Many franchise consultants shy away from such advice as securing master franchises as a plan for expansion with a new franchising company. This is because the legal issues and the litigation are tough to deal with and for that kind of liability there just is not enough money in it. Plus most franchisor later regret giving away that much of he pie or they have one or two master franchise failures which brings down the whole system due to bad PR and litigation costs.

One method considered for our company was to set up regional team partners and use existing franchisees already under the franchise agreement to assist in regional expansion. But we decided to make them managers rather than master franchises, regional franchises, sub-franchisors or partners. It turned out we were right as we made the rapid expansion term of only 2-years to the regional team managers incase they under performed or failed to assist us in opening new units. Several underwhelmed us, yet as a whole the program worked and added many units each year in many different regions.

This is good as the goal of a franchisor is to expand. Below is the list of stipulations I put forth to insure that everyone had a fair chance in the agreement;

Regional team manager understands and acknowledges that the following requirements must be met in order to qualify as the regional team manager:

(A)The regional team manager must, at the time of such assignment, be financially responsible and economically capable of performing our objectives in this Agreement and in our business development plan.

(B) The regional team manager must expressly assume and agree to perform such obligation and sign a binding agreement with us.

(C) The regional team manager must be trained and pass our special regional team manager training course.

(D) The regional team manager must be competent and subject to a thirty (30) to sixty (60) day review by us before assignment as the regional team manager.

(E) The regional team manager must run their own The Company franchise for at least one month prior to assignment as the regional team manager.

(F) The regional team manager must own and run a company store unit for the duration of their franchise in a specifically designated territory other than another franchisee’s territory but in their exclusive territory.

(G) The regional team manager must be able to provide all on-going support items to the franchisees listed in the Franchise Agreement.

(H) The regional team manager must attend any formed franchisee organization, union or association meetings in their exclusive territory, which have been officially recognized by us, providing that you want them to be there and of which you are a member.

(I) The regional team manager must maintain on hand at least one area representative and one loaner truck for every twenty (20) franchisees in their exclusive territory.

(J) The regional team manager must sign a non-competition agreement with franchisees not to operate their company store in a franchisee’s exclusive territory unless they have been asked to by the franchisee in case of vacation or injury. For this Agreement to be in force the regional team manager must meet all ten (10) of the above requirements.

In addition to the termination provisions in the Franchise Agreement described in Section 7.1, 7.2 and 7.3, regional team manager will be in default of this Agreement and this Agreement will terminate if five (5) or more franchisees transfer or fail in the regional team member’s exclusive territory within a twelve (12) month period.

This Agreement will remain in force until Franchisor and the regional team manager mutually agree to terminate this Agreement as long as the regional team manager is in good standing and has not violated their The Company Franchise Agreement in any way. Regional team manager will be in violation of this Agreement if they are sixty (60) days or more in arrears with any monies owed Franchisor.

If a franchisee from the regional team member’s exclusive territory contacts The Company with service problems from the regional team manager, The Company will contact the regional team manager to help solve the problem. If The Company has to service the franchisee, the regional team manager will be billed for the service to their franchisee from The Company.

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Perhaps this might give you your own ideas of how best to rapidly expand your system without getting into the problems of master franchising. Of course I am not a professional parasite attorney so you will have to go pay one $300 per hour to look at such a scenario for you if you think this might be a potential expansion idea for you like it was us and so consider this in 2006.

Lance Winslow

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