MASTER FRANCHISE Differences from a Franchise AGREEMENT Agreement
WHAT IS A FRANCHISE AGREEMENT?• A franchise agreement is a written document between two parties in which one party, the franchiser, licenses out his business or a service to another party, the franchisee, who uses the intellectual property, trade mark or logo of the franchiser and pays to him a specific amount as fee.
WHAT IS A MASTER FRANCHISE AGREEMENT?• Master Franchising agreement, franchiser grants the franchise rights to an entire country or territory and the franchisee is permitted to open franchise outlets and grant sub-franchises to others. Two agreements are generally involved — one that is entered into between the franchiser and master franchisee and the other between the master franchisee and sub- franchisees.• For example, your master franchise agreement with the franchisor may state that you will receive 50% of the franchise fee and 50% of the royalty fees for each unit sold within your territory. You will be responsible for recruiting and training other franchisees. You will also need to be available for ongoing support.
DIFFERENCES….• After signing of a MFA, a master franchisee can be kept on his toes it is usual to provide minimum performance targets which is not so in case of Franchise agreement.• Also another difference from a franchise agreement is that, there should be both annual and cumulative targets. There will be provisions for termination or loss of exclusivity if the minimum performance is not reached.
DIFFERENCES….• In a master franchise agreement, one has to show huge capital, as it requires huge investments.• Additional income is generated from distributing products through the franchisees and by real-estate interests. International franchises often use this form of franchise agreement to expand in a new country, as it makes their job easier and faster.• Both the situations are almost non existent in other type of franchisees agreements.
DIFFERENCES INFRANCHISES…The master franchisee is like a mini franchisor; its main aim is to sell theareas under it to prospective single, multi and area developer franchisees. Asingle location is often developed as a training facility and income source.Master franchisees get a percentage of the franchise fee and royalty fee thatpeople who buy a franchise pay to the franchisor.Single unit franchises are very common among new franchise owners whohave just started in the business or are yet to start and do not have enoughexperience in this line of business. A single unit franchise enables the ownerto concentrate on managing only one unit at a time. Also, such franchiseunits are good low cost start-up opportunities.
A SMALL THING TO REMEMBER• One detriment to a master franchise agreement is however, if you fall into the trap of not entering into proven franchise system.