Master franchising - things to consider

So what should you look for when considering becoming a Master Franchisee? For the purposes of this exercise we will assume that you have not previously been, or worked for, a franchisor. Both sides should be looking for positive mutual commitment to building a sound business over many years, and this will involve working together with a common-sense approach to financing, training and support.

Unless the Master Franchisor can show evidence of a policy decision to embark on, and properly resource, an international development programme, supported by a detailed business plan, with input from people who know the game, then neither they, nor the potential master franchisee, should go any further.

Something to look for specifically is what basic market research has been done by the Master Franchisor on his product or service in the target country. If none, what makes him think a franchised network can succeed there?

Obviously, even if he has done some, you will need to verify it with some of your own when preparing your business plan, as well as considering the potential differences in key ratios such as property costs, wage rates or petrol prices. You also need to build in some franchising research - how does the franchising market for potential franchisees differ in your country to the Franchisor’s home country, and is the proposed fee structure and rate of franchisee roll-out realistic? What about the costs of franchisee recruitment, or local laws and cultural differences that may affect the operation?

Please note, comparing the population of the USA or Australia with the population of UK, and extrapolating figures there from is NOT market research!

You will also want to know about the Franchisor's track record. If he comes from a country that requires pre-contract disclosure for domestic operations then ask for a copy of the relevant Disclosure Document. Ask for contact details of his other master franchisees so you can ask them about their experiences - and if he doesn't have any others, or won't let you speak to them, consider that carefully in your decision-making process.

Author: Brian Duckett

Other points of consideration

Here are some points to consider before making the decision to buy a Master Franchise:

• Know your responsibilities - As a master franchisee you are responsible for recruiting individual franchisees and for providing support and training on an on-going basis. Are you ready for this?
• Do your research - You need to understand both sides of the equation: the business model and the franchise model. Make sure, for instance, that the business is based on a solid model. Without a viable business model, the master franchise won’t succeed. You will also need to research the market and territory demographics. Make sure that the territory has a population that can support your projected sales and will absorb enough franchisees for you to make money.
• Get off your bottom - Your intelligence gathering must include actual visits to as many franchise locations as possible. If you detect any problems, cross the franchise off your list. Don't be tempted to rationalize the problems away. If you sense trouble, regroup and consider another franchise system.
• Look for the right match - Even if the business model is solid, you'll want to make certain that the franchise suits your investment limitations and your goals. If you don't have the capital, then it's not a good match. If you're not interested in the business, then it's not a good match. Be prepared to walk away if the opportunity doesn't feel right.
• Pick one approach - Becoming a master franchisor versus buying a unit franchise isn't necessarily a better or smarter move. What's important is that you choose either approach for the right reasons and with careful consideration. Running a master franchise requires a different set of skills than owning one franchise. The skills for selling franchises, for instance, are not the same as those needed to operate the business successfully.
• Interview successful master franchisees - If possible, try to talk to other people who own a master franchise in the same system. Find out, for instance, what kinds of challenges they face, what kind of support is available, and if they had to do again, what they would do differently. If speaking with other master franchisees isn't possible, search the Internet, go to the library, and do whatever you can to immerse yourself in the language of a master franchise. The more you know the better off you'll be.

Author: Euan Fraser