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Master franchising: the ultimate guide

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Master franchising: the ultimate guide

At its core, a master franchise agreement contract brings together a master franchisee and a franchisor, with the master franchisee taking over a particular region or entire country for the purposes of franchise development

International master franchising is the most sophisticated form of franchising expansion. It is typically the most expensive form of international franchising program to establish, and often takes longer to generate profits than the other most common forms of international franchise expansion, unit franchising and area development franchising. Master franchising is also one of the most prevalent forms of international expansion used by franchisors.

At its core, a master franchise agreement contract brings together a master franchisee and a franchisor, with the master franchisee taking over a particular region or entire country for the purposes of franchise development. Using the franchise business model, the master will award various corporate entities and individual franchise owners a single location or multiple sites at once, similar to the likes of multi-unit franchising.

Successful master franchising occurs across all different types of franchises, and is one of the primary ways that the franchise business opportunity proliferates throughout the world. It builds off the back of the established franchisee relationship, but awarding master franchise rights is an entirely different beast to individual unit franchises or even an area development agreement.

In this cover-all guide to master franchising, we’ll take a look at the questions that master franchisees need to ask themselves, top tips to finding the perfect master franchisee, as well as the personality traits and business experience that masters should have. If you’re a prospective franchisee looking to enter into a master agreement, or an expert in franchise opportunities wanting to broaden your portfolio, then you’re in the right place.

What makes the perfect master franchisee?

Whether an entrepreneur is looking to become a pizza master franchisee with the likes of Domino’s Pizza, or a gym master with a brand like Gold’s Gym, there are a number of attributes that can really put you ahead of the pack.

For franchisors, identifying the perfect individual to bring into your franchise network means building a profile that suits your organization and international plans. This can naturally vary, but 10 key traits to look out for include:

Knowledge of the business sector

If your franchise is in, say, the food and beverage sector, you may decide that you’d prefer to take on an experienced food service operator rather than an individual that knows nothing about it. Yes, you will train them in operating your system but if they already know about recruiting staff and ensuring they deliver good service then their business will grow more quickly.

Knowledge of franchising

Once they’ve run pilot outlets to establish that the system works in their country, the master franchisee’s job is to effectively become a franchisor. That means recruiting, training, monitoring, and motivating franchisees. If they’ve run other franchises or are already operating one or more systems, they will quickly build the network.

Knowledge of real estate

It can be notoriously difficult to find properties for retail franchises in some markets. If the candidate can demonstrate the ability to locate, acquire and convert suitable locations, maybe in some cases even already owning them or the malls in which they are located, this will give them a flying start.

An experienced management team

Master franchisees are rarely individuals even though the principal of an organization may be the person with whom you initially have most contact. The availability of a management team with a track record and experience of the sector, franchising, or even just successfully building businesses is usually desirable, if not essential.

Familiarity with local laws and customs

No two countries are exactly the same when it comes to laws, regulations, common practices, traditions, and customs. Local knowledge of ‘how things are done here’ can be a vital attribute.

Ability to negotiate

There may be very valid reasons why parts of a franchisor’s system need to be changed and adapted in a particular market. The master franchisee needs to be able to explain and demonstrate why this is so and stick to his guns when necessary.

Production of a business development plan

The successful master franchisee candidate needs to demonstrate their understanding of how both the sector and franchising operate in their country and therefore how quickly the business is likely to grow. This then forms the agreed development schedule which will become part of the franchise agreement.

A legal advisor who understands franchising

Franchising often operates differently to other businesses. A good franchising lawyer will know why the agreement and manuals say the things they say. An inexperienced lawyer will waste everyone’s time and money, and may even scupper the deal, asking irrelevant questions.

A similar type of business

Entrepreneur and family-run businesses operate very differently to large corporate entities. Employed executives and business-owners have trouble understanding each other’s ethos and culture. Corporate franchisors should seek corporate master franchisees; owner-operated franchisors should find owner-operated master franchisees.

A personality fit

Last but by no means least, ask yourself if you’re likely to be able to sustain a long-term relationship. It’s not just selling a system and walking away. There will be many phone calls and visits to provide support and to check operating standards, so they should be as amicable, indeed pleasurable, as possible.

When is a franchise brand ready to begin master franchising?

A focus on international expansion through master franchising can open up a franchise concept to meteoric growth and the amazing adventure of exploring new markets, cultures, and adapting its brand for different audiences.

That being said, it takes careful consideration to decide whether your brand is ready to become a global concept. Franchisors need to take a serious look at their level of preparedness for the task.

Understanding your “why”

The “why” is important. Intentional international expansion is key to success. You may be ready to expand across borders if you are seeking access to the massive worldwide consumer market, seeking long-term diversification of revenues, strengthening the brand, or lessening the impact of a specific market’s economic fluctuations. These reasons can set you up for long-term growth and success as opposed to a “why not?” or reactive approach to expansion.

Assess your resources

The financial commitments required for master franchise sales can be steep – both on the behalf of the master franchise owners with elements like initial franchise fees, but also for franchisors.

Having “enough” resources is probably the most important factor for international franchise expansion. Understanding that it takes a team dedicated to that task and complete buy-in from upper management/ownership is critical.

Also, having a dedicated budget for expansion is key. You will need resources to develop the international program, find the potential franchisees, and then execute your first openings abroad. Expansion at this level cannot simply be done by adding work to your current domestic team. Franchisees in different countries, different cultures, and different time zones use up a lot of resources, time and money.

Be sure you have set aside the capital for expansion and have assembled at least the start of your international team to take on the tasks of expansion without having a negative impact on your core domestic business.

Understand how to protect a brand

Your brand and your marks are your most valuable possessions. If you have a plan to protect your brand, you may be ready for expansion abroad. Protection is complicated but can be summed up in two categories: legal protection and the enforcement of brand protection.

First, the legality of protecting your marks in other countries simply boils down to having the appropriate legal counsel both at home and abroad. Understand the laws of the new market and ensure you have the protections to keep others from copying your branding and damaging the integrity of your concept in the market.

Protecting your brand through legal channels and agreements is only as strong as your ability and willingness to enforce the protection. You must be willing to be vigilant and aware of what may be happening with your brand inside a market both with your franchisees and other parties who may be infringing on your marks.

When entering a new market with a successful concept, you will likely encounter copycats and you must be willing to do whatever it takes (including resources) to keep your brand identity intact. By granting an international franchise agreement, you are allowing your brand to be represented in a market you don’t fully understand in a location you will likely visit far less than your domestic sites. Awareness of this fact and a plan to maintain the brand are key to expansion.

Have a system in place to find the right kind of franchisees

As mentioned above, franchisors will often have a set criteria of evergreen skills and experience that make for the perfect master franchise business owner. This can sometimes be influenced by the type of franchise model, but there are some attributes found across all of the best franchise partners.

Having a development process to correctly market and thoroughly vet franchise candidates is critical to finding the correct franchise partner. As you begin international expansion, your first international franchisees will be the proof of concept that will set you up for future, long-term growth into other markets.

Before you can get to training, processes, contracts, and ongoing oversight of your brand, you must find the right potential franchisees. Having the most sellable, attractive, opportunity-rich franchise system is only relevant if you can find an audience to tell your brand story to.

How to find the perfect master franchisee

As a franchisor, it’s tempting to become enthusiastic about the quantity of franchise leads coming in before truly analyzing the quality of those leads. But as any experienced franchise organization will tell you: it’s far better to have a single, qualified master franchisee that’s the right fit for your system than thirty potential franchisees that may not represent your brand according to its highest standards, or have adequate franchising expertise.

When a master franchise agreement is on the line, the quality of the leads to consider is especially crucial, as the master franchisee is the primary determining factor in whether or not franchise development will succeed in a new territory.

Financial capability

While there are a number of characteristics beyond financial stability that are important to consider when looking at a prospective master franchisee, the fact remains that the candidate must have the capital necessary to get the business off the ground in each new location where he/she spearheads development. Franchise financing is a huge part of any franchise method, and the master franchise fee is often much higher than you may find in individual unit franchise sales.

So when the master franchisee vetting process begins, expect complete financial transparency from the prospect. If the interested investor is not straightforward regarding what capital is available to take on master development, this could be a red flag worth addressing from the start.

Expert on development technology

Beyond the business perspective, experience has a significant local meaning when it comes to foreign expansion. From one country to the next, there are cultural differences, language barriers, and more that must be addressed to determine how the franchise needs to adapt for international success.

A franchisor must feel confident when awarding a master license in a foreign country that the franchisee will know the culture and pathway to success in this region better than the franchisor would from the brand’s corporate headquarters.

When the master franchisee takes on development in their country, the relationship between the franchisor and the franchisee will be a collaborative one.

An especially valuable asset a master franchisee will bring is real estate connections throughout their country, which will help with the development of the brand in all of the country’s key cities and areas.

Dedication to mission and systems

If all of the standards that make a prospective franchisee eligible to take on a master license are there on paper, you should feel confident that the prospect can be trusted to effectively manage the buildout and operations of the business. But before awarding the master franchise agreement, you must ascertain whether or not the prospect values the brand image and vision that he/she intends to spread.

With your brand’s standards and expectations laid out clearly from the start, how does the candidate respond? Is there a clear passion for the products and services they will promote under your brand name? Do they express a willingness to maintain an appropriate balance between collaboration and compliance?

In a perfect world, your master franchisee will know how to attract customers to your brand in the most effective way for the development region, while still remaining steadfast to the brand’s principles. You must feel confident that this balance will be achieved before finalizing the deal.

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