Franchising has become a business of choice for many people as a business that has been tested and proven under various market conditions lessens the doubt and uncertainty of starting a business on your own. When you buy a franchise you are not only buying the opportunity of earning an income you are also paying for the rights to operate under the franchisors trademark and to use their tested systems and procedures which would have already generated income for franchisor or its franchisees.
When you buy a franchise you may elect from two different types. The first option is the more common individual franchisee who runs a business as a sole trader in an individual outlet using the systems, procedures and trademarks supplied under a franchise agreement with the franchisor.
The second option is to buy a master franchise. A master franchise awarded by the franchisor provides the opportunity for the master franchisee to build the system within a designated geographic area, which could be a whole country or a state. This model allows the master to build the business by appointing other franchisees within the designated area resulting in a share of the upfront and ongoing franchisee payments made by that network. This allows the master to act as the franchisor would controlled by the franchise agreement. A master franchise holder can also elect to own an individual Franchise outlet to generate additional cash flow for future capital gain.
The investment for a master franchise is usually significantly higher than that of buying an individual Franchisee outlet but the potential rewards are also much higher.
You should look for a master franchise system that enables you to recoup your initial investment back in a time frame that you are comfortable with. Look at what share of the upfront fees are payable to the master franchisee. The higher your initial investment the longer it will take back to make this money back. The higher your share of the fees the quicker the return. Ongoing fees payable by the individual franchisees for support and as a royalty on their turnover is just as important as it forms the ongoing residual income of the business and it is this cash flow that also contributes to your initial investment return. Product orders from the franchisee network should also benefit you as the master. Many systems of valuing a business for resale will look at the ongoing income that is being generated and calculate a value as a multiple of those yearly earnings. The idea is to profit from the roll out of your franchisee network then receive an ongoing income from the fees and purchases generated within that network.
Do not only consider the initial investment but also the executive time that you need to commit to the venture’s success. If you plan wisely you need only be involved in the beginning stages. As once you master the processes and work with the master franchise systems offered by the franchisor you would be able to appoint staff to take over some of the day-to-day running’s of the business. Do this as earnings increase from your own efforts running your master franchise business so it is a payment out of cash flow rather than a payment to be factored into your initial upfront investment. Eventually you would have your full complement of staff charged with the successful running of the business and you could concentrate on other business ventures having created a truly passive income.
By investing in the right master franchise and ensuring that you receive your fair share of the upfront and ongoing revenue generated within that network you provide yourself with the opportunity of building a business that has the advantage of being sold off at a significant capital gain.