If you're thinking about becoming a franchise owner, chances are you've already done your homework and read everything from franchise contracts to case studies. It's important to understand all the details of a franchise before making a decision. But what is a franchise territory? What factors should it include? Here, we'll outline five things you should know about franchise territories.
The definition of franchise territories
Franchises are a great option for small business owners because they can be started on a small budget. The downside of franchising is that the franchisor has all the control over the business. The franchisor is responsible for training, support, and supplying the business with all the necessary resources to run the business.This means they get all of the benefits (like a storefront and staff) that larger companies enjoy. Depending on the size of your business, there could be very little benefit to franchising. However, for business owners who are limited in their funds, franchises could be a great option. When business owners think of opening a franchise, the first thing they think about is the location—it should be in the best location possible. But if you don't know where to start, you need to research how location affects the success of your franchise. Franchise marketing is one big part of the puzzle. How a franchisor markets the business influences the decision to open the franchise. All franchisors will market the business online, but different ones have to think of different ways. For example, some people will focus on creating a good online reputation for the franchisor. While this approach is good for raising brand awareness, the franchise should also consider other aspects, such as branding. At the end of the day, franchises are not merely paper businesses. They offer real businesses that people feel will give the best experience. The franchisor should schedule a few hours each week to meet with customers and answer questions. Many people want to know how the business conducts business, who will be doing what (if anyone), how employees are trained, and how they maintain a profitable business during busy times. This information is important to know since sizing up the market will either cost more and draw in more competition or help make the franchisor stand out in the competition.
How franchise territories fit into franchising
Franchise territories are the areas within a franchise that the franchisor controls. They are where the franchisor has complete control over the operations and success of that franchise. Franchisees don't own the property in franchise territory. They have no say over the neighborhood, tenants, or other aspects of the local community. With few exceptions, they have no say over the store itself (e.g., landscaping, customer service) or how often or how many stores are opened within that territory. The general public only assumes that franchises are owned and controlled by the franchisor, either directly or through a franchisee. In reality, it's a much more complicated arrangement. Franchisees are franchises. And franchises have many responsibilities and duties—like marketing, operations, and accounting—that exist separately and independently of the franchisor. The important thing to understand is this: Franchises are not an extension of the parent company, nor are they an easy route to profit. What a Franchise Rental Agreement Looks Like Typically, a franchise agreement bears little resemblance to a standard lease agreement. When we form our corporate partners, we ask that our partners' respective franchisees sign a Corporate Membership Agreement (CMA). In the example below, each of the franchisees and corporate partnership signed a CMA each with their partners. This is typical for our corporate partnerships, but many franchisees will skip this step and instead use an At-The-Ownership Agreement (ATOA). Since real estate investors often have multiple businesses and operate several franchises at once, we receive many inquiries from new franchisees asking whether they need to form a CMA with their partners.
Franchise territories and the brand
Franchising can help you reach more people and expand your brand. However, you need to make sure you're treating your franchisees fairly and that they're treated like partners in your business.What is a franchise agreement? When it comes to franchise contracts, the legal concepts vary by state. A franchise agreement outlines the specific terms and conditions that your franchisee has to follow, and may also include limits on liability, financial terms, and other aspects of a good franchise agreement. Some of the questions you can ask in your franchise agreement include: How many doors is my company expected to have at the outset? How much revenue will my franchise income support? How many staff members does my franchise expect to have at the outset? What does my franchisor want out of the agreement? If my franchise is sold to another company who is insubstantial, what makes you feel their ownership will be adequate to run the business more efficiently? What does my franchise mean to my customers? What role will franchisors play in marketing and advertising my business? How often and how will franchisees provide notice of closure? Who pays the franchise fees? What happens if my company closes or I run into financial trouble? What happens if my franchise doesn't make as many sales as we projected? As your franchise agreement can vary, it's important that you clearly define the scope of your franchise agreements both in the pre-signing process and when the franchise is sold (e.g. if your franchise is sold to an outside company, discuss how the agreement can transfer ownership). You'll also want to speak with a local attorney to create your franchise agreement to stay in compliance with state law. Franchises can be complicated, but it's an opportunity for you to create lasting relationships with your franchisees.
Franchise territory agreements
Relating to territory One of the biggest differences between a franchise and a franchise agreement is the ownership of a franchise territory. Often when you hear the terms "franchise territory" or "franchise territory line," you think of McDonalds. They have 199 locations spread over 100 different countries. Don't get us wrong, McDonalds is a franchise. But it's worth noting that each company has unique corporate structure. McDonalds follows a corporate structure that is structured by a "three letter code" called the "McDonald's corporation." There is very little consolidation among these various McDonald's corporations. The majority of McDonalds corporations are four or five members. Many franchisees have separate business structures that mirror the McDonald's corporation model. For example, Chipotle has an easily recognizable eight-member board with three additional seats for angel investors, or Wendy's has six members, one of which is the president. But among their other corporate structure points, Wendy's has five offices: three regional franchisories and three corporate offices. For certain franchises, the destination cities that make up a franchise territory line are much more invested in the success of the franchise than a single location. The success of a franchise, therefore, depends on the success of the territory. A franchise may have success due to certain factors like having at least 500 locations or having the "best" product, but it could be missing some vital element. The franchise may have an advantage in franchise marketing budget, but it appears that they fare poorly when it comes to cleanup costs or an environment that respects the franchise. Another factor so critical in franchise success is making good on promised full-service promises. When it comes to the performance of a franchise or franchise territory, you might find negotiations can be particularly challenging.
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