Many prospective Franchisees are aware of the much quoted mantra to “take independent legal advice” and many do take advice and embark on their franchise journey...
Buying a Master Franchise – ‘new to the UK’
Buying a Master Franchise can offer an exciting business opportunity for those seeking a larger investment than simply acquiring a unit franchise, equally with the anticipation of greater profits. However, when the franchisor is new to the UK, extra care is required to fully understand the risks and responsibilities of launching and operating someone else’s System and Brand, in the new territory.
As one might expect, a Master Franchise opportunity presents a greater risk to the purchaser, as the financial investment required is usually considerably higher than buying a single unit franchise. The overseas Master Franchisor may have an ‘optimistic’ view of how many franchisees can be recruited in the new territory, in a short timescale, hence the Master License Fee may be negotiated on a franchisee recruitment target, which is unachievable.
As a Master Franchisee you will be required to perform the role of the Franchisor within the specified territory. The Master License Agreement will place the obligation to recruit, train and support the franchisees in the Master Franchise territory on the Master Franchisee. At the same time, the Master Franchisee has to launch the brand in the territory, often by opening its own corporate-owned outlets, to generate brand awareness and demonstrate that the franchise system works in the Master Franchise territory.
The Franchise System
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. Where the Franchise System is unproven in the UK, there is a danger that different trading conditions and business cultures, will impact on how quickly the Master Franchisor’s Franchise System is established.
It is important to undertake an objective evaluation of the business opportunity being offered and to be wary of accepting at face-value evidence of financial performance in other territories. A Master Franchisee should be wary of paying a large initial Master Franchise Fee where the System is untested. The principle of the Master Franchisor, retaining some of the risk by accepting a slightly reduced upfront fee, in return for a slightly larger share of the ongoing revenues, is one which the Master Franchisee may decide is worth proposing, in order to ensure that the Master Franchisor is incentivised to ensuring the Master Franchisee receives all the support help and advice necessary to get the System established in the new territory.
There is often more opportunity to negotiate the terms of a Master License Agreement as the Master Franchisor will be more willing to accept that it cannot be as dogmatic where the business is unproven in the new territory. As ever, taking advice from professional advisors, experienced in franchising, will pay dividends for the prospective Master Franchisee.
Owen White have experience of working with prospective Master Franchisors as they go through the process of offering their franchise for sale and equally they have represented prospective Master Franchisee’s as they negotiate terms for the purchase of the business.