Welcome!

First, let's understand franchise jargon. Then, we'll take a look at how joining a franchise system may be right for you.

 

 

A franchisor is a successful company or person who leases the rights to their business name, brand, strategy, product or system. A franchisee is the one who is granted a franchise. In other words, a franchisee is the party leasing the business from the franchisor.

 

A franchise is a business relationship in which the franchisor grants the franchisee rights. The mutual goal is success for both parties. The franchisor sets the logo, products, mode of operation, system, and marketing. The franchisor also sets the rules, guidelines, and product quality to be followed by all of its franchisees.

 

For example, McDonald's is one of the world's most recognizable franchises. The McDonald's restaurant in your town may be a franchise, or the corporation may own it. Regardless, the quality of the burgers and fries are consistent, and the customers are unaware of any difference between a corporate or franchisee run restaurant. The McDonald's golden arches, products, quality and operational system are identical. In other words, the franchisor, the McDonald's Corporation, has leased its complete formula, which must be strictly adhered to by the franchisee. In return the franchisee, having paid for the renowned McDonald's name and system for a set period of time, may reap the restaurant's profits.

 

The franchisor sells the franchisee rights to the business for an initial franchise fee, sometimes called an up-front entry fee. This fee permits use of the franchisor's name, system, products, etc., and may include special training, manuals, procedures, and assistance, but does not extend to office space, inventory, employee salaries, and other costs of doing business.

 

A royalty fee is a percentage of monthly sales, or a flat base monthly fee that the franchisee pays to the franchisor for its on-going use of the brand / system. Other franchise-related fees may include advertising funds for brand promotion.

 

The UFOC, Uniform Franchise Offering Circular required by the Federal Trade Commission (FTC) gives a thorough picture of the franchisor. The Franchise Rule, under the FTC, gives full disclosure and contract details.

 

A Discovery Day, or appointed time set by the franchisor to meet prospective franchisees at corporate headquarters, is ideal to become acquainted with staff, corporate executives, and the company's culture.

 

The franchise agreement, signed by both the franchisor and franchisee, outlines the legal responsibilities of both parties. A franchise agreement typically has an expiration date, but often has renewal options.

 

 Levels of Involvement

 

The Different levels in which a Franchisee can be involved with a Franchise

 

 

Single Unit

 

This is the beginning level and common form of franchise participation. The franchisee is given the exclusive rights to operate a single unit franchise in a specified area. It could be a home-based business or have a physical location. The franchisee is typically a hands on operator of the business.

 

 

Multi Unit

 

The franchisee owns and operates more than one franchise unit. Units may be in random areas of your choosing. The franchisee is typically less involved with each individual unit, but manages the multiple unit operations.

 

 

Area Developer

 

The franchisee will own an exclusive territory and will be given a production schedule, for the number of units they must open and operate. There is typically a significant reduction in franchise fees and possibly ongoing royalties. Area Developer franchisees typically have managers for each unit.

 

 

Master Franchise

 

Sometimes called a master or regional developer, a master franchisee has all the franchise rights in his or her area (usually a metropolitan area or even an entire state). The master, in addition to opening franchises, sub-franchises (selling single unit and multi unit franchises), keeping a large portion of the franchise fee as well as ongoing royalties from the franchisees within his or her area. There may also be additional income available from distribution of products through the franchisees in the area. The master essentially becomes a franchisor in his or her area without having the costs of the trial and error the original franchisor went through.

 

Master franchises are typically extremely lucrative when available. Many franchisors do not offer them, and for those who do, they usually sell very quickly, because the investment is relatively low and flexibility is greatest at this level.