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Franchise Q&A: Buying a master franchise, am I at greater risk?

Q: “I’m interested in a business opportunity, but the franchisor is new to this region and so is looking for a Master franchisee – what (extra) questions do I need to ask of the franchisor / legal advice should I seek, and am I more exposed to failure than a regular franchisee?”

A: A master franchise opportunity presents greater risk as the financial investment involved is usually far greater than that required for a single unit franchise acquisition.

Master Franchisee

As a Master Franchisee you will be required to perform the role of the Franchisor within the specified territory. The master franchise agreement is likely to contain specific targets for the recruitment of franchisees in the territory and require strict adherence to the Master Franchisor’s Franchise System.

Unproven Franchise System

Where the Franchise System is unproven in the UK there is a danger that different trading conditions and business culture in the new territory will impact on how quickly the Master Franchisor’s Franchise System is established. It is important to undertake objective evaluation of the business opportunity and to be wary of accepting at face value evidence of financial performance in other territories.

Negotiate terms

As a result there is often more opportunity to negotiate the terms of a master licence agreement as the Master Franchisor accepts that it cannot be as dogmatic where the business is unproven in the new territory.

Further reading: New to the UK, a buyer’s guide.

If you require any legal advice on the purchase of a master franchise, please contact the Franchising team.

This article first appeared in Business Franchise Magazine

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