Are you looking at getting involved in franchise ownership and confused about which one to choose? Here is a guideline to inform you of five types of ownership you can choose from.
Franchise ownership involves a business owner allowing another person to operate with their brand name and trademark. In this case, each franchise goes under the same trademark, name, services, and product as the parent company. The franchisee, the person who runs the franchise, pays for a renowned business’s already established marketing and operating strategy. This ensures a reduction of risk, and the investment returns are quicker than ever. They can reap the benefit of the business as it is already known, trusted, and accepted by the customers. Since the umbrella company generally buys in bulk, the franchise owner will get wholesale pricing on supplies and goods, ensuring a large profit. Let us briefly discuss about the details on Types of Franchise Model.
Buying a franchise strengthens the relationship between the franchisee and the franchisor who owns the successful business. This relationship also enables ongoing brand awareness for the franchisor and gives the franchise owner a reliable system to work with.
Types of Franchise Model
The following provides a list of the different ownership opportunities offered by franchising.
Single Unit Franchise
A Single Unit Franchise is the most common type of franchise ownership, and is ideal for a new entrepreneur. If you opt for this type of ownership, you will own a single franchise location. This kind of ownership only requires the initial start-up cost. You can manage the single unit location personally and look after and manage day-to-day operations efficiently.
Single-unit franchisees are highly motivated since, in most cases, they have to mortgage their assets or personally guarantee loans to fund the business. The revenue earned is usually the franchisee’s sole income. Investing in this ownership may also mean that the franchisee may not be able to open additional branches in the future.
For any emerging business, the single-unit franchise is a preferable way to start their expansion. Most franchisors examine how emerging franchisees manage and operate their training and support systems, before deciding on further expansion.
Ex: Someone who has left a corporate job to be his/her boss and own a business will own a single unit franchise.
Existing Franchise
In an Existing Franchise, one has already invested and purchased the franchise initially from the mother company. The business has already been started and established, and a proper managing methodology has been adopted in the region. Buying this Business franchise will provide you with insurance and safety since you already know what to expect from this business.
Some of the steps which will help you when buying an existing franchise are:
- Understanding the franchise disclosure document
- Reviewing transfer requirements
- Determining the business value
- Discussing the reason behind selling the current franchise
- Examining financial records
- Learning about the franchiser/seller
- Analysing the franchisor
- Paying the transfer fee
- Determining which staff will stay
- Employing a franchise attorney.
Multi-unit Franchise
A Multi-unit Franchise means that you will be able to open multiple stores in a short period of time. This will ensure you will save money in the investment of each unit. Since these units cannot be run single-handedly, delegating the operations to store managers and overseeing it will be a good idea.
This involves less risk and increases the chance of your success since you are spreading over in a particular region, ensuring increased sales. The multi-unit franchise is a safer investment option since you do not need to depend on a single site to earn revenue.
The franchisee holds exclusive rights to a particular geographical area where the multi-unit agreement is signed. This ensures that the franchisor will not be able to allow anyone else to open in that area.
A specific development schedule is agreed upon to bind the franchisees to open a certain number of units within a specific timeframe. This way, the franchisee cannot be complacent about the number of stores they need to open in a geographical location.
Examples of multi-unit franchises are industries like Apparel, consumer electronics, general merchandise, mail and package delivery, food and drug stores, etc.
Area Developer
The Area Developer franchising agreement is almost the same as the multi-unit agreement, except that it is on a bigger scale. You will be managing a large geographic area and will be given the responsibility to open multiple locations at the same time.
When a franchise wants to expand in a specific market very quickly, they opt for this strategy. This method can help increase market penetration and the area developer’s odds of success. But to get involved as an area developer, a large initial investment is required.
A franchise area developer might be invested with the task of opening four franchise locations over four years. The area developer has to pay a non-refundable development fee. For each location development, the area developer signs a franchise agreement and has to pay additional fees to the franchisor.
For example, creating new outlets for Amul, which is already an established brand in India, in a particular geographical location.
Master Franchise
This kind of franchise agreement involves a franchisor providing you with the rights to a huge geographic location. Using this business model, you will be an intermediate between the franchisor and the individual franchisees.
You are required to pay a large amount of fee to the franchisor of the geographic area and collect the franchise fees from each of the franchisees. You can oversee the entire region without being the owner of those locations. The owner of the franchise grants the involved party the right to personally recruit new sub-franchisees in their designated region.
Ex: JW Marriott owns the largest hotel chain in the world and is an ideal example of a Master Franchise since they own 6500 properties in 127 countries and territories.
Final Thoughts
Among all of these franchise ownership opportunities, one must choose ownership that caters to one’s capital, business experience, and ability to handle risk involvement and other situations. Before signing any franchise business agreement, getting expert opinion and help from reliable sources should come before drawing a franchise business agreement. if you have any queries reach out to Vakilsearch.
