What Is a Master Franchise?

A master franchise allows individuals or corporations to buy the rights to sub-franchise within a specific U.S. territory or another country. Even though the initial franchise fees are higher, a master franchise license can lead to greater growth than a traditional franchise. In turn, the master franchisee keeps a good portion of the initial fees and royalties that the individual franchisees pay over time. Franchise companies generally communicate with their franchisees directly or through a master

A master franchise essentially runs two separate businesses — one operating a single franchise and the other expanding the franchise company. Each requires different skills and, generally, the companies are set up separately. For both, having sales and management experience is a definite plus for a prospective master franchisee.

The types of master franchise opportunities available are as varied as the people who run them. From discount golf retailers to skincare centers, master franchises are everywhere. But before you close a deal for purchasing a master franchise, it's important to have a clear understanding of exactly what's involved. You must remember, for instance, that no matter how attractive an opportunity appears, the business viability of the entire system must be solid.

Here are some points to consider before making your final decision:

• Know your responsibilities. A master franchisee is generally responsible for recruiting individual franchisees. As a master franchise owner, you're also responsible for providing support and training on an as-needed basis.
• Do your research. As a master franchise buyer, it's important for you to understand two entities: the franchise company and the master organization. Make sure, for instance, that the franchise system is based on a solid business model. Without a viable business model, it's unlikely that a master franchise could succeed. You will also need to research the market and territory demographics. Make sure that the territory has a population that can support your projected sales.
• Take a road trip. Your intelligence gathering should include actual visits to as many franchise locations as possible. If you detect any problems, cross this franchise off your list. Don't be tempted to rationalize red flags. If you sense trouble, regroup and consider another franchise system.
• Look for the right match. Even if the business model is solid, you'll want to make certain that the franchise suits your investment limitations and your goals. If you don't have the capital, then it's not a good match. If you're not interested in the business, then it's not a good match. Be prepared to walk away if the opportunity doesn't feel right.
• Pick one approach. Becoming a master franchiser versus buying one franchise isn't necessarily a better or smarter business move. What's important is that you choose either approach for the right reasons and with careful consideration. Running a master franchise requires a different set of skills than owning one franchise. The skills for building strong sales, for instance, are not the same as those needed to operate the business successfully.
• Interview successful master franchisees. If possible, try to talk to other people in the master franchise field. Find out, for instance, what kinds of challenges they face, what kind of support is available, and if they had to do again, what they would do differently. If speaking with other master franchise company owners isn't possible, search the Internet, go to the library, and do whatever you can to immerse yourself in the language of a master franchise. The more you know the better off you'll be.