Choosing to franchise your business and allow someone else to use: your business model, confidential information, intellectual property, et cetera, can be a difficult decision to make. Franchises take many shapes and forms, and some structures may be better for your particular situation than others.
The most common type of franchising in North Carolina is a single-unit structure, meaning that the franchisee owns a single franchise. Buyers of these franchises can range in structure from sole proprietors, partnerships, to large LLCs or corporations.
The other typical form of franchising involves multiple units. Here, another business entity may purchase the right to sell your products or services in multiple locations.
In the single-unit model of franchising, the franchisor sells the rights to use their trademark and business model to a buyer who intends to operate a single location. Usually, a single-unit franchise allows a buyer to keep their costs down in terms of finding a business space, hiring staff, and start-up costs. The franchise agreements governing these single-unit arrangements should reflect what is at stake, so that buyers have full disclosure concerning their financial liabilities and how taking on the mantle of a franchisee may change their lives. In fact, to help many franchisees, these single-unit options provide extensive training and guidance to help the buyer get off on the right foot.
In some cases, businesses may wish to buy the rights to sell a company’s products or services. Here, both parties may benefit from a multi-unit purchase agreement.
A multi-unit franchise agreement allows the franchisee to operate multiple locations using the product or service. This includes the use of an area development agreement outlining business locations to minimize market conflict.
If this type of arrangement is a success, a franchisor’s product may be able to gain increased market penetration and overall profit with less overhead costs for training multiple single-unit franchisees. However, in cases of failing businesses, the reputation of a product may suffer through such a model. It is important to consider the past business dealings of a potential multi-unit purchaser to evaluate whether an agreement for a multi-unit franchise deal is in the brand’s best interest.
Pursuing a franchise agreement with a potential buyer can increase your product exposure and profits with minimal stress on your business. However, it is important to choose a franchise structure that fits your needs and goals.
Most franchises are known as single-unit franchises wherein a franchisor can retain more control over their intellectual property and provide more one-on-one guidance to franchisees. In other cases, a person or business may wish to operate several franchises at once. These multi-unit franchises can increase your profits exponentially, but it may be more difficult to enforce your trademark or contractual rights.