Before diving into the venture, it becomes important to know about different types of franchise ownerships so that you become aware of what rights would be given to you under which ownership. Read on...
One thing about franchising thatseems clear is that it gives the franchisors and franchisees a whole lot of advantages, but as you start exploring the vast world of franchising, it might look daunting to a beginner.
The selection of a potential franchisee is a simple process: the franchisor invites them to join in; aspirants apply to own the franchise;then interviews take place; and finally the selected franchisee is required to sign up a franchise agreement, which declares the ownership as then he/she becomes the franchisee. While everything in this process remains almost similar for every franchise business, a franchise agreement might differ from franchisor to franchisor.
Before diving into the venture, it becomes important to know about different types of franchise ownerships so that you become aware of what rights would be given to you and under which ownership. Here are the different types of franchise ownerships.
In this type of franchise ownership, a franchisee has the rights to operate one franchise unit only. For most of the franchisees, this is the entry level of entering the world of franchising as the one has to handle only one unit. It is one of the best ownerships for a beginner as it provides an apt environment to gain an understanding about the franchise system.
In this type of franchise, you are given small radius of exclusive territory to operate within. Also, you are involved almost all the operations of the franchise.
In a multi-unit franchise, the franchisee acquires more than one units of the franchise. Unlike the single-unit franchise, there is no exclusive territory where the franchise must be opened. More than one store could be opened in a territory but with a difference of specific distance, say a few miles away from each other. In this type of franchise agreement, you have to look after the delegate responsibilities of individual managers and look after the entire operation. This type of franchise gives you a room to spread out your reach in a territory faster.
Area Development Franchise
Area development franchise is very similar to a multi-unit franchise in the aspect that it lets you open more than one units. But unlike multi-unit franchise, a larger geographical region is assigned to you and you are given the responsibility of opening stores in many locations at the same time.
As long as the area development franchisee works well, they have an exclusive area where no other franchisees are allowed to open a franchise. In this type of franchise ownership, you pay a reduced franchise and royalty fees.
In a master-franchise system, the franchisor gives you the right to a large geographical region in which you will be an intermediary between the individual franchisees and franchisor. This type of franchise ownership gives you some privileged rights such as reduced franchise and royalty fees, the right to sell the single-unit, multi-unit and area development franchises and many more.
As a master franchisee, you will pay a large fee to the franchisor for the region, and then you will collect the franchise fees from individual franchisees. You will look after your entire region, but you are not actually the owner of each location.