Four Types of Franchise Arrangements: What You Should Know

Franchising has become a popular option for entrepreneurs because franchisors provide ongoing support to many of the challenges faced by small business owners. As long as you can run the place effectively, you’ll find success in no time.

However, what many people don’t know is that there are multiple levels of agreements you can make with the franchisor beforehand. They will grant you more freedom and control as you move up through each level of agreement. If you are curious about what you should know about the four types of franchise arrangements, we’ve got just the information you’re looking for.

Single-Unit Franchise

Let’s start with the simplest arrangement: the single-unit franchise. This will be the starting point for most aspiring entrepreneurs. The agreement states that you have the right to use the franchisor’s brand to build and operate a single unit in a given location.

In addition to making the entrepreneur’s life easier, it also makes it possible for the parent company to assess the entrepreneur’s skills and capability.

Of course, it is still necessary to raise the capital for buying the franchisor’s naming rights at this stage. If you’re in need of start-up small business funding to run your own small business and are interested in hearing more about our funding options, learn more here.

Multi-Unit Franchise

After you’ve proven yourself as a trustworthy and hardworking franchisee, your parent company will likely allow you to upgrade to a multi-unit franchise. This arrangement is similar, except you’ll open and operate multiple locations at once. These stores typically aren’t bound to a specific territory, but you’ll need to adhere to guidelines set in place by your franchisor or higher-up franchisees.

Area Development Franchise

You can reach an area development franchise after having a multi-unit one, but skilled entrepreneurs can also skip to this level after completing the single-unit level. Area development franchises are similar to multi-unit ones, except this level gives you exclusive rights to build new locations in an assigned territory. While this limits your expansion in a way that multi-unit franchises do not, it gives you the huge advantage of no nearby competitors.

Master Franchise

In this list of what you should know about the four types of franchise arrangements, one option stands well above the rest: the master franchise. This is not an easy one to gain access to, but it’s every franchisee’s dream. The reason for this is that you essentially become a mini-franchisor at this level.

Franchisors give you the right to sell franchises to other people within your geographical sector, and you will be the primary beneficiary of their franchise fees and royalties. The downside is that you’ll be the sole provider for your franchisee’s training and financial support, but the positives greatly outweigh the negatives in this case.