In my over three decades of experience as a franchise consultant, I am often asked about methods for franchising your business.

There are three different ways to franchise your business:

  1. Individual franchises
  2. Area development franchises
  3. Master franchises

Each of these methods to franchise your business requires a different Franchise Agreement. Each way to franchise your business has benefits and drawbacks.

With individual franchising, you franchise your business by signing a Franchise Agreement granting the franchisee the right to operate one franchise, usually within a specific territory.

Of course, you may sign additional individual Franchise Agreements with a franchisee, each allowing him or her to open an additional franchise.

The strengths of the individual unit approach when you franchise your business include:

  • Usually, an owner-operator is the most motivated manager because his or her family’s future is tied to the success of the one unit;
  • You can determine if the particular franchisee is able to open and operate multiple locations before granting the right to do so. After this right is contracted, it can be very difficult to revoke;
  • Selling individual franchises allows you to more effectively manage the growth of your franchise program at the outset, the most critical time when you franchise your business;
  • If you find a franchisee to be difficult, your problems are limited to a single unit;
  • Far more people can open and operate one location than those who have the financial and managerial resources to open multiple units;
  • Often, franchisee-operated locations are more profitable because they eliminate the cost of one manager, a higher-paid employee; and
  • Selling a limited number of individual franchises at the beginning of your franchise program gives you the opportunity to learn how to be a good Franchisor without the burden of having to train and support large numbers of locations.

The cons of the Individual Franchise Agreement include the following:

  • Individual franchising may lead to slower overall growth when you franchise your business – both a benefit and a drawback;
  • Having more franchisees may ultimately make it more complex to manage the franchise company; and
  • Selling, training and servicing individual locations can be less efficient.

When you choose among the different ways to franchise your business, you must careful explore which type of franchise structure best meets your goals.