By Shawn Saraga
Franchisors are always looking to expand into new markets. This can mean everything from entering a new province positioned for growth or bringing an international concept into Canada for the first time. In these cases, franchisors often sign master franchisee or area developer agreements with their first franchisees.
When seeking out master franchisees or area developers, good franchisors will look for peers—people who have leadership skills, business and operational experience and a successful professional background. As a prospective master franchisee or area developer, you will need to prove yourself and be able to build a business case for the franchisor to expand into your market—but you should also hold the franchisor to the same high standards. Here are five key questions you should get the answers to before proceeding.
- What are my performance obligations as a master franchisee or area developer?
As a master franchisee or area developer, you will be responsible for establishing, growing and promoting the brand, operating multiple units and recruiting other franchisees on the franchisor’s behalf. When seeking out master franchisees or area developers, good franchisors will look for people who will be the face of the franchisor in a new market.
As such, you should expect the franchisor to be more demanding than it might be when recruiting typical franchisees. Before meeting with the franchisor, invest significant time researching the brand, concept and growth strategy, and be prepared to present your case for brand expansion in your region.
The most difficult part of being a master franchisee or area developer is holding to the opening schedule set out as part of your agreement. These deadlines are time-sensitive and must be met regardless of any external market factors. As such, during negotiations, you must be careful not to commit to unreasonable timelines, no matter how enthusiastic and optimistic you may feel about growing the brand. To avoid these issues, ask the franchisor how many locations it has opened in the past five years in a territory similar to the one in which you are looking to expand. Cut that number in half and you will have a practical benchmark by which to negotiate a fair and reasonable opening schedule. If the franchisor suggests a comparably overzealous schedule, be wary, as this will limit your due diligence time and may lead to problems down the road.
- What are my financial obligations?
Investing in a master franchisee or area development agreement is like buying in bulk—you are purchasing a set number of licenses to open franchises over a clearly defined period of time. As such, the franchisor may or may not offer some type of a discount on the franchise licenses. However, this money will be above and beyond the costs you will incur setting up your own system to provide the necessary operational support to the franchisees who will operate underneath you.