While master franchising offers exciting expansion opportunities,  it’s crucial to explore essential considerations like cost, localization,  legal requirements, and time frames to ensure your franchise  is prepared for a successful venture into new markets.

BY NICK EMPSON, BUSINESS COACH AND FRANCHISE CONSULTANT,  LEVEL UP BUSINESS COACHING & CONSULTING

If you’ve read my previous article, “6 Benefits of Master Franchising,” you’ll notice I’ve spent some time promoting master franchising. I’ll admit it: I’m biased. I truly believe that it’s a wonderful model and a fantastic way to expand your business internationally. However, that doesn’t mean that it’s the right model for every business, nor every business owner. Today, we’ll explore how you can avoid the pitfalls of master franchising. Some may discourage you from trying this endeavour altogether, but it’s my hope that it will instead leave you feeling better prepared so that you can make an informed decision about whether master franchising is right for you and your business.

Cost

Master franchising and the preparation required to enter another country can quickly get expensive. You should first consider protecting your intellectual property (IP). Do this by kicking off the registration for your trademark (TM) and other content you want to protect (wordmarks, logos, etc.). Alongside this, you should investigate registering the domain for that particular country. Some are more costly than others (especially a .com domain), but these cannot only protect your brand but also add real value. Lastly, consider if there are disclosure requirements (franchise dis closure document or equivalent) in the country that you’re looking to enter, alongside getting your franchise agreement localized and customized. This alone could cost you upwards of $20,000. I even saw a quote once for $50,000 USD!

The key consideration here is to do your research and look into the costs first. They might be prohibitively expensive, preventing you from moving forward. You should also do this before sending any quote out to a prospective master franchisee. The last thing you want is to provide a quote to someone who eagerly accepts, only for you to then find out that it’s going to cost double the amount to get the legal work done. *Facepalm emoji*. Localization

When entering into a new country or market, you have to be adaptable, make changes, use different equipment or ingredients, etc. Providing a local variation on your main product or service offering is acceptable, but only if it doesn’t fundamentally change your core business. This is critical. Your brand, model, and whole business have been built around who you are and what you offer. While localization is fine, don’t lose sight of who you are. Also, don’t allow someone else to buy into the business and change who you are in that market. If I had a dollar for the number of times I’ve heard a struggling franchisee say, “But my area is different,” I’d be… well, you get the picture. Lots of areas are different. Applying a local touch is fine, but the fundamentals of your model and the “why” of your existence need to remain the same across the entire company.

This point, like the first one, requires research into the market before you decide to go ahead. You don’t necessarily need to do this all yourself—it actually makes sense to ask a prospective buyer to provide you with a business plan, showing you their projections and how they think they will proceed. They should be happy to do this if they are keen. In fact, this can be an effective litmus test for just how serious they are about the opportunity. I’m not suggesting that you ask them to do all the work for you—that wouldn’t be fair. But doing some research and asking the local prospective franchisee to fill in some gaps in your knowledge could be a good way to start the relationship.

In some instances, based on your findings, you may decide that the market is not viable to enter. Perhaps you simply can’t source the ingredients needed to make the specific food for your restaurant business, or perhaps the concept simply doesn’t fit that particular country. Whatever the reasons, undertake preliminary research into the new market first, then work with third parties to understand what localizations are necessary.

Legal requirements and currency

Similarly, the legal requirements in other countries can be complicated. This applies to both franchising regulations and just plain ol’ regular government regulations. It’s important to understand whether you can fundamentally run your business in the target country. How easy is it, and what are the costs of setting up a limited company and a bank account? How easy is it for franchisees to process payments in the country, and how will you get your money out of the country? What currency is best for you to receive your money in? The local currency? Or another, more liquid currency, like USD? Furthermore, some countries legally don’t allow anyone other than a citizen of that country to establish a limited company. Once again: research, ask lots of questions, and find out the true viability before proceeding.

Time frames

It may take longer than expected to set up in a new country. Going backwards and forwards with lawyers to get the master franchise agreement right is something that should not be rushed—not to mention taking your time with your sales process and negotiation to ensure that you get the best person on board. Additionally, getting a TM registered can take as long as six months or more. You can still move forward with a prospective franchisee and sign the franchise agreement, as long as you’ve communicated to them and documented that the TM is pending. In some markets, the TM must be registered by a local resident with a local address. If there is no way around this, you can proceed, but it’s a calculated risk.

Get it in writing, properly documented, and signed off by all parties involved that, once the TM is registered, it will be transferred to the company. The same can also be said of domain names, so take a similar approach. With both elements, speak with a lawyer and take professional advice before going ahead.

The bottom line

Master franchising can be a great way to expand your business overseas, but it’s not for everyone and might not suit all business models. As with every major decision in business, you should take advice, review all options available to you, and take calculated risks. By carefully weighing your options and getting some solid advice, you’ll be in a better position to decide if master franchising is the right move for you and your business.

ABOUT THE AUTHOR

Nick Empson is a qualified business coach, experienced franchise consultant, and world traveller. With a passion for working alongside franchisors to help them take their business to the next level, he focuses on operations, vision, strategy, scaling up, and international markets. Nick has 18-plus years of experience in franchising, including a significant tenure at a multi-award-winning global franchise brand, seeing it grow from a dozen units in one country to over 330 units across 30 countries. Learn more at www.levelupbcc.com.