The Franchise Coach

Master, Franchisee or What?

Master, Franchisee or What?
More options than you think
Franchising the Whole Story
Matching Your $ and Your Skills

So you are looking into buying a franchise as your first or next business venture.  The banks, accountants and lawyers will tell you that the odds of being a successful business owner are greater in franchising than being in business by yourself.  Franchising is like “being in business for yourself but not by yourself”.

The range of business sectors now offering franchises is endless as today you can buy a franchise a from lawn mowing to multi million dollar retail to qualified professionals.  But it is even more complex when you look at the various franchise models that are available to you.   The first two elementary words that you would have learnt were franchisor and franchisee. The franchisor is the person or company who developed the franchise system and the franchisee is the person or company who is given the rights by the franchisor to use the franchise system according to the franchise agreement and the manuals.  

So let’s look at the options that you have:

Single Unit Franchise:
This is the franchise model that most people are familiar with; a person, the franchisee, owning and operating a single-unit e.g. a shop or one vehicle as in a taxi.
The franchisee would be granted a minimal territory in which to operate the business and over time the franchisor will appoint single-unit franchisees to cover New Zealand. The franchisee focus is on running a profitable business in their territory following the franchise manuals.

Multi-Unit Franchise:
A franchisee who owns and operates more than one franchise.  This usually eventuates after the franchisee has successfully operated their first franchise and showing the ability to operate the business under management. As franchise systems are built around the model of the franchisee working in the business the cost of additional management may not be affordable and in all cases it is the franchisors right to decided whether the franchisee will be allowed to operate more than one franchise.  It may be that operating three or more outlets is profitable under management and this could be your goal.  In the early stages of talking to franchisors you should ask them for their policy on multi-unit franchisees. In some publications this is called “Sequential Franchising”.

Master Franchise:
Also called Sub Franchising this is not common in New Zealand other than in the service-based sector, home services, as it requires a large number of franchisees to support the addition of a master layer. In larger countries like Australia it is common for franchisors to appoint master franchisees for a State.

A master franchisee has been granted the rights within a territory to appoint franchisees and provide part of the Franchisors role at local level.

Country Master:
Is along the same lines as a Master Franchise with the big difference being that the franchisor is located offshore and the Country Master manages the entire running of the franchise in New Zealand. Franchising is known for mixing its words system by system so in some cases this person could be called the New Zealand Franchisor.

Development (Rights) Franchise:
In the Multi-Unit Franchise, mentioned above, the franchisee grows franchise by franchise each under a separate agreement and has no automatic right to additional franchises. Whereas a Development Franchisee undertakes from the outset to open a number of outlets in a specific geographical area to an agreed time line. 

In this case, the franchisor would be looking for a person with a higher level of funding and management capabilities to grow the business throughout the area opening two or more within the first few months to give brand impact and speed to market. Area franchisees usually pay an area fee for the rights granted by the franchisor. When considering the Development Franchise make sure you thoroughly understand any restrictions on selling your franchises. Also called “Area Development”.

Sub-Franchises:
Sub-franchises are franchises granted within the territory of an existing franchise. They are usually allowed to be granted when the original franchisee reaches a point in business development whereby they cannot sustain any further growth from the one unit or outlet. Each agreement will vary but it is normal for a franchisee who owns a territory to be allowed to offer the sub-franchise to another and take profit form that offering. However, it is also common for the franchisor to actually grant the new franchise, and to also receive an up-front franchise fee to cover training and induction of the new franchisee.

Company Owned Franchise:
This is a franchise that is owned and operated by the franchisor and internationally they account for around 25% of all franchises.  The franchisor may decide to have company owned outlets to initially test the market, to produce income, to act as a training facility, to carry out ongoing research on new products, equipment, marketing programs and systems.   The term “Combo” is used to describe a franchise that includes both company owned and franchised outlets.

In New Zealand we have one a share market listed company called Restaurants Brands that operates all its KFC outlets under the company owned structure.

Conclusion:
By now you would have found that there are more options available to you than you first thought.  You need to be clear on how much you have to invest and what skills you and your partners are bringing to the franchise.  Look at these options and see how they allow you to evolve your business into something bigger within a franchise system.  Talk about this with your prospective franchisor upfront as there are many examples of successful franchisees staying within franchise systems for the mutual benefit to both parties. That is the key outcome we all strive for in franchising.  

David McCulloch, Managing Director
“The Franchise Coach”
davidm@franchisecoach.co.nz
www.franchisecoach.co.nz
0800 COACHING

David McCulloch is the founder of “The Franchise Coach”.  This team of business advisers was one of New Zealand’s first organisations established specifically to provide high levels of support, services and mentoring necessary to advance business ambition to franchise reality.

"The Franchise Coach" is a member of the Franchise Association of New Zealand. Association of New Zealand Franchise Member
"The Franchise Coach"
Phone +64 21 943 776
PO Box 25020, St Heliers, Auckland, 1740, New Zealand

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Link Business Broking Ltd


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