The Types of Franchise Ownership

There are a number of different ways to invest in a franchise depending on your goals and objectives. You can buy a single location, or look at investing in multiple units. It all depends on what you are looking to accomplish. The good news is there are options, and what I would like to do is provide some insight on what’s available to those serious in investing in a franchise system. There are five types of franchise ownership:

1. Single-Unit
2. Multiple-Unit
3. Area Development
4. Regional Development
5. Master Development

The most common is called single-unit. This is where you own and operate one franchise location. This is a good starting point for first time business owners. If you are successful, you can grow to the next category called multiple-unit. Multiple-unit simply means owning two or more franchise businesses. It can be the same or different concepts in the same or different geographical locations. There are advantages to owning different franchises, as it can be a great way to diversify risk. There are also benefits in owning several units of the same franchise, as you only have to learn and operate one franchise system. In addition, a franchisor will typically offer discounts to their franchise fees if you open multiple units of their concept. If you’re thinking about owning more than one location, you may want to consider Area Development. Area development is where a franchisee agrees to own and operate multiple units in the same geographic location. In this type of agreement, the franchisor sells a defined region where the franchisee agrees to open a pre-determined number of locations over a defined time period. It typically starts with one location, with additional units opening every twelve to eighteen months. Area Development requires a bit more experience and investment capital as you're typically looking at opening a minimum of five plus locations. Area developers are the sole operators of their locations and are not responsible for selling franchises as is common and customary with the last two categories Regional and Master Development. Regional Development and Master Development are generally offered by newer concepts looking to expand quickly. This agreement is essentially a joint venture between the franchisor and the developer; and is sometimes referred to as sub-franchising. With both of these structures, the developer is responsible to own one location, and sell other locations within their territory in exchange for a split of both the franchise fees and royalties. With both of these options, the owner will operate two distinct businesses, their franchise business and their franchise development operation. The developer is responsible to support and train prospective franchises in their territory and thus needs to build a management operation to do so. Both of these structures require a unique set of both business ownership and management experience. In most cases, the minimum initial investment is in excess of $250,000 and the franchisor requires a net worth in excess of $1,000,000. The distinction between Regional and Master Development is geographic location. If a franchise sub-franchises in the United States it’s called Regional Development. If they sub-franchise in a foreign country, it’s called Master Development. There are a lot of different ownership options in franchising. The good news is there are options from various skill sets and investment ranges. It’s important to note, you can be successful with each option. Regardless of which one you chose, it’s important to do your research. Review the business model and make sure it’s viable. Speak with existing franchisees, as they can be the best source of information. There are a lot of resources available if you are serious about franchising. Be sure to get all the info available before making an investment.