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Understanding
Franchise Arrangements
When
you decide to become a franchisee it is important to choose which
type of franchise is best suited for your individual needs. It is
very important to choose the right plan for you and this means having
a clear understanding of franchise arrangements.
Factors
which can affect an individual’s decision on which type of
arrangement to choose:
a)
Available Investment
b) Managerial Ability
c) Ambition
For
example if a candidate has money to invest, excellent managerial
skills and high ambition, not wishing to be confined within a school
then a single unit franchise would probably seem limiting and they
would be more suited to an Area or Master Franchise. On the other
hand, if the individual is a teacher wishing to open their own business
and has limited capital then a single unit franchise would be ideal.
Detailed
below are the various types of Franchise Arrangements available
with Alexander Language Schools (ALS), and a clear definition of
each.
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Single-unit
or direct-unit franchises
As a franchisee you will obtain the rights to operate a single unit.
This is the simplest and most common type of franchise arrangement.
Area
development
Franchisees can become area developers either over time (1.21) or
by pre-specifying the number of schools they wish to open. (1.22).
Multiple
single-unit operators
Acquiring schools over time: As one school prospers they venture
into
opening additional schools (single-units).
Over time changes may occur in fees (Initial and/or Continuing),
therefore differences may occur between the agreements signed for
additional schools and the initial single-unit contact. (No changes
will occur to signed/existing contracts).
As a franchiser we have the rights to periodically update the franchise
agreements by means of modifying the following:
1.
Change in the fees, initial/continuing fee or both
2. Franchisee requirements: franchisees may be required to purchase
some additional equipment or invest in new technology,
3. Obligations: changes maybe made to some of the obligations between
the parties,
4. Other Changes: we may make some other changes.
If a contract has been signed then the rules/terms defined at the
time of signing the signing of the contract apply, any changes will
only apply to new contracts signed.
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Pre-Specified Agreement (no. of schools to be opened)
In the case the franchisee will own a number of single units, the
number of schools to be opened will have been pre-specified and
an agreement will have been made to open the schools over a given
time period.
Benefits of pre-specifying the number of schools you will open:
Suppose that you want to open ten schools in your town. If you buy
one franchise at a time, you risk having
to share the market with other franchisees from the system and take
the risk that territories will have been sold before you're ready
to purchase them.
In the case of a ‘Pre-Specified Area Development’ agreement,
we will grant you exclusive rights for the development of locations
in your area, over a given period of time. For example 10 schools
over a 5 year period.
As you identify each location, you will sign a single-unit franchise
agreement. (The rules/terms that will apply for each schools/contract
will be defined by the rules/terms in use at the time of the signing
of the contract).
If you fail to meet the development schedule, the franchisor typically
has the right to cancel the development agreement and keep the area
development fee.
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Master
franchises (Sub-Franchisors)
As
a Master franchisee you will be required to open one school (as
a pilot school). After which you will act as a Sub-Franchisor of
the Franchisor (Alexander Language Schools (ALS)), in a designated
area. You will be required to recruit prospective franchisees and
sell the single unit franchise package. These franchisees will be
your franchisees and thus termed ‘sub-franchisees’.
The ‘sub-franchisee’ will be required to pay you, the
Sub-Franchisor, a franchise fee, a proportion of which will be given
to the Franchisor. The ‘sub-franchisees’ typically will
pay a royalty (continuing fee), which you also share with the franchisor.
The percentage paid to you from the ‘sub-franchisees’
will be dependent upon the type of agreement /contract you sign
with them.
The Franchisor manages the Sub-franchisor who in turn manages the
sub-franchisees ensuring proper establishment and supervision of
the franchise system.
Alternative sources of legitimate revenue are offered to Master
Franchisees.
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