Owning Multiple Franchise Explained - Drumm Law, LLC (2024)

FAQs

What do you call a company that owns multiple franchises? ›

A multi-unit franchise model allows franchisees to operate more than one restaurant unit in a given territory. A franchisee may own the right to operate multiple units of the same brand or operate restaurants for several different franchisors.

A clever business person can certainly own more than one franchise, and there are several ways to go about this. A multi-unit franchise is one in which the franchisee agrees to purchase and run several (or many) franchises of the same type.

The bottom line is there's no (legal) limit to how many business ventures you can start and run. Just make sure that you properly account for your liability risks when structuring these ventures.

Piggyback (Combination) Franchising- “Piggyback” or “Combination Franchising”, as it is sometimes known, is in essence a business within a business i.e. a combination of two franchises operating under the same roof.

Multi-Unit Franchisee: A franchisee who owns multiple franchise business units.

You Still Have Liability in the Franchise Agreement

While the LLC structure limits your personal liability, a franchise agreement may counteract this. Many franchise agreements will force you to accept some level of personal liability to the franchisor, which weakens the corporate shield that an LLC creates.

The main difference between franchising and buying an existing business is the level of control you'll have over your business. A franchise is a business model where one business owner (the franchisor) sells the rights to their business logo, name, and model to an independent entrepreneur (the franchisee).

The Franchise Business Model. A franchise enables you, the investor or franchisee, to operate a business. You pay a franchise fee and you get a format or system developed by the company (franchisor), the right to use the franchisor's name for a specific number of years and assistance.

A franchise is owned and operated by an entity, but it operates under license from the parent company. A corporation runs all of its business locations; it doesn't bring in other companies. A franchise that's incorporated enjoys the same legal protections as any incorporated business.

The bottom line is that while a franchise can make you independently wealthy, it isn't a guarantee. Choosing the right business in the right industry, and going in with preexisting entrepreneurial experience and/or existing wealth can help, but your income-generating potential may still be somewhat limited.

What percentage do franchise owners take? ›

Franchise royalties range from 4% of your revenue all the way up to 12% or more. The amount has to do with the type of franchise business. For example, a food franchise is a high-volume business. A lot of individual items are purchased by a high-volume of customers.

Micro-Franchising is defined as "a small business whose start up costs are minimal and whose concepts and operations are easily replicated” (Fairbourne et. al, 2006). Micro-Franchising is used to increase access to business opportunities that enable people to lift themselves out of poverty.

Sometimes this is a deliberate strategy by the Franchisor called 'churning' – where poorly performing franchises are constantly resold so that the Franchisor obtains the benefit of upfront fees, despite the Franchisees' constant losses.

Reverse franchising is the business format where a number of small firms (or farms) through. collective action create an entity (a firm, a cooperative, a marketing order, a joint venture, a.

The terms franchisee vs franchise aren't opposites. A franchisee buys the right to use a franchisor's business model – including the brand, products, services, and processes – at a specific location and for a set period of time. A franchise is a business formed and run by a franchisee.

There are two main types of franchising, known as Product Distribution Franchising (Traditional Franchising) and Business Format Franchising, which are conducted under a variety of franchise relationships.

A franchisee is an independent business owner who operates a third-party retail outlet called a franchise.

If you own all or part of an LLC, you are known as a “member.” LLCs can have one member or many members. In some LLCs, the business is operated, or “managed” by its members. In other LLCs, there are at least some members who are not actively involved in running the business.

What is an LLC with more than one owner known as? ›

A multi-member LLC, also known as a MMLLC, is a limited liability company (LLC) with more than one member. Limited liability companies are one of the most popular business structures in the United States.

No, a business owner does not get to keep 100% of their business's profits. Before you “pay yourself” from the profits, you must cover all overhead expenses (rent, payroll, inventory, insurance, investments, etc.). It's true that a business can be quite profitable while the owner's take-home pay remains low.

One of the primary motivators for owning a franchise is it allows you to go into business FOR yourself, but not BY yourself. That's because you are buying into a proven business model leveraging an established brand with a built-in customer base.

Most franchise owners don't receive a salary. Instead, your earnings as an owner come from the excess revenue after overhead costs to support the operation of the business are paid.

Ownership Model

Unlike independent business owners, franchise owners don't have the freedom to change their products or services based on their personal desires or changing market conditions. To a large degree, the franchisor (i.e., the parent company) makes the decisions about product lines and other variables.

Owner, as a job title, is earned by sole proprietors and entrepreneurs who have total ownership of the business but do not have to be in charge of company management. The job titles CEO vs. owner, however, are not mutually exclusive — CEOs can be owners, and owners can be CEOs.

Franchising: The Legal Definition

The business must have a substantial association with the trademark of the franchise. The franchisee must pay a continuing and/or initial fee enter and stay in business. The franchisor provides assistance and control over the franchise.

The franchise relationship is based on a contract between the franchisor and franchisee; the relationship is detailed in the franchise agreement, other licenses, and in other documents, primarily the system's operating manual(s). Franchising is not a partnership.

Franchises offer limited liability for the franchisee from any legal suits brought by customers or employees. This means that the franchise owner's personal assets cannot be affected by the outstanding debts of the franchise.

How much does the average franchise owner make a year? ›

On average, typical franchisees make about 80,000 dollars a year, not considering tax and expenses. Only a small part of franchise owners make over $200,000 annually, more than fifty percent of franchisees make about $50,000. The industry you're operating in impacts the amount of profit as well.

We know that the average investment to open a Chick-Fil-A franchise is $1,363,510. Yet in comparison you earn around 15% net profit per year (industry average) ie. $634,000 per year.

A widely publicized statistic from a 1987 International Franchise Association (IFA) study showed that franchises have a failure rate of 5% (which would equate to an unbelievable success rate of 95%).

The average annual income return from the business will be equal to at least 30-50% per year of the total initial investment for the franchise unit. This total investment we're referring to includes all debt and working capital reserves needed to start the business.

Buying a franchise might seem like easy money, but those royalties and fees will quickly cut into profit margins. The majority of franchise owners earn less than $50,000 per year.

If you don't have the capital to start the franchise on your own, consider bringing on a partner who can finance the project. An investor can be a friend, family member, or even an old work colleague. However, if you choose this route, be aware that you're giving up partial control of the business.

A franchise operates in a completely different manner than an MLM company. The two business models are hardly comparable. With a franchise, the franchisee or investor pays a franchise fee and gains the right to use the franchise name for a set amount of time.

Cost benefits

Another advantage to buying a franchise is somewhat counterintuitive: Franchises can be less expensive to open than independent businesses. It's hard to believe -- as a franchisee, you have to pay a franchise fee of $25,000 to $50,000 or more.

FDD Item 19 is the section of the Franchise Disclosure Document where franchisors must disclose their financial performance representations. If a franchisor elects to make a financial performance representation, it must be fully disclosed in Item 19 and must comply with federal and state franchise laws.

There are primarily two types of multi-unit franchise agreements: (1) area development agreements; and (2) area representative agreements (also known as master franchise agreements).

What business structure is best for a franchise? ›

Setting up a proprietary limited company to operate a franchise will protect your personal assets, as a company is a separate legal entity. It is capable of owning its own assets and liabilities and entering into contracts on behalf of the franchise.

Liquidity includes personal cash, cash in a business bank account that is owned 100% by guarantors, marketable securities not in retirement accounts, retirement funds (if reached retirement age), or home equity lines of credit.

Dual branding is when two or more franchises set up shop beside one another or within one another. Can you think of any high-bred franchises you've seen?

There are strict regulations on what a franchisor can say, so finding that information outside the FDD is a franchise red flag. Another franchise red flag is if the franchisor suggests or points to particular franchisees that you should speak to in order to get an idea of how the franchisees are doing.

The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market. You may find that after some time, ongoing franchisor monitoring becomes intrusive. The franchisor might go out of business.

franchiser. noun. a business that sells franchises.

A multiunit enterprise is a geographically dispersed organization built from standard units (stores, restaurants, or branches) that are aggregated into larger geographic groupings (districts, regions, and divisions).

A subsidiary is a legally independent company owned by a parent or holding company. A franchise is a privately owned small business that contracts with a larger company to sell the corporation's services or products and use its intellectual property (e.g., trademarks, copyrights).

What are the four 4 types of franchise? ›

The five major types of franchises are: job franchise, product franchise, business format franchise, investment franchise and conversion franchise.