Many established franchise systems have an Area Developer (AD) structure in place. The Area Developer is responsible for carrying out the franchisor’s plan in their assigned territory. This includes recruiting franchisees, locating franchises in the territory, negotiating for locations, and ensuring that franchisees are in compliance with franchisor rules and policies.
Guess what: the Area Developer is your “boss.”
I can hear you saying, “But wait!!! I’m buying a franchise. I own my own business! I don’t have a boss!”
OK, maybe you don’t have a boss per se, but you must understand that the Area Developer can dictate your hours of business. They can and will dictate how many days of the week your franchise must be open. They can walk in and inspect your business at any time, including your books and records, and they can often levy penalties against you. Moreover, if in their judgment you are not complying with the exact rules of the franchise, they can be responsible for taking your franchise away, and they can approve or deny to whom you can sell your franchise. Hmm, sounds like a boss to me.
Therefore, it is extremely important that you ask these suitability questions about your new boss, I mean, Area Developer:
- Do you relate well to the Area Developer?
- What are the Area Developer’s plans for the territory? Is it more locations, more enforcement, more training, boosting store sales?
- What is the Area Developer’s way of doing business? Supportive or aggressive? Training vs. policing? Does the AD enjoy the support of most franchisees, or is the franchisee community highly politicized by the Area Developer?
- What is the process available to the franchisee if they feel that the Area Developer has not been fair to them?
- Can the Area Developer also be a franchisee? If yes, what are their plans for expansion, and how might that affect your plans? Who do you think will get the “cherry” locations if the Area Developer is also a franchisee?
- How is the Area Developer compensated? How much of the initial franchise fee do they get? What percentage of the royalty do they get if they sell you a new location, and how does that compare to the percentage they get if you buy an existing location?
It takes a little digging, but asking the right questions and getting the most answers you possibly can will help you hit the ground running and can save you a lot of unforeseen heartache down the road.
Having been a franchisee for many years, I learned a number of things that a franchisor might not tell you upfront. These secrets that I am sharing with you might just be the secret to your success!
Secret #1: The Area Developer often gets a higher percentage of your revenue if they sell you a new location than if you buy an existing location. Therefore, they have a strong economic incentive to persuade you to build a new location.
Secret #2: Owning a franchise is far more subject to political forces than owning an independent business.
Secret #3: This last secret comes as a real shock to most new franchisees who believe the bull about “owning their piece of the American Dream.” The franchisee is not only subject to all the governmental laws, rules, and policies governing the business, but is also subjected to the franchisor and Area Developer rules, agreements, policies, and procedures. The franchisor can arbitrarily choose to grant or deny requests by the franchisee to buy another franchise location, or to sell or relocate their business, and many other critical areas. Just as in most boss/worker relationships, the Area Developer can make a franchisee’s life pleasant or difficult.
Mark Leonard is a franchise expert and former franchise owner who offers prospective franchisees an inside look at this unique business opportunity. He is the author of 7 Surefire Steps to Buying a Profit-Making Franchise. Mark is no longer affiliated with any franchise, and neither seeks nor receives any financial consideration from any franchisor. Visit Mark online at www.YourFranchiseMentor.com