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The layers of the franchise agreement

The layers of the franchise agreement

What type of franchise agreement are you looking for? Novuna Business Finance unpacks all the options

There are many layers to franchise agreements offering flexible options to franchisees. Over time, you can either peel these layers away or you can add new ones. Here are all four types of franchise agreements available to you as a franchisee to help you shape your goals for now and the future.

Single-unit franchise agreement

Typically (and perhaps sensibly, if this is your first time as a business owner), this is where you would begin your journey as a franchisee. A single-unit franchise arrangement is when a franchisee is granted an individual unit (or location) to operate the desired franchise. This arrangement allows you to learn the ropes and become accustomed to the business, the franchise model and running your own business.

Multi-unit franchise agreement

Over time, you may see your single-unit franchise business grow in accordance with your business plan. You are confident and experienced at running your business and ready to take the next step. Your franchisor may recognise this too and grant you the right to operate another (or several) unit(s).

This is considered a multi-unit franchise agreement. It is often a preferred agreement type for franchisors once you’ve proven yourself as a franchisee, as there is less risk associated with an individual already operating successfully as a franchisee. More franchisees are expanding than ever before according to bfa research, with over a third of UK franchisees now operating as multi-unit franchisees.

Area development agreements

This is an agreement where the franchisor grants you the right to operate multiple units exclusively within a specific region over an allocated amount of time. To secure these rights, you’d pay an up-front development fee and a franchise fee per unit.

Where an area development agreement differs from a multi-unit franchise agreement is the timescale, scale and financial rewards. An area developer is ‘bulk-buying’ franchise opportunities within the territory and despite an initially large investment, they would be provided with financial incentives each time they open a store. They are allocated a period of time to achieve these goals, whereas a multi-unit franchisee would be able to scale at their own pace.

Master franchise agreement

Also referred to as ‘sub-franchising’, a master franchise agreement is not too dissimilar to an area development franchise agreement, with a few caveats; a master franchisee will take on many of the obligations of a franchisor (like training and support) and will also be able to sell franchises to other people within their allocated territory over an agreed amount of time.

This type of agreement requires a tremendous degree of trust by the franchisor. To reach this agreement, the franchisee would need to be highly knowledgeable of the brand, experienced in area development and running multiple businesses – all while maintaining a great relationship with the franchisor.

Remember – franchising, like most businesses, is a marathon, not a sprint. Build your portfolio one step at a time, reflect and iterate your personal and business goals. The options available are there to accommodate your ambitions, however big or small.

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