whichfranchise

Master franchises are franchise opportunities that have a proven system in another country, but have not entered the UK as yet. You as the franchisee will be bringing in the system and must evaluate the benefits against the risks carefully.

When you buy a master franchise with a view to sub-franchising you are effectively stepping into the role of the franchisor in the target territory. You will be running two separate businesses, i.e. the core business and the franchise business, and these will need separate skills and disciplines, so normally separate companies are established.

Before you begin your search, be sure you know what type of franchise best suits your investment limitations, experience and goals.  Even then be prepared to wait for the right company. Walk away from any dealings with any franchise where full information is not provided and their commitment to the UK or target market is not absolute. Once you find the right franchise partner it will still take some time usually to close the right deal.

Negotiating the Deal

• Do not sign any contract or make any payment until you have fully done your homework.
• Have a lawyer review the disclosure documents and franchise agreement.
• Have an accountant view the company's financial disclosures.
• Examine the products, systems, management, purchasing power and marketing on 1 or more visits to the company.
• Take a long-term view - normally it takes more time, effort and money than envisaged.

Negotiations

• Choose an experienced lawyer, well versed in licensing agreements.
• Manage the legal process -
• Obtain estimates - control-drafting process - ensure no power shifting.

• Ensure franchise agreement clearly sets out the extent of rights to be granted and the territory of exclusivity and the term and renewal issues (see Appendix 2 for the main sections of a master franchise agreement).
• Ensure the sub-franchise agreement is user-friendly in the target territory and suitably adapted to reflect impinging law.
• Accept that franchisors can rightly seek to make a charge for the granting of rights.
• Ensure performance schedule for development is realistic.
• Insist the best people are available to support the master franchisee.
• Accept the need to invest before expecting to see a return for the new business.

The financial issues invariably occupy much time.  While there is no set formula for calculating initial and ongoing fees, there are some parameters, which can afford some guidance. Ensure the initial fees are based on a rational system measuring value and take a long-term view of the potential for the business.

Calculating the Fees

• Seek maximum flexibility over payment of initial fees
• Agree on appropriate up-front payment.
• Agree an equitable split of continuing fees and/or mark-up from the sale of products or
• Provision of services.
• Take into account the actual cost to the franchisor of dealing with the master franchisee, helping set up the business and assisting in proving the concept.
• Compare the cost to acquire the requisite know-how and skills to operate a similar business in target territory.
• Consider the value of the territory based upon the projected number of units, which could be established.
• Estimate the aggregated amount of initial franchisees, which could be charged by the master franchisee to his sub-franchisees in the development of the network.

Other cost factors to take into account include

•  Costs of translation/adaptation of manuals.

•  Costs of local market research.

•  Cost of negotiating master franchise via correspondent lawyers and other professional fees.

•  Costs of transportation of material