Different Types of Franchise Ownership

franchise ownership

Your Guide to Franchise Ownership

There is an estimated 775,000 franchise establishments in the U.S., and that number continues to grow. Why? Because the franchise model works! By leveraging a proven system, support and training, you can step right into a franchise business much more seamlessly than starting from scratch. But you have to do your due diligence... and that's where the IFPG Franchise Buyer's Guide comes in.

By arming yourself with knowledge and information, you can be well on the way to a new path as a franchise business owner. We have you covered every step of the way!

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With All the Different Types of Franchise Ownership, Where Do You Start?

There are different types of franchise business ownership models to suit just about anyone. But with literally thousands of franchising opportunities to choose from, how do you pick? There are several aspects of your life that have to be considered before you buy a franchise.

Do you want to own a franchise business full-time or part-time? Do you want to own one unit or several? How much of your money and energy are you willing to spend on the franchise? Whether you are a corporate type looking to leave the 9-5 grind or a single-mother turning a side hustle into a business, owning a franchise business is a viable option for many. 

There are different types of franchise ownership depending on the amount of units you want to buy:

Single-Unit Franchise Ownership

For entrepreneurs who want to own a franchise, investing in a single-unit is the easiest way to get started. A single-unit franchise usually includes a protected territory, which can be measured by miles or population, depending on the brand. Single-unit franchisees are usually the owners/operators, so they can work on-site or in the field. Additionally, single-unit franchises can start off as small operations and can be scaled in different ways, such as by adding vehicles (for service-based franchises) or by hiring more employees.

This type of franchise ownership is especially common for newbies to the franchising industry. With only one unit, the franchise owner will gain a lot of experience by being heavily involved in the operation of the franchise business. You can build the franchise business from scratch or buy an existing franchise unit. Buying an existing franchise location can save you on startup costs and construction time. In addition to lowering the franchise cost, a study from the Palm Beach Atlantic University’s Rinker School of Business shows that franchise resale prices are higher when compared to non-franchise resales. That’s important to keep in mind when you consider an exit strategy.

Multi-Unit Franchise Ownership

Multi-unit franchisees own more than one location. This allows them to share resources among locations. Franchisees should be business-minded and growth-driven. They need to hire employees and managers to take over some of the daily operations. A benefit of owning multiple units is that they are usually sold at a reduced rate-per-unit, lowering the overall cost of your investment.

The franchise owner will also likely be the owner/operator of their main unit and have semi-absentee ownership of the other locations. This means that the semi-absentee franchise owner will not be involved in the daily operations of the other franchise stores and treat it like an investment. Entrepreneurs who want to open a franchise will find it beneficial to open multiple units.

Area Developer Franchise Ownership

An area developer agrees to open a certain number of units in a territory for a franchisor. This is beneficial for franchisors because the area developer exerts their own resources and efforts to build their area. The franchisor also provides training and support to the area developer, who in turn pays fees.

The area developer is similar to a multi-unit franchise owner because both own multiple locations; however, the area developer just has more units that encompass a larger territory.

Master Franchisee Ownership

A master franchisee is the representative of the franchisor in a specific area, which can be a region or an entire country. The master franchisee can be thought of as a “mini franchisor” since they receive fees from the individual franchisees in their territory. The territory of a master franchisee can include dozens or hundreds of outlets. A master franchise owner could also be considered a sub-owner of a brand, as they bought the right to sub-franchise in a certain area. Master franchisees also help the parent company find entrepreneurs who want to open a franchise with the brand.

As you can see, there are many ways to own a franchise, but there’s even more to consider…

Type Of Franchise Ownership

Absentee Franchise Ownership

By definition, an absentee franchise owner legally owns the unit without actively managing it. They aren't involved in the daily operations of the business. This type of ownership depends on the franchisor. Nearly a quarter of franchises don’t actually allow for this kind of ownership. Industries best suited for this type of ownership include daycare centers, day spas, hair care, and food franchises.

Athletes find this type of franchise ownership to be beneficial for them because they can buy a franchise while continuing to play their sport or use it as a stream of income during retirement. This type of ownership allows them to use the business as an investment and not a lifestyle change.

Semi-Absentee Franchise Ownership

A semi-absentee franchise owner can check in on their franchise business while having ample time to pursue other business opportunities. This is a hands-off kind of franchise ownership, but it is a great way to make money while still working a day job or functioning as a multi-unit franchisee. Business areas suited for this type of ownership include ice cream franchises, tanning franchises, car wash franchises, and salon franchises.

Entrepreneurs who want to open a franchise using this type of ownership usually rely on the assistance of a manager. The manager will deal with the daily operations of the franchise store while the semi-absentee franchise owner keeps their day job and supports the business financially. If owning a business while still pursuing other opportunities sounds attractive to you, then this type of ownership could work.

Owner/Operator Franchise Ownership

Owner/operator franchisees are heavily involved in the daily operations of the business. These franchisees want full control over their investment and consider running the franchise a career. Typically, owner/operators are single unit franchisees.

This type of ownership will help the franchise owner learn the ropes of the industry, especially if they don't have prior franchise business experience. While being the operator of a franchise store or other business takes up a lot of your time, this type of franchise ownership is great for those who are looking for a career change.

Which Business Franchise is Best For Me?

The options and opportunities in franchise ownership can be head spinning. Before choosing a franchise, seek the advice of a franchise consultant. Franchise consultants offer the guidance necessary to decide if franchising is right for you and what kind of franchise ownership best suits your skills, interests, budget, and lifestyle.

These professionals connect entrepreneurs who want to open a franchise with franchisors. The franchise consultant will meet with a prospective franchise owner and discuss their skills, financial situation, goals, and more. The franchise consultant only gets a commission when entrepreneurs buy a franchise. At no cost to you, they will explain to you how to buy a franchise and help you narrow down your list of the best franchising opportunities . They have deep knowledge of how owning a franchise changes lives and will work to help you find your ideal franchise business. 

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