Master Franchising

An Introduction to Master Franchising

Franchise business opportunities often appeal to entrepreneurs, veterans, retirees, and people who want to leave their day jobs. A franchise can be appealing to these groups specifically because a franchise can be simpler, require less investment, and involve less risk than a from-scratch start-up business.

Let’s say that you have bigger ideas, though. You’re ready for complexity and challenge and you want to make a bigger investment for a bigger payoff. Master franchising might be for you.

Master franchisees are different from people with multiple locations. Master franchising can be the ultimate entrepreneur form of franchising. We’ve written before about how to decide whether to open a second franchise, but signing on as a master franchisee is different. A master franchisee is someone who signs on with the franchisor essentially  to take over as the franchisor for a geographic territory.

The  master franchisee takes on selling to would-be franchisees, managing franchisees and even training franchisees. He or she doesn’t take care of the day-to-day management of the individual franchises, but does oversee the territory for the franchisor, and receives fees for doing so. Because the master franchisee is not focusing on building one or two franchises and perhaps gradually expanding, a master franchise can achieve serious market penetration much faster than would otherwise be likely in one territory. The profits are usually much larger than for managing a single franchise, and the master franchisee may be more in the position of an investor than of a small business owner.

Master franchises are not for the faint of heart and require lots of time and significantly more money than a regular franchise business investment. Having experience in large-scale management is a plus for master franchisees. As is usually the case with an option that can earn more money, there’s also more risk — the master franchisee takes on some of the risk for the franchisor along with some of the profit.

So how exactly does master franchising work? You sign on as a master franchisee and go through any requisite training, just as you would if you were a regular franchisee. Often you’ll do the regular franchisee training and then go on to specialized master training sessions. After training, you’ll have to start your first franchise on your own, including hiring a location manager and staff, signing a lease, and getting your space ready for operation. Then you begin to build your team. As your primary role is to manage franchisees in the stead of the franchisor, you’ll often be left to do your job with very little ongoing input on how to best expand franchises in your area.

Master franchisees require a lot more capital investment, typically well over $250,000, but you’ll build equity. Because you’re selling franchises, you’ll be getting a cut of the fees and building value for your master franchise. As franchisees become more successful and the franchise expands in your area, you make more money and your company becomes more valuable. Eventually, you either pass your master franchise on to a family member or sell it for a nice profit.

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