Interested in buying a franchise? Here are the four types of franchise arrangements to consider in addition to the benefits and drawbacks of each type of franchise ownership.
Franchise agreements are legal contracts between the franchisor and franchisee that outline the terms and conditions under which the franchisee can operate the franchisor’s business concept. A franchise agreement is a legally binding document. Therefore, should either party neglect to uphold their portion of the deal, legal action can be taken to ensure the agreement is enforced or dissolved.
No matter which type of franchise agreement you choose to pursue, make sure you fully understand the terms as they are defined in the contract before ever signing. It’s recommended to also have a franchise lawyer review the document upon receipt.
There are multiple types of franchise agreements and determining which kind is best for you will depend on your business goals.
One of the more common types of franchise agreements, single-unit franchising allows the franchisee the ability to own and operate one location. A common stepping stone into the world of franchising, single-unit agreements are ideal for those who are opening their very first business. Some entrepreneurs who are diversifying their portfolio to include a different brand or industry may also opt to start with one location and add on later.
The benefit of a single-unit agreement is the smaller upfront costs to get the business up and running versus opening multiple locations. However, should your one location have some struggles, there are no other locations open to help offset any potential losses.
The major difference between a multi-unit agreement and a single-unit agreement is the number of locations contracted upon. Should a franchisee want to open two or more locations, they would sign a multi-unit franchise agreement. This agreement should include a timeline of when the franchisor expects all of the locations to be open. Failure to follow the timeline could result in legal action from the franchisor.
And while multi-unit franchising may cost more money upfront, there is more opportunity to capitalize on the investment. Plus, multi-unit franchisees get to take advantage of economies of scale and have the ability to share staff between locations.
This type of franchise ownership is a bit unique. An area development franchise agreement grants the franchisee the right to open and operate a specified number of franchise units within a defined geographic area over the course of a set timetable.
Not every franchise offers area development agreements. If they do, they are likely looking for high net worth investors who can afford to open a large number of locations. However, many franchisors offer incentives like reduced franchise fees for additional locations opened.
Unlike an area development agreement, master franchisees are given the right to develop and operate an entire territory or region. However, this is not limited to just their own franchise locations. Master franchisees are also tasked with recruiting, training, and supporting new franchisees in their region. This type of agreement allows master franchisees to essentially operate as the franchisor – but only for their specific territory.
Some franchisors may offer this type of agreement because it allows for faster expansion. However, those considering a master franchise agreement should beware that it requires a lot of work to maintain your own locations while assisting new franchisees with the startup of theirs.
In 1998, Scooter’s Coffee opened it’s first location in Bellevue, Nebraska. Three years later, the brand began offering single and multi-unit franchise opportunities to driven entrepreneurs. Now, we have almost 600 locations nationwide – with many of our franchisees owning multiple franchise units.
Our brand had a great 2022 with the top 25% of our franchisees seeing an average unit volume of $1,276,780*. Additionally, Scooter’s Coffee was featured in Entrepreneur magazine’s Franchise 500 at No. 59. We were also recognized by the Inc. 5000, where we were ranked at No. 2807.
If you’re ready to get started with an award-winning coffee franchise, request information and one of our representatives will contact you soon.