit multiple franchisees. If you possess the right skill set, becoming a master franchisee will reward you with the opportunity to maximise the use of your industry experience within an established framework. It can, of course, also increase revenue.
There are two common reasons for a master franchise agreement to be created in the first place.
1. A Successful Franchise is Expanding
The role of a master franchisee can represent the potential growth of an already successful business. As a master franchisee, you can utilise your industry awareness to play a role in assisting existing franchisees to maximise their business’ performance.
The master franchisee’s role will be mostly managerial and involve:
- recruiting sub-franchisees within their territory;
- promoting and marketing the brand within their territory; and
- overseeing daily operational aspects of the relevant franchises.
2. A New Franchise is Considering Expanding
As a master franchisee, you can assist the franchisor to grow the brand geographically and subsequently increase its customer base. This is common if an international franchisor plans to expand into the Australian market and requires someone to manage the local franchises. Furthermore, a master franchisee may be needed if an Australian franchise plans to expand their business into another state or territory.
Advantages of Being a Master Franchisee
Master franchisees often have the benefit of receiving percentage royalties from franchisees.
Furthermore, they have an influential role in the business and are in a fantastic position to help the business grow. Master franchisees will usually understand their territory or market better than an interstate or international based franchisor. Subsequently, they can use this knowledge to promote growth and generate profits. The master franchisee will ultimately alleviate the day to day time commitments required of the master franchisor. Therefore, the master franchisor can focus on fostering the business’ growth.
Disadvantages of Being a Master Franchisee
However, it is important to note that the initial set-up fee for becoming a master franchisee can be substantial. Furthermore, the master franchisor normally puts a development schedule in place. It details deadlines for, say, the number of sub-franchises that need to be granted over a set period. If the master franchisee is unable to reach these targets, there will often be ramifications.
The role of a master franchisee requires supervising other franchisees in the region while still managing your own franchise. Therefore, if you’re not a natural manager or are unable to take on a significant workload, becoming a master franchisee may not be right for you.
When joining a franchise that is at a stage of growth in its business lifestyle, you may have the opportunity to enter into a master franchise agreement with the franchisor.
Entering a master franchise agreement can propel you into a very influential role in the business. This can be very rewarding financially. However, there will also be more responsibilities and initial set up costs. If you have any questions about becoming a master franchisee, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
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