What is a master franchise?

Master franchises are franchise opportunities that are proven and successful in another country, but have not entered the UK as yet. You as the master franchisee would be bringing the system into the UK and so 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 master franchise business, and these will need separate skills and disciplines, so normally separate companies are established.

Should you invest in a master franchise opportunity?

Before investing in a master franchise, like any business opportunity or investment, you need to be certain that becoming a master franchisee is right for you.

You need to be sure what type of franchise best suits your investment limitations, experience and goals. For example, if you want to operate just one outlet, a master franchise is not for you.

You will need to establish if the local market is ready for the product or service. In other words, you need to ensure that there are enough people around who want to purchase it and, most importantly, can actually afford it.

Considerations

You need to be careful and patient. Wait for the right deal with the right company. Walk away from any deal where full information is not provided or the foreign franchisor applies pressure on you to sign the master franchise agreement. 

Terminate negotiations with any foreign franchisor who is not prepared to enter into a joint commitment to develop the local market.

Be prepared to accept that even once you have found the right franchise partner it will still take a long time to close the deal.

Lastly, you need to ask yourself whether the potential of the deal justifies the initial expenses and ongoing costs. Remember, you will be obliged to:

• Pay a master license fee, which may be substantial
• Fund the establishment and operation of the local pilot operation
• Create the franchise infrastructure, either from scratch or you may have to modify the master franchisor’s material to suit local requirements. Chances are that this will, among other things, involve significant professional fees
• Adapt the product or service to suit local conditions
• Attend initial and ongoing training at the master franchisor’s head office, thus incurring initial and ongoing travel expenses that can be substantial
• Share initial and ongoing fees with the foreign master franchisor. In this context, you need to keep in mind that for practical purposes, fee levels may be pegged, forcing you to make ends meet with only a portion of the gross income your local competitors earn

Before you go any further, you need to decide whether it is indeed worth your while to invest in the master franchise opportunity. Perhaps it would make more sense to develop a concept locally from scratch?

In most instances, unless the master franchise offers you access to an internationally renowned brand or extraordinary intellectual capital, the local option may be preferable.