If you want to start a new business or buy a franchise from a brand overseas, you may be considering becoming a master franchisee. Master franchisees will often be used where franchise networks are expanding interstate or internationally. This article will outline some of the key considerations when becoming a franchisee and the pros and cons of this structure.
What Is a Master Franchisee?
Master franchising, like other forms of franchising, involves two parties; the franchisor and the franchisee. However, the main difference with a master franchise is that the master franchisee will be granted the right to act as if they are the franchisor in the specified territory. This could be another:
- city;
- state; or
- country.
Inside that specific region or territory, the master franchisee will be able to grant unit or sub-franchisees. Further, the master franchisee will take on the role and responsibilities of the franchisor in the territory.
What Does a Master Franchisee do?
Generally in franchise networks, franchisors rely on the franchisees to uphold the business values and standards to strengthen the brand recognition of the network. In exchange for this commitment to the brand, the franchisor is required to provide:
- ongoing support;
- training;
- relevant know-how;
- marketing expertise; and
- an effective, tested business model.
Additionally, franchise networks often rely on managers who specialise in business development. These managers cater to the needs of the franchisees within their specific territory. However, with a master franchise, this role will fall to the master franchisee, who will act as a middleman between the franchisor and franchisees. The master franchisee will also be responsible for developing and managing the franchise network in that area.
Continue reading this article below the formWhat Does a Master Franchisee Do in Their Day-to-Day?
As a master franchisee, you are not employed in the management side of the franchise. Although, your role requires you to manage an entire region. As master franchisee, you will be responsible for:
- promoting the franchise brand;
- recruiting new franchisees;
- ensuring compliance with the franchise agreement; and
- providing ongoing support to the franchise network.
What Are the Benefits of Becoming a Master Franchisee?
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Tried and Tested Business Processes |
As a master franchisee, you will receive the knowledge and procedures developed by the franchisor. You will receive a business in a box, the business being at the franchisor level. Having access to this information will give you an existing model and framework from which to build the franchise network. |
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Branding and Intellectual Property (IP) | You will gain the benefit of the franchisors intellectual property. Additionally, if the franchisor already has a trade mark registered in the territory, you will be able to use it pursuant to the master franchise agreement. |
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Goodwill | The existing business in other territories will add to the goodwill associated with your network. Therefore, both customers and prospective franchisees will come to you because of the reputation and goodwill of the networks already established in other territories. |
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Autonomy | Depending on your master franchise agreement, you will likely be able to change the overall business model in the specified territory. For example, you may be able to change certain aspects of the business to accommodate local tastes and the customer demographic in your area. This is a great opportunity if you want to develop the business using your own knowledge and skills. |
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Revenue | Master franchisees receive a royalty percentage from their franchisees. Therefore, they will retain anywhere from 40% up to 75%, depending on the arrangement with the franchisor. |
What Are the Disadvantages of Becoming a Master Franchisee?
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Initial Set-Up Costs |
You will likely need to pay for the initial set-up costs in the new territory. This could include setting up the first corporate run stores, getting your franchise agreement drafted and company incorporation, to name a few requirements. |
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Increased Responsibility and Legal Exposure | You will be the responsible “franchisor” in the territory. Therefore, you will need to provide ongoing support to your franchisees and provide training to the new franchisees. If something goes wrong with one of the franchisees, this will affect your franchise network, and you might even have some obligations under the FCC. Further, you may also have obligations to the franchisor. |
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Less Control |
You will need to comply with the standards and directions from the franchisor. This is a reduced amount of control than you would have as a fully autonomous business owner or franchisor of a brand you have established yourself. |
Key Takeaways
A master franchisee is responsible for developing the franchise network in a region. Master franchisees will have more autonomy than standard franchisees. However, this will be less than typical franchisors. They have obligations to both the franchisor and to their franchisees. While the initial franchise set-up costs will be high, the royalties can be lucrative. Both the master franchisee and franchisor need to comply with the FCC.
As with any business decision, it is important to do your own research and due diligence to understand the business network you are joining and understand your obligations. To talk about reviewing your franchise agreement and disclosure document to make sure it includes all the necessary information needed to become a master franchisee, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
Frequently Asked Questions
A key difference with a master franchise is that the master franchisee will be granted the right to act as if they are the franchisor in the specified territory, which may be a state, city or country.
The master franchisee has the role of acting as a middleman between the franchisor and franchisees. Additionally, they are responsible for developing and managing the franchise network in that area.
Responsibilities may include promoting the franchise brand, recruiting new franchisees, ensuring compliance with the franchise agreement and providing ongoing support to the franchise network.
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