There are many reasons why franchising is the best type of operation for the majority of first-time business owners.

Franchise Business Models:

Area Development Franchises

The area development franchise license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the franchisee must open a certain number of franchises during a certain period. As the franchisee stays on track in opening the franchises in the area, she has the exclusive area where no other franchisees can be allowed to open a franchise. As the franchisee acquires an area and eventually pays royalties, usually there are reduced franchise fees in the beginning and reduced royalties ongoing. Buying a franchise area developer territory requires that you are a “people person” since you will be working with franchisees in your territory and prospective franchisees.

Territory: The area development franchisee maintains an exclusive geographic territory as long as the opening schedule is maintained. The territories range from a small city to parts or all of a larger city.

Level of participation: The area development franchisee will be very involved in the beginning of the first store to make sure it is successful. Another important function will be to look for qualified real estate to open the next few locations. Once several locations are open, the franchisee will need additional assistance to manage several units.

Typical liquid capital required: $60,000 to $120,000 initially to secure the area development franchise area, pay all franchise fees and have additional start-up capital. The franchisee will then need to be able to finance the rest of the start-up costs for each franchise as it opens. These are general numbers and may vary significantly for some opportunities.

Master Franchises

A master franchise allows the franchise company to expand in a specific territory, often a major market or in one or more states. Sometimes called a regional developer, a master franchisee has all the rights of an area developer and usually takes on a larger area. The main difference is that the master franchisee in addition to opening franchises at a much reduced franchise fee and royalty can also sell unit franchises, multi-unit franchises and area development franchises and make a nice return on the sale. Buying a franchise master usually receives a part of the royalty paid by each franchisee. There may be additional income available from distribution of products through the franchisees in the area and possibly even some real estate interest. The master becomes almost like a franchisor in the area without having to experience all the trial and error the original franchisor went through. The master franchisee will usually want to open at least one unit internally to operate for income and use as a training ground. Master franchises are rare. Most franchisors do not offer them. When they are available they are usually sold quickly. The income available from a master franchise can be extremely lucrative. The initial investment is low compared to the type of value you can build in the master franchise asset. The flexibility is also the greatest at this level.

Territory: Most franchises usually cover a large metropolitan area, an entire state or even several states or country. It is an exclusive area and will remain exclusive as long as the master franchisee meets the development schedule of franchises in the territory.

Level or participation: The master franchisee will usually set up at least one unit internally and use a manger to manage it while working on selling other “subfranchises” and helping them to operate properly. Very rarely is a master franchisee “hands on” in a unit franchise. They tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful.

Typical liquid capital required: $100,000 to $250,000 is needed to acquire the master franchise territory and for initial liquid capital to start the area. Financing will be secured for the start-up of the unit franchise. Again, these are general numbers and may vary significantly for some opportunities.