Multi-Unit Franchise Agreement
Franchise Law Attorneys
Franchising is for the adventurous entrepreneurs, for it requires an amount of committment and decision that are not frequently found. To buy one franchise is challenging enough, so entering a multi-unit franchise is truly for the bravest.
Our franchise attorneys in Motiva Business Law appreciate the value of franchisees who want to commit to such a hefty labor and help them make the franchising process a lot easier. By writing, negotiating, and reviewing Multi-Franchise Agreements, our lawyers will ensure you get the best terms out of this deal and that your investment is protected.
Motiva Business Law Offers
- Multi-Unit Franchise Agreements
- Area Development Agreement
- Area Representative Agreement
- Sub-franchise Agreement
- FDD
What is a multi-unit franchise agreement?
A multi-unit franchise agreement is a contractual arrangement between a franchisor and a franchisee that allows the franchisee to open and operate multiple units or locations of the franchised business within a specified territory.
The multi-unit franchisee will be responsible for developing and running each unit, either directly or by hiring a management team. A multi-unit agreement contract typically allows you to benefit from lower franchise fees and royalty rates per unit
Types of multi-unit agreement
There are three types of multi-unit agreements in which you can enter:
- Area development agreement: This agreement is the most basic and widely multi-unit franchising model. Basically, an area developer is a typical franchisee but with the right to operate more than one unit franchise. In an ADA, the franchisee is usually obligated to open and operate the agreed-upon number of units within a designated timeframe, adhering to the franchisor’s standards and operational requirements. In an area development agreement, the franchisee directly operates all the units that they had settled in the area.
- Area representative agreement: An area representative agreement, on the other hand, allows the representative to assist in the development of the brand within a specific territory by identifying and recruiting new franchisees, but they do not establish or operate their own units. The representative may also provide ongoing support and guidance to the franchisees within their designated area.
- Master Franchise Agreement: Also called Area Representative agreement, is a contract that allows subfranchising, which means the franchisee acts as a franchisor and opens new locations in a specific area by recruiting independent franchisees. In an MFA, the master franchisee will be responsible for recruiting and supporting individual franchisees, collecting fees from them, and sharing a percentage with the main franchisor.
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How to enter a multi-unit agreement
You can enter a multi-unit agreement either by starting with just one unit and eventually opening more locations or signing a multi-unit franchise agreement from the start. This is the typical process for entering these kinds of agreements:
1. Submit your application: After finding the ideal franchise opportunity, fill out the form to express your interest in entering a multi-unit franchise agreement.
2. Initial discussions: Interview the franchisor to have a better understanding of the franchise model, financial requirements, development schedule, and support. The franchisor will also ask questions to verify if you are a good candidate.
3. Review FDD and Multi-Unit Franchise Agreement: The franchisor will provide you with a Franchise Disclosure Document (FDD) that contains detailed information about the franchise opportunity, including the terms of the multi-unit agreement, initial investment requirements, fees, and other essential disclosures. You will also receive a separate document with the multi-unit offering. You will have 14 days to review the document before you need to decide on entering the agreement.
4. Sign the Multi-Unit Franchise Agreement: Once you have reviewed the FDD and ensured you are about to enter a profitable investment, you will sign the Multi-Unit Franchise Agreement.
5. Set up your locations: Depending on the terms of the agreement, the franchisor can assist you in setting up the locations by selecting the place and negotiating the lease agreement, or you may have to do it yourself. Now you can start setting each unit according to the assigned schedule, which is regularly a year in between each outlet.
What should you consider before entering a multi-unit franchise agreement?
Some of the key provisions you should carefully review before entering the franchise agreement are the following:
- Fees and royalties: Understand what will be the revenue-sharing model, including the fees and percentage of royalties you should pay.
- Operating schedule: The established timeline in which you should open the additional units
- Support: The assistance the franchisor will provide, such as help with building the new locations, marketing and advertising, software, and more.
- Territory: The assignated area in which you will be able to operate in and if you have exclusivity rights.
Benefits of a multi-unit agreement
- Economies of scale: By having multiple locations, you will be able to reduce the costs of operations, marketing, and accounting.
- Higher profits: Receive more income by benefitting from different revenue streams.
- Diversification: With multiple units at your disposal, you are not reliant on just one location. When the performance of an outlet is affected, you can offset potential losses.
Hefty investments require extra diligent attention
Multi-unit franchise Agreements are promising opportunities but also entail risks that only the sharp eye of an experienced franchise attorney can spot.
Our franchise law attorneys at Motiva Business Law will review your franchise documents and agreements to ensure you are about to enter an advantageous deal. Our lawyers will analyze the required investment, territorial rights, and timeframe included in the agreement and ensure they are written in your best interest.
We know joining this franchise is a time-sensitive matter. Our attorneys are responsive and agile to ensure you have enough time to understand the implications of the agreement and make an informed decision.
Motiva Business Law’s franchise attorneys will guide you through the complexities of multi-unit franchising. Their expertise in this area, combined with their commitment to providing personalized and strategic legal counsel, makes them the top choice for individuals and businesses looking to thrive through the world of franchises.
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Multi-Unit Agreements FAQ
In both franchise contracts a franchisee is able to open multiple locations in a specific area according to a schedule. However, while in an ADA the area developer has to directly operate the opened locations, a MFA’s master franchisee is able to recruit independent franchisees for them to manage those locations and collect fees from them, sharing a profit with the main franchisors.
Multi-unit franchises require a considerable amount as an initial investment, compared to a single-unit franchise. This agreements also require acute management skills and larger business experience, as well as meticulous strategic planning to succeed.
Before deciding to enter a multi-unit agreement, you need to consider your financial capacity, risk tolerance, business experience, and leadership style. It is key to ask yourself whether you have a sufficient net worth, if you will require financing, and if your goals are realistic,