Becoming a Master Franchisee

Brian Duckett, Howarth Franchising

When you consider that the Master Franchise fee for a whole country for a service-based franchise is often less than the cost of setting up a single unit outlet for some food service or premises-based retail franchises, one can see why more people are thinking "Why should I just become a franchisee when I could be a Master?"

Of course, the skills required of a Master are very different, but for someone who is of the mindset of a typical franchisee, i.e. not too entrepreneurial and looking to be part of a proven system with established support structures, master franchising can offer far greater potential than simply running a single franchised outlet.

Becoming the local operation of an overseas franchisor is not just an opportunity for individuals looking to start their own business. Many existing businesses look for opportunities from around the world, particularly those companies who are experienced in a particular field, say food service retailing, who have the operational expertise but perhaps lack the creativity, time or money to develop their own new products or services from scratch.

New products for an existing client base or distribution network, or even an opportunity to convert existing stores to a new brand, can quickly transform a business, which has perhaps grown tired. Potential conversion works to the advantage of both Franchisor and Developer as they can more quickly achieve brand awareness than they would opening a store at a time. Having an established network available for conversion is also a good bargaining point for the prospective Developer in reducing the up-front fee on the grounds that income flow, from ongoing fees, will grow more quickly.

An interesting trend around the world is for existing franchisors (or indeed master franchisees) to be looking for another franchise system to operate alongside their original network. This often happens if they are nearing capacity, when they basically have two choices - either become an international franchisor themselves, and take their own brand overseas, or start another franchise at home, hopefully gaining some efficiencies from existing support team structures.

Looking at it from the overseas Franchisor's point of view, someone who already has experience of running a franchised network may be a very attractive prospect as a Master Franchisee as they will already have many of the required skills, and maybe even the staff. This means the operation should grow faster than taking on someone with no franchising experience.

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.

Within Horwath, my team spend about as much time advising franchisors how to find partners overseas, and overseas franchisors how to find partners in the UK, as we do working with people acquiring master franchises for the UK, and the things to consider are a mirror image of each other. 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 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 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.

Brian Duckett spent the last thirty years as either a franchisee, franchisor or consultant to companies considering or practising franchising. He has advised many organisations on their franchise development and was the creator of The Franchise Training Centre, The Third Wednesday Club and The Franchise Support Centre.

To contact Brian email info@howarthfranchising.com or visit www.howarthfranchising.com