Evaluating & Buying a Franchise

What is a Master Franchisee?

An Introduction to Franchising

Differences Between the Direct Franchise System and the Master Franchisee Arrangement

For over half a century now, the existence of the franchise business system has helped countless entrepreneurs to succeed in their small business endeavors. With the achievements of these individuals, the franchise organizations themselves have been able to grow and expand their operations across the United States, Canada, and hundreds of foreign countries around the world. To manage such growth, franchise companies early on were compelled to develop alternative business models. While many different strategies have been employed throughout the years, one of the major features of a large and successful franchise system today is the master franchisee.

But what is a master franchisee? This individual or organization assumes responsibility for a wide variety tasks dealing with area development. One of the major results of this is that the franchise company is able to delegate a long list of responsibilities to the master franchisee. In the vast majority of the cases, these include recruiting, training and supporting new franchisees within the designated areas. Indeed the initial and the ongoing support, as well as the franchise area services and sales are all, at that point, the jobs of the master franchisee.

Franchise services and sales in the designated franchise areas - this is in return for a sizable upfront payment, the master franchisee is then able to oversee - and profit from - an entire franchise area. How big is this area? Its size can vary depending on the company's goals for expansion, population density and other factors. Often, however, these franchise areas tend to be quite large geographically, at times including more than one state. The only other common option for an organization is direct franchising. For companies that choose to follow the master franchisee model, their master franchisees become an integral part of their organization. In addition, it gives any prospective franchisee a few new items to consider.

But along with the initial large investment of capital and assumption of great responsibility, there are significant benefits for the master franchisee. By developing the given area, the master franchisee - or "master" - organization is able to collect the majority of the royalty payments from franchisee individuals in the area. In fact, the master is oftentimes able to retain the entire amount of the royalty payments. This depends, of course, upon the agreement between the master and the company.

An important difference between the direct franchise system and the master franchisee arrangement is the type of independent investigation that the prospective franchisee must carry out. Not only is the value of the company under scrutiny, but so is that of the master. In order to make sure that one's investment is going to be safe and profitable, both entities must demonstrate a high level of effectiveness in their respective functions. First, the franchise company must be able to present a model of conducting business that is proven to be successful. Without this, it is likely that the entire organization is essentially bound to go under eventually.

Yet even with this demonstrated success of the franchise company, the master still plays a major role in determining whether or not the franchisees under it will thrive. Indeed, by failing to effectively carry out its duties, the master could lead to the failure - or underperformance - of the many franchisees that depend upon the master - rather than the company - for essential support. To better tell whether or not one is entering a promising situation, there are a few practical steps that need to be taken.

First off, when visiting the numerous franchisees make sure that the majority of visits take place with franchisees who are working under the master that pertains to the prospective franchisees location of business. By getting a general idea of the level of success among this group of businesses, one can arguably attain a better idea of how good the master is at managing and supporting its franchisees.

When researching and meeting with representatives from the master organization, be sure to evaluate its capabilities in two essential areas. Ask the two questions a) is this organization able to market the franchise well and b) do they have the capacity to manage? A good master organization should be fully qualified in both fields. If both these features are not demonstrated, then it is probably wise to go research other areas, or an entirely new franchise organization.