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What type of franchise arrangement is best suited for you?

It is extremely helpful to find the right level of franchising before you consider what kind of franchise to invest in. Franchises are usually classified into four different categories or levels. Choosing the right level of franchising for personal and professional satisfaction is almost as important as choosing the right franchise.
>> Single-Unit Franchises
>> Multi Unit Franchises
>> Area Development Franchises
>> Master Franchises
Single-Unit Franchises
Most businessmen enter the world of franchising by owning a single-unit franchise. With a single-unit franchise, a new owner can understand the franchise system before he or she considers buying additional units.
The Territory
The owner of a single-unit franchise (known as a franchisee) has an exclusive territory to operate within. So in case of a retail store, it may be a two or three mile radius around the store, whereas for a home-based business, it may be a few specific zip codes.
The Owner’s Level of Participation
Single-unit franchise owners are known as owner-operators due to their deep involvement with almost all operations of the business.
Liquid Capital Typically Required
On a total investment of $100,000 to $200,000, you will require initial liquid capital of around $25,000 to $50,000.
Single-Unit Franchises
Most businessmen enter the world of franchising by owning a single-unit franchise. With a single-unit franchise, a new owner can understand the franchise system before he or she considers buying additional units.
The Territory
The owner of a single-unit franchise (known as a franchisee) has an exclusive territory to operate within. So in case of a retail store, it may be a two or three mile radius around the store, whereas for a home-based business, it may be a few specific zip codes.
The Owner’s Level of Participation
Single-unit franchise owners are known as owner-operators due to their deep involvement with almost all operations of the business.
Liquid Capital Typically Required
On a total investment of $100,000 to $200,000, you will require initial liquid capital of around $25,000 to $50,000.
Multi Unit Franchises
It is considered a sign of good health of a franchise organization if many of the franchisees are multi-unit owners. Franchisees can usually acquire more than one franchise at reduced fees.
The Territory
For multi-unit franchise owners, there is usually no exclusive territory to open their franchises. So a franchisee may have one unit in one part of town and another unit 15 miles away or even in another county with its exclusive radius of operation.
The Owner’s Level of Participation
The franchisee is not involved in the day-to-day operation of each unit, but is managing multiple operations, with a certain supervision level for each unit. The owner acts as a general manager, but may require additional administrative and training staff in case of additional units being opened.
Liquid Capital Typically Required
An initial liquid capital of $50,000 to $60,000 is required mainly for the initial franchise fees. The rest of the investment is usually financed when each unit is opened.
Area Development Franchises
The owners of area development franchises usually have the right to open a certain number of franchises in a given area. The franchisee must follow a set schedule of opening a certain number of franchises in that area during a fixed period. As long as the franchisee follows this schedule, he or she is granted exclusivity of that area, i.e. no other franchisee can open a franchise in that particular area. Area development franchisees typically pay reduced franchise and royalty fees.
The Territory
As long as the schedule of opening a certain number of franchises is maintained, the area development franchisee has exclusive geographical rights to that territory. The territories range from a small city to parts or all of a larger city.
The Owner’s Level of Participation
The owner needs to be involved in the opening of the first franchise and to ensure its success. Thereafter, he or she needs to look for qualified real estate locations to open the next few franchises. Once several franchises are open and functional, the area development franchisee will need assistance to manage the units.
Liquid Capital Typically Required
A liquid capital of $60,000 to $120,000 is required to pay franchise fees as well as for additional start-up capital. The area development franchisee usually finances the start-up cost of each new franchise as it is opened.
Master Franchises
A master franchisee is usually in charge of a large area. The owner of such a franchise has the rights of an area development franchisee and is sometimes called a regional developer. The only difference is that the master franchise owner can sell single-unit, multi-unit and area development franchises and profit from those sales. The master franchisee usually receives part of the royalties paid by each franchise. He or she may also receive additional income from distribution of products through the franchisees in the area and possibly some real estate interests in franchise locations. The master franchisee usually operates at least one unit for generation of income, use in franchise sales and as a training facility. Master franchises are rare, and when they are available, they are usually sold quickly because of the substantial return on investment and multiple revenue streams associated with them.

The Territory
The exclusive territory of a master franchisee is usually a large metropolitan area, an entire state or even several states or countries. The rights will remain exclusive as long as the master franchisee meets the development schedule of franchises in the territory.
The Owner’s Level of Participation
A master franchisee is rarely involved deeply with a single unit. He or she opens and manages a single unit with the help of a manager while mainly selling other “sub-franchises” and helping them to operate properly. The owner’s role is mainly that of a business consultant or a coach to their franchisees to help them become successful.
Liquid Capital Typically Required
Initial liquid capital required to develop a particular area ranges from $100,000 to $250,000. Financing for the start-up of the unit franchise will be secured.
 
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