You should be required to establish a franchise agreement because when you buy a franchise, you’re investing in a tried-and-true system. The franchisor has already dealt with the difficulties that come with starting a new company, and they are providing you with a strong foundation on which to build.
But you must take into account both the advantages and disadvantages of the franchise model. You can start by obtaining the franchisor’s franchise licence if you have the required funds and satisfy the franchisor’s requirements. It is easy to get a franchise company licence, but you should exercise caution and you will need a franchise agreement.
What exactly is a franchise contract?
A franchise agreement is a binding legal contract between a franchisor and a franchisee. Under this agreement, the franchisor authorises the franchisee to use its supply network, business procedures, and operating standards under the licence.
The Franchisee Prospectus, which should be given to franchisees at least two weeks prior to the sale of the franchise licence, contains specifics about this partnership business agreement.
Franchise Agreement Types
Franchise contracts can be categorised into three groups:
Agreement for a single-unit franchise
According to this agreement, the franchisees are granted permission to oversee one franchise company unit. This agreement is most frequently used by new licensees.
Agreement for a Multi-Unit Franchise
This contract enables a franchisor to own and manage numerous franchise locations. This structure is not limited to a certain area, and the venues may be scattered over a significant metropolitan area.
Master Franchise Agreement for a Company
This makes it possible for the franchisee owner’s business to resell licences to more licensees in the area. In essence, the franchisee operator has the ability to start his own franchise.
A Master Company Franchise Agreement: What Is It?
A master company franchise agreement is a legal document that gives the head franchisee the authority to grant single-unit franchisees throughout a specified geographic area. As a result, this structure is common when franchisees expand internationally or across state lines.
A “master franchisee” is chosen by the franchisor to serve as the “franchise owner” in a certain country or area. This suggests that the franchise owner will be given all of the responsibilities of a franchisor under the laws of that country.
Benefits and Drawbacks of Franchise Agreement
Advantages to the franchisor
- Increased income: The franchisor gains from the installation of the master franchise system in terms of both increased revenue and ongoing fees.
- This makes it simple for the business to expand into new nations. Under the terms of their contracts, master franchisees are typically expected to build many locations in a specific amount of time.
- Simply by avoiding having to invest a sizable sum of money in market innovation and manufacturing in a new province or jurisdiction, franchisors can save time and money.
- General brand expansion and development of the company: Building your customer base and strengthening the company’s brand may be aided by foreign business expansion.
Positive aspects for the Master Franchisee
- A strong business template: The company has a history of success and a goal to grow its franchise network while maintaining its brand value.
- Exclusive domain: Franchisees may not have to compete with existing businesses because they have access to endless expansion prospects, backup support from the franchisor, and direct connection with the franchisor.
Negative aspects for the franchisor
- Loss of future revenue: A sizable amount of the startup and operating costs must be paid by the franchisor to the master franchisees.
- On the other side, the initial master franchise fee aids in offsetting the losses.
- Since the master franchisee is in charge of all other decisions in their area, the franchisor has very little power over the company. But a good master franchise agreement will stop them from acting independently.
- Loss of the company’s reputation: A problem beyond your control can affect the entire worldwide network.
Cons for the Master Franchisee
Chances of Failure for Franchisees in a New Market: There are numerous risks in new businesses. Spend enough time and effort understanding the hazards before entering into any agreement.